[User] Please transcribe this text

[Assistant] Um, all the various app, you know, applications, you know, email and otherwise, uh, and the kind of the Google suite of products, it's an incredible data set. So they have more training data than pretty much any company in the world. They have incredible engineers. They have enormous financial resources. Uh, so that was kind of the bet and, um,


[User] Please transcribe this text

[Assistant] We still think it's probably the cheapest of the big seven companies in terms of price you're paying for the business relative to its current earnings.


[User] Please transcribe this text

[Assistant] It also is a business that has a lot of potential for.


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[Assistant] Efficiency, you know, sometimes when you have this enormously profitable dominant company.


[User] Please transcribe this text

[Assistant] All of the technology companies in the post-March 20 world, uh, grew enormously in terms of their teams and they probably over-hired. And so you've seen some, you know, the Facebooks of the world and now even Google.


[User] Please transcribe this text

[Assistant] Starting to get a little more efficient in terms of their operations. So we paid a low multiple for their, the business. Uhm, one way to think about the value of the business is the price you pay for the earnings.


[User] Please transcribe this text

[Assistant] Or alternatively, what's the yield? If you flip over the price over the earnings, it gives you kind of the yield of the business. So a 15 multiple is about a, almost a seven and a half percent yield. And that earnings yield is growing over time as the business grows. That's a, you know, compared to,


[User] Please transcribe this text

[Assistant] Uh, what you can earn lending your money to the government, you know, 4%, that's a very attractive going and yield. And then there's all kinds of what we call optionality in all the various businesses and investments they've made that are losing money. We've got a cloud business that's growing very rapidly, but they're investing basically a hundred percent of the profits from that business and growth.


[User] Please transcribe this text

[Assistant] In that earnings number, you're not seeing any earnings from the cloud business and they're one of the top cloud players. So very interesting.


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[Assistant] Generally well managed, uh, company with incredible assets and resources and dominance, uh, you know, and it has no debt. It's got a ton of cash and so.


[User] Please transcribe this text

[Assistant] Business investing is about finding companies that can't be disrupted. AI is the ultimate disruptible asset, uh, or technology and.


[User] Please transcribe this text

[Assistant] That's what makes investing treacherous is that you own a business that's enormously profitable. Management gets, if you will, fat and happy and then a new technology emerges that just.


[User] Please transcribe this text

[Assistant] You know the incoming you know it's a bit like you know buffett talks about a great business like a castle surrounded by this really wide moat but you have all these barbarians trying to get in and steal the princess.


[User] Please transcribe this text

[Assistant] And that's why we have tended to stay away from companies that are technology companies, because technology companies generally, the world is such a dynamic place that someone's always working on a better version. And you know, Kodak was caught up in the analog film world, and then the world changed.


[User] Please transcribe this text

[Assistant] I would say some combination of embarrassment and pride are huge motivators, uh, for everyone from Sergey Brin, you know, to the management of the company.


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[Assistant] Drive all human behavior, uh, and that certainly applies in the business world. So understanding the people and what drives them and what the actual financial and other incentives of a business are very important, uh, part of the analysis for investing in a company.


[User] Please transcribe this text

[Assistant] And you can learn a lot. You know, I mentioned before one great way to learn about a business is go back a decade and read everything that management has written about the business and see what they've done over time. See what they've said. You know, conference calls are actually relatively recent. When I started in the business, there weren't conference call transcripts. Now you have


[User] Please transcribe this text

[Assistant] A written record of everything management has said in response to questions from analysts at conferences and otherwise. And so just, you learn a lot about people by listening to what they say, how they answer questions.


[User] Please transcribe this text

[Assistant] And ultimately their track record for doing what they say they're going to do. Do they under promise and over deliver? Do they over promise and under deliver? Uhm, do they say what they're going to do? Do they admit mistakes? Uhm.


[User] Please transcribe this text

[Assistant] Do they build great teams? Do people want to come work for them? Are they able to retain their talent? Uhm, you know, and then part of it is do they, how much are they running the business for the benefit of the business? How much are they running the business for the benefit of themselves?


[User] Please transcribe this text

[Assistant] This very senior management matters enormously. You know, we use the Chipotle example, uh, Steve L's great entrepreneur business got to a scale. He really couldn't, uh, run it. We recruited a guy named Brian helped a company recruit a guy named Brian nickel.


[User] Please transcribe this text

[Assistant] Uh, and he was considered the best person in the quick service industry. He came in and completely rebuilt the company. Actually, we moved the company. Tripoli was moved to California.


[User] Please transcribe this text

[Assistant] And then you can kind of reboot the business, but a great leader has great followership. You know, over the course of their career, they'll have a team they built that will come follow them into the next opportunity. Uh, but the key is, you know, really the top person matters enormously, uh, because, and then it's who they recruit.


[User] Please transcribe this text

[Assistant] Uh, you know, you recruit an A plus leader and they're going to recruit other A type people. If you recruit a B leader, you're not going to recruit any great talent beneath them.


[User] Please transcribe this text

[Assistant] Sure, so most of what I've learned in the investment business I've learned from Warren Buffett. He's been my great professor of this business. My first book I read in the business was the Ben Graham Intelligent Investor, but fairly quickly you get to learn about Warren Buffett and I started by reading the Berkshire Hathaway annual reports.


[User] Please transcribe this text

[Assistant] Uh, and then I eventually got the Buffett partnership letters that you could see, uh, which are an amazing read to go back to the 19, mid 1950s and read what he wrote to his limited partners when he first started out and just follow that trajectory over a long period of time. So what's remarkable about him is one duration, right? He's still at it at 93.


[User] Please transcribe this text

[Assistant] Uh, you know, to, uh, you know, it takes a very long term view.


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[Assistant] Uh, but a big thing that you learn from him investing requires this incredible dispassionate, uh, on emotional quality. You have to be extremely economically rational, uh, which is not.


[User] Please transcribe this text

[Assistant] Uh, a basic, it's not something you learn in the jungle. You know, I don't think it's something, you know, if you think about the, the, uh, the, you know, surviving the jungle, uh, you know, the lion shows up, uh, you know, you, and everyone starts running, you run with them.


[User] Please transcribe this text

[Assistant] That does not work well in markets. In fact, you generally have to do the opposite, right? When the lemmings are running over the cliff, that's the time where you're facing the other direction and you're running the other direction, i.e. you're stepping in, you're buying stocks at really low prices. Buffett's been great at that and great at teaching about what he calls temperament, which is this sort of


[User] Please transcribe this text

[Assistant] To be able to dispassionately look at the world and say okay.


[User] Please transcribe this text

[Assistant] Is this a real risk? Are people overreacting?


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[Assistant] I think it's something you kind of learn over time. Uh, a key success factor is you want to have enough money in the bank that you're going to survive, uh, you know, regardless of what's going on with volatility in markets. You know, people who, uh, one, you shouldn't borrow money. So if you borrow money, you own stocks on margin.


[User] Please transcribe this text

[Assistant] Markets are going down and you have your livelihood at risk. It's very difficult to be rational. So key is getting yourself to a place where you're financially secure. You're not going to lose your house, right? That's a kind of a key thing. And then also doing your homework. You know, stock prices, stocks can trade at any price in the short term. And if you know what a business is worth and you understand the management, you know it extremely well.


[User] Please transcribe this text

[Assistant] It's not nearly as, uh, it doesn't bother you when a stock price goes down or it has much less impact on you because you know, you know, again, as, uh, Mr. Graham said, you know, the short term, the market's a voting machine. You have a bunch of lemmings voting one direction. That's concerning, but if it's a great business.


[User] Please transcribe this text

[Assistant] That's not a lot of debt and people can just listen to more music next year than this year. You know, you're going to do well. Uh, so it's a bit some combination of being personally secure.


[User] Please transcribe this text

[Assistant] And also just knowing what you own, uh, and over time you build, uh, uh, calluses, I would say.


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[Assistant] I think, uh, now I'm a pretty emotional person, I would say, or I feel pretty strong emotions, but not in investing. I'm remarkably immune to kind of volatility. And that's a big advantage.


[User] Please transcribe this text

[Assistant] And you just, it's a bit, again, you can learn a lot from other people's experience. It's one of the few businesses where you can learn an enormous amount by reading about other periods in history, uh, you know, watch, you know, following Buffett's career, the mistakes he made.


[User] Please transcribe this text

[Assistant] Right, so we've made big mistakes. Uh, the good news is that the vast majority of things we've done have worked out really well. And so that also gives you


[User] Please transcribe this text

[Assistant] No confidence over time, but because we make very few investments, you know, we own eight things today or seven companies of that matter.


[User] Please transcribe this text

[Assistant] Uhm, if we get one wrong, it's gonna be big news. And so the other nature of our business you have to be comfortable with is a lot of public scrutiny, a lot of public criticism, and that requires some, uh, experience.


