Bill Ackman: Betting big on tech cash cows after Pershing Square underperformance

Thank you.

Sure. So fundamentally we're value investors but not by maybe a conventional measure. Some people think of value investors as only buying low PE stocks or stocks trading at a discount to book value. Value is the present value of the cash it generates over its life. Growth plays a very meaningful role in that. We describe ourselves as high quality durable growth investors. In terms of your characterization of our portfolio, I would say we own some of the highest quality durable compounders at amongst the lowest valuations they've traded at in their respective histories. I think it's quite a good moment to be owning durable compounders while the market's attention is taken to the AI race, chip companies, semiconductor manufacturers, etc.

Yeah. The vast majority of our capital is invested in these very high quality durable growth companies. Hertz got on the radar at a time we were looking how to hedge the risk of Trump putting tariffs in place, pre the Liberation Day tariffs. What company would be a beneficiary of tariffs? Hertz came into view. The interesting thing about the business is Hertz is really two companies: an asset owning company that owns a lot of cars financed with a lot of securitized debt, and an operating business of renting those automobiles. The asset-heavy part of the business got them into trouble because of a bad strategic decision to go long Teslas. They suffered the big decline in residual values of Teslas as Elon reduced the price. That forced the company into a very challenging position. The stock crashed. At the time of our investment, the stock was around $3 a share. It was a very levered bet on either asset prices of used cars increasing and their operating business turning around. We thought both were good bets. The tariffs made used cars much more valuable because they became more competitive against new cars, which helped the residual value of their auto portfolio. When you have a levered collection of cars and the car value goes up, that creates excess value that inures to the benefit of the company. The company had a recap because of the destruction in value that had taken place. A new management team was put in place replacing the one that made some of the mistakes, and we felt they had an ambitious but credible turnaround plan. The stock offered a levered bet on that outcome. The vast majority of our investments are in companies with very strong balance sheets, dominant market positions, and very little financial risk. Hertz offered a fair amount of financial risk but an asymmetric upside if they were successful in executing a plan, and we felt we could help them on the balance sheet side. That was the thesis behind the investment. The stock is up approximately two times since our original investment.

It's still early and we think the company's making good progress. There's a blue sky upside in the autonomous vehicle space. The Waymos of the world don't have the infrastructure to maintain a large car fleet. Hertz has enormous experience in that regard. That infrastructure could become very valuable to autonomous vehicle fleets. Putting that aside, at the time of our investment this was potentially a six- or sevenfold return, something approaching a $20 stock from $5 or $6 a share. We still think there's significant upside and the financial risk has been reduced dramatically by good decisions on the part of management.

I would say not so slight a pullback. Microsoft's down something like 40% from the highs, which brought it into a very compelling valuation, and Meta something similar.

We do.