[User] Please transcribe this text

[Assistant] Never invest money you can't afford to lose where it would if you lost this this money and you know you lose your house etc so having.


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[Assistant] Being in a place where, uh, you're investing money that you don't care about the price in the short term. It's money for your retirement and you take a really long term view. I think that's key.


[User] Please transcribe this text

[Assistant] Never investing where you borrow money against your securities. You know, the markets offer you the opportunity to leverage your investment.


[User] Please transcribe this text

[Assistant] Or there's a unexpected war or someone kills a leader unexpectedly. You know, things happen that can change the course of history and markets react very negatively to those kinds of events. And you can own the greatest business in the world and trading for a hundred dollars to share. And next moment, it could be 50.


[User] Please transcribe this text

[Assistant] As long as you don't borrow against securities, you own really high quality businesses and it's not money that you need in the short term.


[User] Please transcribe this text

[Assistant] Uh, then you can, you can actually be thoughtful about it. And that is a huge advantage. The vast majority of investors, it seems, tend to be the ones that panic and the downturns get over related and when markets are doing well.


[User] Please transcribe this text

[Assistant] He's the ultimate long-term thinker and just the decisions he makes, uh, the consistency of the decisions he's made over time and fitting into that sort of long-term framework is a very, uh, very educational, let's put it that way for the, for learning about this


[User] Please transcribe this text

[Assistant] I think there are very few mutual funds, uh, there are thousands and thousands of mutual funds. There are very few that earn their keep in terms of the fees they charge. Uh, they tend to be too diversified, uhm, and uh,


[User] Please transcribe this text

[Assistant] They look, if you look carefully at their portfolios, they're not so different from the underlying index itself and you tend to pay a much higher fee. Uh, now all of that being said, there's some very talented mutual fund managers, a guy named Will Danoff at Fidelity has had a great record over a long period of time. You know, the famous Peter Lynch.


[User] Please transcribe this text

[Assistant] Uh, Ron Barron, another great long-term growth stock investor. So there's some great, uh, mutual funds, but I put them in the handful versus the thousands. And if you're in, you know, the thousands, I,


[User] Please transcribe this text

[Assistant] I even recommend for individual investors to invest in, you know, a dozen companies. You don't get that much more benefit of diversification going from a dozen to 25 or even 50. You know, most of the benefits of diversification come in the first, you know, call it 10 or 12. Uh, and if you're investing in businesses that don't have a lot of debt,


[User] Please transcribe this text

[Assistant] They're businesses that you can understand yourself. You understand, you know, actually individual investors did a much better job analyzing Tesla than the so-called professional investors or analysts, the vast majority of them. So if it's a business, you understand, if you bought a Tesla, you understand the product and its appeal to consumers.


[User] Please transcribe this text

[Assistant] So I would invest in things you can understand. That's kind of a key.


[User] Please transcribe this text

[Assistant] Uh, you know, you like Chipotle. You understand why they're successful. You can go there every week and you can monitor.


[User] Please transcribe this text

[Assistant] You know, is anything changing? How are these new, uh, kind of, uh, house chicken al pastor? Is that, is that a good upgrade?


[User] Please transcribe this text

[Assistant] The basic chicken, you know, the drink offerings improving, uh, the stores clean. I think you should invest in companies. You really understand simple businesses where you can predict with a high degree of confidence what it's going to look like over time. And if you do that.


[User] Please transcribe this text

[Assistant] In a not particularly concentrated fashion and you don't borrow money against your securities, you'll probably do much better than your typical mutual fund.


[User] Please transcribe this text

[Assistant] There's much more information available today. When I was first investing, literally we had people faxing us documents from the SEC filings in Washington DC. Now everything's available online. Conference call transcripts are free. Uhm, you know, you have AI, you know, you have unlimited


[User] Please transcribe this text

[Assistant] Data and all kinds of message boards and reddit forums and things where people are sharing advice and everyone has their own.


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[Assistant] You know by virtue of their career experience they'll they'll they'll know about an industry or business and i guess i would take advantage of your own competitive issues.


[User] Please transcribe this text

[Assistant] I think recently, in the last couple of days, I read an article saying that more than 50% of the capital in the world today invests in the stock markets. Passive. Indexed money. And that's the most passive form. Right? So if you think about an index fund, a machine buys a fixed set of securities in certain proportion.


[User] Please transcribe this text

[Assistant] Uh, there's no human judgement at all, and there's no real person behind it, in a way.


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[Assistant] Uhm, they never take steps to improve a business. They just quietly own securities.


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[Assistant] What we do is we invest our capital in a handful of things. We get to know them really, really well because you're going to put 20% of your assets in something. You need to know it really well.


[User] Please transcribe this text

[Assistant] Once you become a big holder, and if you've got a


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[Assistant] You can do more than just be a passive investor. So our strategy is built upon


[User] Please transcribe this text

[Assistant] Finding great companies in some cases that have lost their way.


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[Assistant] And then helping them succeed. And we can do that with ideas from outside the boardroom. Sometimes we take a seat on a board or more than one. Uhm, and we work with the best management teams in the world to help these businesses succeed. So when I first went into this business, no one knew who we were. And we didn't have that much money.


[User] Please transcribe this text

[Assistant] And so to influence what was to us a big company.


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[Assistant] Uh, we had to make a fair bit more noise, right? So we would buy a steak, we'd announce it publicly, we'd attempt to engage with management. The first activist investment we made at Pershing Square was Wendy's. I couldn't get the CEO to ever return my call.


[User] Please transcribe this text

[Assistant] Didn't return my call. So we, actually in that case, uh, our idea was Wendy's owned a company called Tim Hortons, which was this coffee donut chain.


[User] Please transcribe this text

[Assistant] And you could buy Wendy's for basically 5 billion dollars.


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[Assistant] And they owned a hundred percent of Tim Hortons which itself was worth more than five billion. You could literally buy Wendy's, separate Tim Hortons and get Wendy's for negative value. That seemed like a pretty good opportunity, even though the business wasn't doing that well. Uh, so.


[User] Please transcribe this text

[Assistant] We bought the stake, called the CEO, couldn't get a meeting, nothing. So we hired actually Blackstone, which was at that time had an investment bank.


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[Assistant] We hired them to do what's called a fairness opinion of what Wendy's would be worth if they followed our advice. And they agreed to do it. Paid them a fee for it.


[User] Please transcribe this text

[Assistant] And then we've mailed in a letter with a copy of the fairness opinion saying 20s would basically be worth 80% more if they did what we said. And six weeks later, they did what we said. So that's activism, at least an early form of activism.


[User] Please transcribe this text

[Assistant] With that kind of under our belt, we have a little more credibility and now we start to take things and stakes in companies.


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[Assistant] Uh, the media would pay attention, so the media became a kind of an important partner.


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[Assistant] And, uh, you know, some combination of shame, embarrassment, and opportunity, uh, motivated management teams to do the right thing. And then, you know, beyond that, uh, there's certain steps you can take if management is recalcitrant and the shareholders are on your side. But it's a bit like running for office.


[User] Please transcribe this text

[Assistant] You've got to get all the constituents to support you and your ideas.


[User] Please transcribe this text

[Assistant] And if they support you and your ideas, you can overthrow, if you will, the board of a company. You bring in new talent and then take over the management of a business. And that's the most extreme form of activism. So that's kind of the early days and what we did. And a lot of the early things that we did were, um,


[User] Please transcribe this text

[Assistant] Call it what we call sort of like investment banking activism, where we'd go in and recommend something a good investment bank would have recommended. And if they do it, we make a bunch of money and then we moved on to the next one.


[User] Please transcribe this text

[Assistant] And then we realized an investment in a company called General Growth, uh, was the first time we took a board seat on a company and there was some financial restructuring.


[User] Please transcribe this text

[Assistant] Uh, and then I would say the last seven years we haven't had to be an activist. An activist is generally someone who's outside banging on the door trying to get in. We're sort of built enough credibility that


[User] Please transcribe this text

[Assistant] By the way, that's the way investing was done in the Andrew Carnegie JP Morgan days, you know, 150 years ago.


[User] Please transcribe this text

[Assistant] Right, you had these iconic business leaders that would own 20% of US Steel and when things would go wrong.


[User] Please transcribe this text

[Assistant] They've replaced the board and the management and fixed them. And over time, we went to a world where mutual funds were created like in the 1920s, 30s, index funds, uh, with Vanguard and others.


[User] Please transcribe this text

[Assistant] And that all these controlling shareholders would, you know, kind of gave their stock to society or their children.


[User] Please transcribe this text

[Assistant] Multiple generations and there were no longer kind of controlling owners of businesses or very few.


[User] Please transcribe this text

[Assistant] And that led to underperformance and the opportunity for activists over time. And what activism has done, and I think we've helped lead this movement, is it restored kind of the balance of power between the owners of the business and the management of the company. And that's been a very good thing for the performance of the U.S. stock market, actually.


[User] Please transcribe this text

[Assistant] Yes, so activists generally never own more than 5 or 10% of a business, so they don't have control.


[User] Please transcribe this text

[Assistant] So the way they get influence is they have to convince the other, you know, but they have to get to sort of majority of the other shareholders to support them.


[User] Please transcribe this text

[Assistant] And if they can get that kind of support, they can behave almost like a controlling shareholder. And that's how it works.


[User] Please transcribe this text

[Assistant] But you need some thought leaders, so activists are kind of thought leaders, because they can spend the time and the money, uh, you know, a retail investor that owns a thousand shares doesn't have the...


[User] Please transcribe this text

[Assistant] Depends who that investor is, but generally I think it's a good thing. Uh, and that's why, you know, one of the problems with being CEO of a company today and having a very diversified shareholder base is the kind of short-term, long-term balance. And you have investors who have all different interests in terms of what they want to achieve and when they want it achieved.


[User] Please transcribe this text

[Assistant] And, uh, CEO of a new company hasn't had a new CEO of an old company, let's say, hasn't had the chance to develop the credibility.


[User] Please transcribe this text

[Assistant] Uh, to make, uh, the kind of longer term decisions and can be stuck in a cycle of being judged on a quarterly basis and a business, the best businesses are forever assets and decisions you make now have impact three, four or five years from now.


[User] Please transcribe this text

[Assistant] That's respected by the shareholders sitting on the board saying, hey, the CEO is doing the right thing and making this expensive investment in a new factory. We're spending more money on R&D because we're developing something that's going to pay off over time.


[User] Please transcribe this text

[Assistant] Again the activist in your example join us on a lot of stock.


[User] Please transcribe this text

[Assistant] Uh, the shareholder basis today, the biggest shareholders are these index funds that are forever, right? The Black Rock, Vanguard, State Street. Their ownership stakes are just, at this point, only growing because of the inflows of capital they have from shareholders.


[User] Please transcribe this text

[Assistant] So they have to think are they should think very long term and they're gonna be very skeptical of someone coming in with a short term idea.


[User] Please transcribe this text

[Assistant] Yes. They're very, and they're very few. I don't really know any short-term activist investors. Not ones with credibility.


[User] Please transcribe this text

[Assistant] Alright, but it wasn't a trade. I wouldn't describe it as a trade. A trade is something you buy and you just flip.


[User] Please transcribe this text

[Assistant] This is something where we made the investment initially in November of 2008.


[User] Please transcribe this text

[Assistant] And we still own a company we spun off of General Growth and it's now 15 years later.


[User] Please transcribe this text

[Assistant] Sure, so this was at the time of the financial crisis, uh, circa November 2008.


[User] Please transcribe this text

[Assistant] What real estate's always been a kind of sector that I've been interested in. I began my career in the real estate business working for my dad actually arranging mortgages for real estate developers. So I, I have, uh,


[User] Please transcribe this text

[Assistant] Uh, and General Growth stock, uh, General Growth, the company, the CFO in particular, was very aggressive in the way that he borrowed money.


[User] Please transcribe this text

[Assistant] Any borrowed money from us kind of wall street, uh, not long-term, uh, mortgages, but generally relatively short-term mortgages is pretty aggressive as the value went up. You borrow more and more against the assets and that helped the short-term results of the business.


[User] Please transcribe this text

[Assistant] The problem was during the financial crisis, the, the market for what's called CNBS commercial mortgage backed securities basically shut.


[User] Please transcribe this text

[Assistant] And the company, cause it's debt was relatively short term, had a lot of big maturities coming up that they had no ability refinance and the market said, Oh my God.


[User] Please transcribe this text

[Assistant] They had a five billion dollar five billion of stock that was worth twenty five million or something by the time we bought a stake in the business. And what interested me was, uh,


[User] Please transcribe this text

[Assistant] I thought the assets were worth substantially more than the liabilities. The company had 27 billion of debt.


[User] Please transcribe this text

[Assistant] And had a hundred million dollar value of the equity, down from like twenty billion. Okay.


[User] Please transcribe this text

[Assistant] And one that, you know, sort of an interesting place to start with the stock down 99%.


[User] Please transcribe this text

[Assistant] But the fundamental drivers of the mall business are occupancy. How occupied are the malls? Occupancy was up year on year between 07 and 08, interestingly.


[User] Please transcribe this text

[Assistant] That operating income, which is kind of a measure of cashflow from the malls that was up year on year. So kind of the underlying fundamentals were doing fine.


[User] Please transcribe this text

[Assistant] The only problem they had is they had billions of dollars of debt that they had to repay, they couldn't repay.


[User] Please transcribe this text

[Assistant] And if you kind of examine the bankruptcy code, uhm, it's precisely designed for a situation like this, where it's kind of this resting place you can go.


[User] Please transcribe this text

[Assistant] Uh, to kind of re-uh, restructure your business.


[User] Please transcribe this text

[Assistant] Now, the problem was that every other company that had gone bankrupt, the shareholders got wiped out. And so the market's seeing every previous example, the shareholders get wiped out, the assumption is the stock is going to go to zero. But that's not what the bankruptcy code says.


[User] Please transcribe this text

[Assistant] What the bankruptcy code says is that the value gets apportioned based on value.


[User] Please transcribe this text

[Assistant] And if you could prove to a judge that there was the assets worth more than the liabilities, then the shareholders actually get to keep their investment in the company.


[User] Please transcribe this text

[Assistant] And that was the bet we made. And so we stepped into the market and we bought 25% of the company in the open market for, we had to pay up. It started out at 34 cents. I think there were 300 million shares.


[User] Please transcribe this text

[Assistant] So it was at $100 million value. By the time we were done, we paid an average of, we paid $60 million for 25% of the business. So about $240 million.


[User] Please transcribe this text

[Assistant] Shareholder activist, you know, four years into Pershing Square, and no one had any idea what we were doing. I thought we were crazy. Every day, every day we go into the market and we buy this penny stock.


[User] Please transcribe this text

[Assistant] And we'd file what's called a 13-D, every 1% increase in our stake.


[User] Please transcribe this text

[Assistant] And people just thought we were crazy. We're buying stock in a company that's gonna go bankrupt. Bill, you're gonna lose all your money.


[User] Please transcribe this text

[Assistant] And the key moment, if you're looking for, uh, fun moments, is there's a woman named Maddie Buxbaum, uh, who's from the Buxbaum family, and, uh, her cousin John was chairman of the board, CEO of the company.


[User] Please transcribe this text

[Assistant] And she said, look, I'm really glad to see you here and if there's anything I can do to help you, call me. I said, sure.


[User] Please transcribe this text

[Assistant] Uh, we kept trying to get on the board of the company. They wouldn't invite us on. Couldn't really run a proxy contest, you know, not with a company going bankrupt. And their advisors actually were Goldman Sachs and they're like, you don't want the fox in the hen house.


[User] Please transcribe this text

[Assistant] Uh, the old equity of general growth, old equity is what you talk about. The shareholders are getting wiped out. I said, no, no, no. This board represents.


[User] Please transcribe this text

[Assistant] And we led a restructuring for the benefit of shareholders and it took, let's say, uh, eight months and the company emerged from chapter 11. We made an incremental investment into the company.


[User] Please transcribe this text

[Assistant] And the shareholders kept the vast majority of their investment, all the creditors got


[User] Please transcribe this text

[Assistant] You know, face amount of their investment, par plus accrued crude interest. And it was a great outcome. All the employees kept their jobs. The mall stayed open. There was no liquidation in the bankruptcy system worked the way it should.


[User] Please transcribe this text

[Assistant] Uh, you know, I was in court, you know, all the time and the first, uh, meeting with the judge, the judge is like, look, this would never have happened were it not for a financial crisis. And once the judge said, I knew we were going to be fine because the company really not done anything fundamentally wrong, maybe a little too aggressive in how they borrowed money.


[User] Please transcribe this text

[Assistant] And uh, stock went from 34 cents to $31 a share.


[User] Please transcribe this text

[Assistant] And actually fun little anecdote, uhm, we made a lot of people a lot of money who followed us into it.


[User] Please transcribe this text

[Assistant] Like we got a lot of pushback from our investors actually because we had never invested in a bankrupt company before. It's a field called distressed investing and they're dedicated, uh, distressed investors and we weren't considered one of them. So Bill, what are you doing? You don't know anything about distressed investing. You don't know anything about bankruptcy investing.


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[Assistant] Most of the world's knowledge has already been written somewhere. You just gotta read the right books.


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[Assistant] And, uh, also had great lawyers. Uh, you know, built up some great relationships. We, we work with Sullivan and Cromwell. And, uh, the lawyer there named Joe Schenker, who I met earlier in my career. Pershing Square is actually my second act in the hedge fund business. I started a fund called Gotham Partners when I was 26.


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[Assistant] So he was like an obvious phone call because it had yet another real estate bankruptcy and that one we did we did very well but I missed the big opportunity and uh.


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[Assistant] I, I suffered severe psychological torture every time I walked by Rockefeller Center because we could have made, we knew more about that property than anyone else, but I knew less about deal making and didn't have the resources and I was 28 years old or 27. Uhm, and they hired a better lawyer than we did.


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[Assistant] So a board can always admit a member at any time in their discretion for a US company.


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[Assistant] Maybe there's some jurisdiction where you need a shareholder vote, but in most cases a board can vote on any director that they want. If the board doesn't invite you to the party.


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[Assistant] Ultimately running a slate for a meeting where you propose a number every any shareholder can propose to be on a board of a company they own one share of stock in the business.


[User] Please transcribe this text

[Assistant] And, uh, getting your name in the company's, uh,


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[Assistant] The materials they sent to shareholders, those rules were written in a way that were very unfavorable and very difficult to get in the door. Those rules have been changed very recently.


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[Assistant] Uh, where the company now has to include a candidate, really all the candidates and the materials they send to shareholders so the shareholders pick the best ones. When we applied or we applied when we ran proxy contests in the past, that was not the case.


[User] Please transcribe this text

[Assistant] And so you have to spend a lot of money, mostly mailing fees and all kinds of other legal and other expenses to, to let everyone know you're running, like running a political campaign and then you got to run around and meet with the big shareholders, you know, fly around the country.


[User] Please transcribe this text

[Assistant] So the battle comes when they don't want you gone. Okay. And a lot of that has to do with, I would say, pride.


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[Assistant] And boards of directors 20 years ago when we started Pershing Square were pretty cushy jobs. Sit on the board of a company.


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[Assistant] Uh, once shareholders could actually dislodge board members and they could lose their seats, and that's really the rise of shareholder activism, boards started taking their responsibilities much more seriously. Because directors are typically, you know, there are many cases they're retired CEOs.


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[Assistant] This is kind of how they're making a living in the later part of their career. They sit on four boards. They collect a million, a million and a half dollars a year in directors fees. If they get thrown off the board by the shareholders, that's embarrassing, obviously, uh, and it affects their ability to get on other boards.


[User] Please transcribe this text

[Assistant] Again, incentives, as I said earlier, drive all human behavior. The incentives of directors, they want to preserve their board seats. So if you have a director, now the directors on board serve in various roles. The most vulnerable ones are ones who, for example, chair a compensation committee. And if they put in a bad plan or they overpaid management, you know, they're subject to attack by shareholders.


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[Assistant] But, you know, these contests are not dissimilar to political contests, where there's mudslinging and the other side puts out false information about you, you have to respond, and they're spending the shareholders' money, so they have sort of unlimited resources, and you're spending your and your investors' money.


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[Assistant] You know, when you're a small firm, finite resources, so they can outspend you, they can sue you, they can try to, you know, uh, jigger the, uh, the mechanics in such a way, uh, that you're gonna lose. There's some unfortunate stuff that's happened in the past, you know, some manipulative stuff.


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[Assistant] Articles about Campbell, you know, the, the dirty days where they would, uh, go through your trash and, you know, make sure that you, you know, you're not sleeping around and things like this. That's okay. I, I can, I'm subject to, I can survive extreme scrutiny because I've been through this for a long time.


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[Assistant] And then once the activists got on the board and they said, you know, the guy's not so bad after all, the shareholders voted them on. He's got some decent ideas and let's all work together to have this work out. And so there are very few cases where after the contest,


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[Assistant] When the, uh, by the way, sometimes you have to replace the entire board. We've done that.


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[Assistant] Uhm, but in most cases you get a couple of seats on the board and it's just, you know, you want to build a board.


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[Assistant] It literally built the country because the rail that got built over Canada is what united the various provinces into a country.


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[Assistant] And, uh, and then over time, because the railroad business is pretty good business, they built a ton of hotels, they owned a lot of real estate and it became this massive conglomerate, but it was horribly mismanaged for decades.


[User] Please transcribe this text

[Assistant] By the time we got involved, it was by far the worst run railroad in North America. They had the lowest profit margins. They had the lowest growth rate. Um, every quarter management would make excuses generally about the weather as to why they underperform versus, and there, there's a direct competitor company called Canadian national.


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[Assistant] Basically, you know, same country, same regions, tracks weren't that far apart.


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[Assistant] And everyone on the board was an icon of Canada, you know, the chairman of the Royal Bank of Canada, you know, the head of the most important grain, privately held grain company, the, you know, sort of an important collection of, uh, you know, big time Canadian executives. Here we were, you know, this is probably, uh, about 13 years ago.


[User] Please transcribe this text

[Assistant] And uh, you know, still maybe 44-year-old, uh, from New York, not Canadian, uh, basically saying this is the worst-run railroad in North America.


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[Assistant] And uh, we bought 12% of the railroad at a really low price and


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[Assistant] We brought with us to our first meeting, the greatest railroader ever, a guy named Hunter Harrison, who had turned around Canadian national. So we'd like, okay, we've got a great asset.


[User] Please transcribe this text

[Assistant] We've got the greatest railroad CEO of all time. He's come out of retirement to step in and run the railroad and we brought him to the first meeting and they wouldn't even meet with him.


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[Assistant] Well the key is we had to, one, come up with a group of directors who would be willing to step into a battle.


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[Assistant] And we didn't want a bunch of New York directors or even American directors. We wanted Canadians. The problem was this was the most iconic company in Canada.


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[Assistant] And we wanted high profile people. So we talked to all the high profile people in Canada. Every one of them would say, Bill, you're entirely right. This thing is the worst right off the road. It needs to be fixed. But you know, I see John at the club, you know, I see him at the Toronto club. You know, I can't, you know, I can't do this, but you're totally right. And.


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[Assistant] We had to, and that was the concern because you have to file your materials by a certain day. You gotta put together a slate. We need the big slate because we knew that we had to replace basically all the directors.


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[Assistant] Uh, and then one, I spoke to, uh, a guy who was one of the wealthiest guys in Canada who was on the board at one point in time. And he said, uh,


[User] Please transcribe this text

[Assistant] And I called Rebecca and she was the first woman to take a company public in Canada as CEO.


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[Assistant] And she was a kind of anti-establishment, not afraid to take on anything kind of person. And I called her, we had a great conversation. And she...


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[Assistant] She was in the Dominican Republic at her house and I flew down to see her.


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[Assistant] And she said, yeah, I'm all in. And actually once we got her that enabled us to get others and then we put together our slate and, uh,


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[Assistant] We had some pretty interesting dialogue with the company. They tried to embarrass us all the time. In the press, publicly, what are we talking about? Press, publicly.


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[Assistant] You know, at one point I wrote an email saying, look, let's come to peace on this thing. Um, but if we don't, you're really forcing my hand and we're going to have to rent the largest hall in Toronto.


[User] Please transcribe this text

[Assistant] And invite all the shareholders and it's going to be embarrassing for management. And I made reference to some nuclear winter. Let's not have it be a nuclear winter.


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[Assistant] And we went to the largest hall in Canada and we put up a presentation walking through, you know, here's Canadian national, here's Canadian Pacific, here's what they said, here's what they did.


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[Assistant] And we had Hunter get up. It was this incredibly charismatic guy from Tennessee. Uh, an amazing, you know, he's like a lion.


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[Assistant] Incredibly deep voice, unbelievable track record, incredibly respected guy. It's like getting Michael Jordan to come out of retirement and, uh,


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[Assistant] And come run the company. And Hunter was incredible and, uh, other Pahlau, other members of my team were, you know, super engaged.


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[Assistant] One of the problems we had is shareholders would never tell management or the board that they were losing.


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[Assistant] It was not until the night before the meeting when the boat came in that management realized that they lost.


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[Assistant] We got 99% of the vote and they, they offered us a deal when they begged us to take a deal. He said, look, we'll resign tonight.


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[Assistant] It was. I mean, the stock's up about 10 times, uh, and it's an industrial company. It's a railroad. It's not like a growth, like, uh, it's not Google. Uh, so it's a great story. And the company is now run by a guy named Keith Creel.


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[Assistant] I haven't read the Off and Right article, but the good news is we are Off and Right, and I say we because we're a team, a small team, but a fortunately very successful one. You know, so our batting average as investors is extremely high, and the good news is our record is totally public. You can see everything we've ever done.


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[Assistant] But the press doesn't really generally write about the success stories, uh, they write about the failures. And so we've had some epic failures, you know, big losses. Uh, good news is they've been a tiny minority of the cases. Now, no one likes to lose money. It's even worse to lose other people's money.


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[Assistant] Uh, and I've done that occasionally. Uh, the good news is if you've stuck with us, you've done very well. You know, over a long time.


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[Assistant] This is an incredible story. Look, governance really matters. And the governance structure of open AI, I think leaves something to be desired. You know, I think Sam's point was this and maybe Musk, Elon Musk point originally set up as a nonprofit.


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[Assistant] Uh, and uh, it reminds me actually, I invested in a non-profit run by a former Facebook founder where he was going to create a Facebook-like entity for non-profits to promote, you know, goodness in the world.


[User] Please transcribe this text

[Assistant] So it taught me for-profit solutions to problems are much better than non-profits. And here you had kind of a blend, right? It was set up as a non-profit.


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[Assistant] Uhm, but the non-profit entity, as I understand it, owns a big chunk of open AI. And the investors own sort of a capped interest where their upside is capped, uh, and they don't have representation on the board. And I think that's a,


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[Assistant] Governance really matters. Boards of directors really matter. Um, giving the shareholders the right to, uh, have input at least once a year on the structure of the governance of companies is really important.


[User] Please transcribe this text

[Assistant] And private, you know, venture backboards are also not ideal. You know, I'm an active investor and ventures.


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[Assistant] And, uh, there are some complicated issues that emerge in private, uh, sort of venture stage companies, uhm, where board members have somewhat, uh, divergent incentives from, you know, the long-term owners of a business. And what you see a lot in venture boards is,


[User] Please transcribe this text

[Assistant] You know, they're presided over generally by, uh, venture capital investors who are big investors in the company.


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[Assistant] And oftentimes it's more important to them to give the.


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[Assistant] Have a public perception that they're good directors.


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[Assistant] So they get the next best deal, right? If they get a, you know, if they have a reputation for kind of taking on management too aggressively, Word will get out in the small community of founders and they'll miss the next Google. And so they, their interests are not just in that particular company. That's also, you know, one of the problems. Again, it all comes back to incentives.


[User] Please transcribe this text

[Assistant] Yeah, so private venture-backed companies, the boards tend to be very small, uh, could be a handful of the venture investors in management. They're often very rarely independent directors.


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[Assistant] It's just not an ideal structure. Oh, I see you want independent. It's beneficial to have people who have an economic interest in the business and they care only about the success of that company. Uh, as opposed to someone who, you know, if you think about the venture business, getting into the best deals is more important than any one deal.


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[Assistant] And you see cases where, you know, the boards go along with in some sense, cases, bad behavior on the part of management because they want a reputation for being kind of a, a founder friendly, a director. You know, that's, that's kind of problematic. You don't have the same issue in public company boards.


[User] Please transcribe this text

[Assistant] Biggest loss of my career is a company called Valiant Pharmaceuticals. We made an investment in a business that didn't meet our core principles. Uh, problem in the pharmaceutical industry and there are many problems as I've learned.


[User] Please transcribe this text

[Assistant] Is it's a very volatile business, right? It's based on drug discovery. Uh, it's based on, you know, predicting, uh, kind of the future revenues of a drug before it goes off patent.


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[Assistant] Uhm, lots of complexities and we thought we had found a pharmaceutical company we could own because of a very unusual founder and the way he approached this business.


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[Assistant] We, it was a company where another activist was on the board of directors of the company and kind of governing and overseeing the day to day decisions. And we ended up making a passive investment in the company. And up until this point in time, we really didn't make passive investments.


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[Assistant] And the company made a series of decisions that were, you know, disastrous. And then we stepped in to try to solve the problem. It was the first time I ever joined a board and the mess was much larger than I realized from the outside. And then I was kind of stuck.


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[Assistant] And they often issued stock when they acquired, uh, targets. And so once the market lost confidence in management, the stock price got crushed and impaired their ability to continue to acquire low costs, you know, drugs. And, uh, we lost $4 billion.


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[Assistant] By the way, that loss catalyzed other, what I call, mark to market losses. So, very high profile, huge number, disastrous press.


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[Assistant] Uh, then people said okay, Bill's gonna go out of business. So we're gonna bet against everything he's doing. And we know his entire portfolio because we only own ten things. And we were short a company called Herbalife.


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[Assistant] Uh, so people pushed up the price of verbal life.


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[Assistant] Which is when you're a short seller, that's catastrophic. I can explain that. And then they also shorted the other stocks that we owned. And so that valiant loss led to an overall more than 30% loss in the value of our portfolio. The valiant loss was real and was crystallized. We ended up selling the position, taking that loss.


[User] Please transcribe this text

[Assistant] Most of the other losses were what I would call mark to market losses that were temporary.


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[Assistant] But many people go out of business because as I mentioned before, large move in a price, if investors are redeeming or you have leverage, you know, it can put you out of business. And if people assumed if we got put out of business, we'd have to sell everything or cover our short position and that would make the losses even worse. So Wall Street is kind of ruthless.


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[Assistant] That was pretty grim. Uh, it was, uh, it's actually much worse than that.


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[Assistant] But when you have investors who give you a few hundred million dollars, they want to see you, you know, once a year, Bill, I'd love to see you for an hour. But if you've got a couple hundred of those.


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[Assistant] Uh, and, uh, that takes you away from the investment process. You have to delegate more. That was a contributor to the Valiant mistake.


[User] Please transcribe this text

[Assistant] So now we lose a ton of money on Valiant. My ex-wife and I were, you know, talking about separating, getting divorced. I put that on hold. I didn't want to make a decision in the middle of this crisis.


[User] Please transcribe this text

[Assistant] And things just kept getting worse. We were also sued when you lose a lot of money. We didn't get sued by our investors, but we got sued by a shareholder because when the stock price goes down, shareholders sue.


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[Assistant] We've done nothing wrong other than make a big mistake, but you know, so you have litigation.


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[Assistant] Your investors are taking their money out. Uhm, I'm in the middle of a divorce. Uh, the divorce starts to proceed. Uhm, my, my ex-wife's lawyer's expectations of what my net worth was was about three times what it actually was. And it was going lower right in the middle of this.


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[Assistant] We had a public company that owned about a third of our portfolio that was called our version of Berkshire Hathaway.


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[Assistant] I tried to, you know, learn from Mr. Buffett over time, and it was so to speak permanent capital. The beauty of, the problem with hedge funds is people can take their money out every quarter. Uhm, what Buffett has is a company where people want to take their money out, they sell the stock, but the money stays. So we set up a similar structure in October of 2014. And then a year later, Valiant happens. And then a year later, we're in the middle of the mess.


[User] Please transcribe this text

[Assistant] And we're still in the mess, you know, like by kind of mid 2017, we've got litigation underway, uh, and a, another activist investor.


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[Assistant] Firm called Elliott Associates, which is uh, run by a guy named Paul Singer.


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[Assistant] And they shorted all the stocks that we owned and they went long the short, probably went long the short that we were short and they were making a bet that we'd be forced to liquidate. And then they would make money on, you know, our public company was trading at a discount to what all the securities were. So they bought the, they bought the public company, they shorted the securities and then they came to see us and to try to be activists and force us to liquidate. And,


[User] Please transcribe this text

[Assistant] So I thought this was going to be, I envisioned an end where the divorce takes all of my resources, the permanent capital vehicle ends up getting liquidated and another activist in my industry puts me out of business.


[User] Please transcribe this text

[Assistant] And I was envisioning a world where I was bankrupt, a judge found me guilty of, you know, whatever, you know, he sent me off to jail, not that judge because he was a civil judge, but another judge sues the sec department of justice.


[User] Please transcribe this text

[Assistant] Enormous credit and seeing through it and also you know i've been a good client over a long period of time and it's like a handshake bank.


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[Assistant] And they bet that I would succeed and I took that money to buy enough stock in my public company that could prevent an activist from taking over and effectively by control of our little public company.


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[Assistant] And I got that done. And that I knew was the moment, the turning point.


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[Assistant] And, uh, I resolved my divorce and divorces get easier to resolve when things are going badly. I was able to resolve that. We settled the litigation.


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[Assistant] I was buying blocks of our stock in the market. I remember a day I bought a big block of stock in the market. I got a call from Gordon Singer who is Paul Singer's son who runs their London part of their business. He's like, Bill, was that you buying that block? I said, yes.


[User] Please transcribe this text

[Assistant] You know, this is a business where you're going to make some mistakes. It was a big one. It was very reputationally damaging. Uh, the press was a total disaster. Uh, but I'm not a quitter and actually the key moments for us


[User] Please transcribe this text

[Assistant] We've never taken our core investment principles and actually really written them down. Something we talked about at meetings, uh, investor, you know, kind of our investment team meetings.


[User] Please transcribe this text

[Assistant] I had a member of the team. I said, look, go find a big piece of granite and a chisel and let's take those core principles. I want them like Moses is 10 commandments. Okay. We're going to chisel them and then we're going to put it up on the wall. And once we produce those, we put one on everyone's desk. I said, look, if we ever again veer from the core principles, you know, hit me with a baseball bat. Yeah.


[User] Please transcribe this text

[Assistant] And love helps. Love helps. I literally met Neri at the absolute bottom. Our first date was September 7th, 2017. That was very close to the bottom. Actually, there's one other element to the story. So this went on for a few months after I met her.


[User] Please transcribe this text

[Assistant] The other element is that, uh, one day I got a call from Nari. She's like, Bill, guess what? I'm like, what?


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[Assistant] Brad Pitt is coming to the Media Lab. He wants to see my work.


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[Assistant] I'm like, that's beautiful sweetheart. I didn't know Brad Pitt was interested in your work.


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[Assistant] Uhm, now Nara and I were like, you know, we would WhatsApp all day every day. We'd talk throughout the day.


[User] Please transcribe this text

[Assistant] Uh, Brad Pitt shows up at the Media Lab at 10 o'clock. I, you know, talked to her in the morning. I'd kinda text her to see how things are going. Don't hear back.


[User] Please transcribe this text

[Assistant] And on WhatsApp, you can see like whether the other person's read it or not. Okay. No response. Yeah. Couple hours later, send another text. No response. Six o'clock. No response. Eight o'clock. No response. 10 o'clock. No response. And, uh, you know.


[User] Please transcribe this text

[Assistant] She finally calls me at 10.30 and tells me how great the president is. So I had this scenario, okay, a judge is going to find me, uh, we're going to lose to the judge.


[User] Please transcribe this text

[Assistant] And then sort of, you know, the motivational thing. I didn't want to lose to an activist. Didn't want to lose my girl to some other guy. So.


[User] Please transcribe this text

[Assistant] That was a hard time. Hard time because I was separated from my wife and my kids.


[User] Please transcribe this text

[Assistant] Uh, I was living in, you know, not the greatest apartment.


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[Assistant] You know, I had a beautiful home and so I had to go find like a bachelor place and I was, I didn't want to be away from my kids. I moved like 10 blocks away and I wasn't seeing them and they didn't like it. So I ended up buying an apartment I didn't like, uh, in the same building as my kids, like with a different, different entrance so I could be near them. And I was home alone. I got a dog.


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[Assistant] That was a, uh, Babar. You can call him Babar, not the elephant. Uh, he's a black Labradoodle. Uh, he was supposed to be a mini, but he's not so as many. Um, but I got him at six weeks old and he would keep me company and I started meditating.


[User] Please transcribe this text

[Assistant] Actually, uh, and, uh, a friend recommended, um, TM. And I would meditate 20 minutes in the morning, 20 minutes in the evening. And I also, big believer in exercise and, you know, weightlifting and I played tennis.


[User] Please transcribe this text

[Assistant] And uh, I've, I had been, this is not my first, you know,


[User] Please transcribe this text

[Assistant] Proximity to disaster, uh, I had another moment, uh, in my career, like a, you know, 2000,


[User] Please transcribe this text

[Assistant] Uh, too, and I learned this method for dealing with these kind of moments, which is, uh, you just make a little progress every day. So today I'm going to wake up. I'm going to make progress. You know, make progress on the litigation, make progress on the portfolio.


[User] Please transcribe this text

[Assistant] I'll make progress with my life, uh, and progress compounds.


[User] Please transcribe this text

[Assistant] You don't see a lot of progress in the first few weeks, but like 30 days in like, oh, okay. You know, like you can't look up at the mountaintop where you used to be because then you'll, you'll give up.


[User] Please transcribe this text

[Assistant] But you just, okay, just make step by step by step. Uh, and then 90 days in, you're like, okay, I was way down there. Okay. Okay. I don't look up. Just keep making, you know.


[User] Please transcribe this text

[Assistant] Progress, progress, progress, and progress really does compound. And one day you wake up and like, wow, it's amazing how far I've come.


[User] Please transcribe this text

[Assistant] And if you look at a chart of Pershing Square, our company, you can see the absolute bottom. You can see where we were, you can see the drop, and you can see where we are now. And


[User] Please transcribe this text

[Assistant] That huge drop that felt like a complete unbelievable disaster looks like a little bump on the curve and, uh, it really gives you perspective on these things. You just have to power through.


[User] Please transcribe this text

[Assistant] And I think the key is, you know, I've always been fortunate like from a mental health point of view and, you know, nutrition, sleep, exercise, a little progress every day. You know, very, that's it. And, you know, good friends and family, you know, I had, uh, you know,


[User] Please transcribe this text

[Assistant] Go take a walk with a friend every night, uhm, you know, and.


[User] Please transcribe this text

[Assistant] A sister loves me and parents who are supportive, but they were, you know, they were all worried about their, their son, their brother, you know, it was, it was a moment.


[User] Please transcribe this text

[Assistant] And also, by the way, the other thing to think about is, uh, when you recover from something like this, you really appreciate it. You know? And, uh, and also the, you know, as much as the media loves, okay, when some successful person falls, they love writing the story of success. They love you more the story of failure, but when you recover from that, it's kind of like the American story.


[User] Please transcribe this text

[Assistant] America, you know, you think of the great entrepreneurs.


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[Assistant] And how many failures they had before they succeeded, you know, how many rocket launches, you know, did SpaceX have explode on the pad, right?


[User] Please transcribe this text

[Assistant] And then you look at success, and that's why Musk is so admired.


[User] Please transcribe this text

[Assistant] So, we at Pershing Square, short of very few stocks. And the reason for that is short selling is just inherently treacherous.


[User] Please transcribe this text

[Assistant] If you buy a stock, it's called going long, right? You're buying something. Your worst case scenario is you lose your whole investment. You buy a stock for a hundred, goes to zero, you lose a hundred dollars, right? Per share. Buy one share to a hundred. You short a stock at a hundred.


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[Assistant] What it means is you borrow the security from someone else. The analogy I gave made it easy for people to understand.


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[Assistant] It's a bit like you think, you know, silver coins are gonna go down in value. And you have a friend who's got a whole pile of these, uh,


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[Assistant] Eighteen eighty, uh, silver, silver U.S. dollars. And you think you're gonna go down a value. You say, hey, can I borrow, you know, ten of those dollars from you? He's like, sure, but what are you gonna pay me to borrow? I'll pay if, you know, uh, I'll pay interest on your, on the value of the dollars today. So you borrow the dollars that are worth a hundred dollars each today.


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[Assistant] You pay them interest while you're borrowing them and then you go sell them in the market for a hundred dollars. That's what they're worth. And then they go down in price to 50.


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[Assistant] You go back in, you buy the silver dollars back at fifty dollars and you give them back to your friend. Your friend is comp- fine, he borrowed ten, you gave him the ten back and he got interest in the meantime, he's happy, he made money on his coin collection. You however made fifty dollars times the ten coins, you made five hundred bucks, that's pretty good.


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[Assistant] You know that you would, you sold for $500, you're gonna lose $9,500. And there's no limit.


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[Assistant] Right how high a stock price can go companies go to three trillion dollars in value right tesla a lot of people short of tesla saying oh it's overvalued he's never gonna make a successful electric car.


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[Assistant] Well, I'm sure there are people who went bankrupt shorting Tesla.


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[Assistant] That's why we didn't short stocks, but I was presented with this actually reporter that


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[Assistant] That we used a different kind of instrument to short it where you, we reversed that sort of, we made the investment asymmetric in our favor, meaning put up a small amount of money. If it works, we make a fortune.


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[Assistant] For a short selling is you kind of sell something and you have to buy it back at a higher price. Herbalife didn't have


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[Assistant] The what's called credit default swaps that you could purchase. Not a big enough company. Didn't have enough debt outstanding to be able to implement. You had to short the stock in order to make it as successful to bet against the company.


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[Assistant] And the more work I did in the company, the more I was like, Oh my God, this thing's an incredible scam. You know, that they report to sell weight loss.


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[Assistant] Shakes, uh, but in reality they're selling kind of a fake business plan and the people that adopted.


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[Assistant] It was money, and they go after poor people.


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[Assistant] They go after actually in many cases undocumented immigrants.


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[Assistant] We're pitched on the American dream opportunity.


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[Assistant] And because they have few other options, because they can't get legal employment, they become Herbalife distributors.


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[Assistant] The name for a legitimate company like this, or it's a pyramid scheme, where basically your sales are really only coming from people who are convinced to buy the product by getting them into the business. That's precisely what this company is. And uh,


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[Assistant] Okay, shorting a pyramid scheme seems like, one, we'll make a bunch of money. But, you know, two, the world will be behind us because they're harming poor people. You know, regulators will get interested in a company like this. And with that, you know, the FTC is going to shut this thing down.


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[Assistant] And we did a ton of work and I gave this sort of epic presentation, laying out all the facts. Stock got completely crushed and we were on our way.


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[Assistant] And the government actually got interested early on, launched an investigation pretty early, SEC and other, otherwise. Uhm, but then, uh, a guy named Carl Icahn showed up.


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[Assistant] And there's, we have a little bit of a back story, uh, but his motivations here were not really principally driven by thinking Herbalife was a good company. He thought it was a good way to


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[Assistant] Uh, hurt me, so he, he basically bought a bunch of stock and said it was a really great company and, you know, Carl, at least at the time, threw his weight around a bit. I was a credible investor, had a lot of resources and, uh, that began the song.


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[Assistant] An iconic. Iconic. Carl Icon. Oh, that's very well done. So definitely an iconic investor. So what was the backstory between the two of you?


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[Assistant] So, uh, I mentioned that I had another period of time where significant business challenges. This was my first fund called Gotham Partners and we had a court stop a transaction between some private, a private company we owned and a public company. It's another long story if you want to go there. I would love to hear it as well. But it was really my deciding to wind up my former fund.


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[Assistant] And we owned a big stake in a company called Hallwood Realty Partners, which was a company that owned real estate assets. It was worth a lot more than where it was trading, but it needed an activist to really unlock the value. And we were in fact going out of business and didn't have the time or the resources to pursue it. So I sold it to Carl Icahn.


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[Assistant] Uh, but, and I sold it to him at a premium to where the stock was trading. I think the stock was like 66. I sold it to him for 80, but it was worth about 150. And I said, look,


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[Assistant] Uh, and part of the deal was Carl's like, look, I'll give you schmuck insurance. You know, I'll make you sure you don't look bad.


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[Assistant] And I had another deal at a higher price without Schmuck Insurance.


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[Assistant] So we made that deal and because I was dealing with Carl Icahn who had a reputation for, you know, being difficult.


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[Assistant] I was, you know, very focused on the agreement and we didn't want him to be able to be cute. So the agreement said if we sell, if he sells or otherwise transfers his shares, we came up with a definition, include every version of sale. Okay. Cause you know, it's Carl.


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[Assistant] And he bids like 120 a share and the company hires Morgan Stanley to sell itself.


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[Assistant] And he raises bid to $125 and then $130. Eventually gets sold, I don't remember the exact price, let's say $145 a share. And Carl's not the winning bidder. And he


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[Assistant] $145 a share. So he owes actually our investors the difference between 145 and 80.


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[Assistant] Uh, times 50%. And I had like, you know, lawyers never like you to put like a arithmetic example. I put like a formula.


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[Assistant] You know, like out of a math book in the documents, there can be no confusion. It was only an eight page, really simple agreement. So the deal closes and he's supposed to pay us in two business days or three business days.


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[Assistant] What happened to them? Well, the company.


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[Assistant] And, uh, the legal system in America takes, can take some time. And what he would do is, we sued and we won in the, in the, whatever, New York Supreme Court. Uh, and then he appealed.


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[Assistant] And you can appeal like six months after the case. We waited till 179th day and they would appeal.


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[Assistant] But I want to maximize everything for my investors, right? These are the people back me at 26 years old. I was right out of business school and no experience and they supported me. So I'm going to go to the end of the earth for them.


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[Assistant] Uh, and four and a half million relative to our, our fund at the end was maybe four hundred million. So it wasn't a huge number, but it was a big percentage of what was left after I sold all our liquid security. So I was fighting for it.


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[Assistant] So we got four and a half million plus interest for eight years or something. That's how long the litigation took. So we got about double.


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[Assistant] Uh, so he owed me 9 million dollars, which to Carl Icahn, who had probably a 20 billion dollar net worth at the time, this was nothing. But to me it was like, okay, this is my investors money, I'm going to get it back.


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[Assistant] Uhm, and so, you know, eventually we won. Eventually he paid. And then he called me. He said, Bill, congratulations. Now we can be friends.


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[Assistant] Yes, and I'm not that kind of person generally, but, uh.


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[Assistant] You know, he made eight years to pay me. Not me, even me. My investors, money they owed. So I, yeaah.


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[Assistant] So, he probably didn't like that. So he kinda hung around in the weeds.


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[Assistant] Waiting for an opportunity and then from there I, you know, started Pershing. We had a kind of straight line up, you know, up in the first 12 years we could do nothing wrong. Then Valiant, Herbalife, right? Uh, he sees an opportunity and he buys the stock. He figures he's going to run me off the road. And so that was the beginning of that.


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[Assistant] And kind of the, the moment, uh, and I think it's the, I'm told by CNBC it's the most watched, uh, segment in business television history.


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[Assistant] They're interviewing me about the Herbalife investment on CNBC and then Carl Icahn calls into the show. And we have kind of a interesting conversation.


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[Assistant] You know, it's a bit like, you step on the butterfly in the forest and the world changes because every action has a reaction.


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[Assistant] You know, if you're happy with who you are, where you are in life, every decision you've made, good or bad over the course of your life, got you to precisely where you are. I wouldn't change anything. He said you lost money on Herbalife. So what?


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[Assistant] So he did the long term battle. What he did is he, he got on the board of the company and used the company's financial resources plus his stake in the business to squeeze, squeeze us. And a squeeze in short selling is where you restrict the supply of the securities.


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[Assistant] So that there's a scarcity and then you encourage people to buy the stock and you drive the stock up. And as I explained before, you're short those coins at 10, they go to a hundred. You can lose theoretically an unlimited amount of money and that's scary. That's why.


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[Assistant] We don't short stocks. That's why I didn't short stocks before this. But, uh, this was, unfortunately I had to have the personal lesson.


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[Assistant] He could make money doing this. He wouldn't have done it if he did otherwise. He thought his bully pulpit, his ability to create a short squeeze, his control over the company.


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[Assistant] Uh, it would enable him to achieve this, uh, and he made a billion, we lost a billion. So you think it was a financial decision, not a personal? It was a personal decision to pursue it, but he was waiting for an opportunity where he could make money at our expense and it was kind of a brilliant opportunity for him. Now the irony is, well first of all, the FTC found a few interesting facts. So one, the government launched an investigation.


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[Assistant] They ended up settling with the company and the company paid $220 million in fines. Uh, I met a professor from Berkeley a couple years ago who told me that he had been hired by the government.


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[Assistant] As their expert on Herbalife and he got access to all their data, was able to prove that their appearance came.


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[Assistant] But the government ultimately settled with Carl because they were afraid they could, you know, they could possibly lose in court, so they settled with him.


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[Assistant] Uh, but if you look at the stock, if we'd been able to stay short the entire time, we would have made a bunch of money as the stock had a $6 billion market cap and we shorted it today as probably a billion.


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[Assistant] Billion and a half. So you left the show or whatever that's called? Covered. We closed it out. We sold Valiant. We covered Herbalife.


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[Assistant] That was the resetting moment for the firm because it would just psychologically and you know, the beauty of investing is you don't need to make it back the way you lost it, right? You can just.


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[Assistant] Take your loss. By the way, losses are valuable in that the government allows you to take a tax loss and that can shelter other gains. And we just refocused.


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[Assistant] Uh, the Hallwood one, he took me out for dinner to his favorite Italian restaurant.


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[Assistant] Uh, we're in the middle of litigation to see if you can resolve it. And he offered 10 million to my favorite charity.


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[Assistant] You know, I had the chance to spend real time with him at dinner. He's funny. He's charismatic. He's got incredible stories. Uhm, and you know, actually I made peace with him over time.


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[Assistant] We had a little hug out on CNBC. Even had him to my house, believe it or not. Uhm, I hosted a...


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[Assistant] Uh, something called the Finance Cup, which is a tennis tournament between, uh, people in finance in Europe and the US. And we had the, uh, the event at my house and one guy thought to invite Carl Icahn. And so we had Carl Icahn there to present awards and, and again, I have to say I kind of liked the guy. So, um, but, uh, it was, I didn't like him


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[Assistant] I think it's possible, but again, I try to be extremely economically rational. And actually the last seven years have been...


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[Assistant] Quite peaceful. I really have not been, uh, an activist in the old


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[Assistant] Uh, form, uh, for many years, and the vast majority of even our activist investments historically were very polite, respectful cases. The press, of course, focuses on the more interesting ones. Like Chipotle was one of the best investments we ever made. Uh, we've, you know, we've got four of eight board seats.


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[Assistant] And we worked with management. It was a great outcome. I don't think there's ever been a story about it. And the stock's up, you know, almost 10 times from the time we hired Brian Nichols, CEO, but it's not interesting because there was no battle.


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[Assistant] Whereas Herbalife, of course, was like an epic battle, even Canadian Pacific. So, you know, for a period there, you know, most people, when they meet me in person, they're like, wow, you seem like a really nice guy.


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[Assistant] You know, so, uh, but things have been pretty calm for the last, uh, seven years.


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[Assistant] You know, it's a sad world that we live in, uh, that, uh, one, we have terrorists.


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[Assistant] You know, with all of my posts about Israel, I'm obviously very supportive of the country of Israel, Israel's right to exist, Israel's right to defend itself. My Arab friends, my Palestinian friends,


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[Assistant] You know, we're kind of saying, hey Bill, where are you? Uh, you know, what about Palestinian lives? And,


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[Assistant] I was, uh, pretty early in my life, a guy named Marty Peretz, who's been important to me over the course of my life, a professor, first investor in my fund, introduced me to nary, uh, asked me when I was right out of school to


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[Assistant] I joined this non-profit called the Jerusalem Foundation, which was a charitable foundation that supported Teddy Kolak when he was mayor of Jerusalem. I ended up becoming the youngest chairman of the Jerusalem Foundation in my 30s and I spent some time in Israel.


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[Assistant] The early philanthropic stuff I did, uh, with the Jerusalem Foundation, the thing I was most interested in was, was, uh, kind of the Palestinian, the plight of the Palestinians and kind of peaceful coexistence. And so I had kind of an early


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[Assistant] Uh, has been in that capacity. So it's sort of my natural, uh, perspective. But I don't take the side of terrorists ever, obviously. And, uh, you know, the whole thing is just a tragedy.


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[Assistant] Yes, I mean, you know, the, the problem of course is when Hamas controls, you know, for the last almost 20 years, uh, has controlled Gaza.


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[Assistant] Jews in Israel, uh, so it's, it's, uh, of course you don't like to see.


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[Assistant] Uh, Palestinians celebrating, you know, some of those early videos of October 7th where, you know, dead bodies in the back of trucks and people.


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[Assistant] You know, cheering. Uh, so it's, it's a really unfortunate situation, but I, you know, I think about, you know, a Palestinian life is important and as valuable as a Jewish life, as a American life. And you know, what do people really want? They want a place, want a home. Uh, they want to be able to feed their family. They want a job.


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[Assistant] Uh, you know, there's, it's a plutocracy, right? The top of the terrorist pyramid, you know, if you accept the numbers that are in the press.


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[Assistant] Disappeared into some combination of corruption or tunnels or weapons.


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[Assistant] With prosperity, uhm, you know, people are, you know, under the leadership of terrorists. You're not gonna have prosperity and you're not gonna have peace.


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[Assistant] And I think the, you know, the Israelis withdrew in 2005 and fairly quickly Hamas took control of the situation. That should never have been allowed to happen.


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[Assistant] Uhm, and I think, you know, if you think about, I had the opportunity to spend a...


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[Assistant] Call it an hour with Henry Kissinger a few months before he passed away. And we were talking about, uh,


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[Assistant] Gaza or in the early stage of the war, he said, look, you know, this is not.


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[Assistant] Uh, you can think about Gaza as the, as a test of a two-state solution. It's not looking good. These were his words. Uh, so the next time around, you know, the Palestinian people should have their own.


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[Assistant] State but it can't be a state where you know forty billion resources goes in and spend on weaponry and missiles and rockets going into. Israel and i do think a consortium.


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[Assistant] Of the gulf states, you know the saudis and others have to ultimately oversee the governance of.


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[Assistant] With, you know, nomads in the desert, right? And that's become a major, uh, it's a tourist destination. Gaza could have been a tourist destination.


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[Assistant] You know, you can do a compare and contrast with how Dartmouth managed, uh, the events of October 7th and the aftermath and how Harvard did.


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[Assistant] And on October 8th or shortly thereafter, uh, you know, the Dartmouth president who had been in her job for precisely the same number of months that the Harvard president had been in her job.


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[Assistant] The first thing she did is she got the most important professors of Middle East studies who were Arab and who were Jews, uh, and they convened them and held a, you know, an open session Q&A for students to talk about what's going on in the Middle East.


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[Assistant] And began an opportunity for common understanding among the student body. And Dartmouth has been a relatively benign environment on this issue.


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[Assistant] And there aren't disruptive protests with people with bullhorns walking into classrooms interfering with, you know, people pay today $82,000 a year, which itself is crazy.


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[Assistant] You know, the Harvard president wrote a very strong letter denouncing what had taken place.


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[Assistant] And then ultimately, you know, she was sort of forced by the board or the pressure to make a more public statement. But it was clear that it was hard for her to come to an understanding of, uh,


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[Assistant] of this terrorist act. And then the protests erupted on campus and they started out reasonably benign.


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[Assistant] And then the protestors got more and more aggressive in terms of violating university rules on things like bullying. And the university did nothing.


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[Assistant] And that obviously, for the Jewish students, the Israeli students, the Israeli faculty, Jewish faculty, created an incredibly uncomfortable environment. And the presence seemed indifferent. And you know, I went up to campus and I met with hundreds of students.


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[Assistant] And that was really the beginning and that, you know, I reached out to the president, reached out to the board of Harvard. I said, look, this thing is headed in the wrong direction and you need to fix it. And I have some ideas, love to share.


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[Assistant] And, uh, I got the heisman, as they say. You know, they just kept pushing off the opportunity for me to meet with the president and, uhm, meet with the board.


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[Assistant] And at a certain point in time I pushed, you know, I'm kind of a activist when you push me.


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[Assistant] And it was, as I described, one of the more disappointing conversations of my life. And it did not seem, she seemed a bit like a, if you will, deer in the headlights. They, they couldn't do this. They couldn't do that. Um, the law was preventing them from doing various things.


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[Assistant] And that led to my first lunch at the university and I sort of ended the letter, uh, you know, sort of giving this president of Harvard a Dared Be Great speech. This is your opportunity. You know, you can fix this. Uh, this could be your legacy.


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[Assistant] And I sent it to the, I emailed it to the president and the board members whose email addresses I had. I posted it on Twitter and I got no response, no acknowledgement, nothing. And in fact, the open dialogue I had with a couple of people on the board basically got shut down after that. And that led to letter number two.


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[Assistant] And then, and then when the, uh, Congress, led by Lee Stefanik,


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[Assistant] Uh, announced an investigation of anti-Semitism on campus.


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[Assistant] And concern about uh, you know, violations of law.


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[Assistant] We're having similar issues on campus. I reached out to the president of Harvard and said, well, one, the Israeli government had gotten in touch and offered the opportunity for me to see the Hamas, if you will, GoPro film. And I said, you know what? I'd love to show it at Harvard. And they thought that would be a great idea. And so I partnered with the head of Harvard Chabad, a guy named Rabbi Hershey, and, uh,


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[Assistant] And so I reached out to her, or actually her she did, and uh, he was told she would be out of town.


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[Assistant] In the Congress, you know, come see the film, I'll fly you down. That was rejected. And then she testified.


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[Assistant] Several minutes where finally at least Stefanik was not getting answers to her questions and she said, you know, let me be, you know, kind of clear. What if protesters were calling for genocide for the Jews? Does that violate your rules on bullying and harassment?


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[Assistant] And the thing that perhaps bothered me the most was the incredible hypocrisy. You know, uh, Harvard was, you know, each of these universities are ranked by this entity called FIRE, which is a non-profit that focuses on free speech on campus. And Harvard,


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[Assistant] Here's a little play. Harvard has become a place where free speech is not tolerated on campus, or at least


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[Assistant] Free speech that's not part of the accepted dialogue or, you know, this whole notion of speech codes and microaggressions really emerged on the elite, you know, the Harvard Yale, uh, campuses of the world. And, uh, you know, the president of Harvard's, uh, then president of Harvard's explanation for why, you know,


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[Assistant] You could call for the genocide of the Jewish people on campus was Harvard's commitment to free expression.


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[Assistant] And you really can't have it both ways. Either Harvard has to be a place where it's a free speech, she basically said we're a free speech absolutist place which is why we have to allow this.


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[Assistant] And Harvard could not be further from that.


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[Assistant] A big part of it. And I, I, I, uh, I was in the barber chair, if you will, getting haircut.


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[Assistant] Harvard has a disastrous governance structure, which is why we have the problem we have.


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[Assistant] Right, the first two gave the world's most disastrous answers to the question. And she literally just copied their answer, which is itself, uh, you know, kind of ironic in light of ultimately what happened.


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[Assistant] First of all, I never threatened to use financial or other resources. The only thing I did here was wrote, I wrote public letters. I spoke privately to a couple members of the board. I spoke for 45 minutes to the chairman


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[Assistant] None of those conversations were effective or went anywhere, as far as I could tell.


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[Assistant] I think my public, uh, letters and then some of the posts I did, uh, and that, you know, that little, uh, three minute, uh, video excerpt had an impact.


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[Assistant] Uhm, but it wasn't about, I mean, you can criticize me for being a billionaire, but that had...


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[Assistant] You know, it was really the words. It's a bit like, again, going back to the corporate analogy.


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[Assistant] It's not the fact that you own 5% of the company that causes people to vote in your favor. It's the fact that your ideas are right.


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[Assistant] Okay, and so clearly I was ineffective and ultimately what took her down was, uh, other


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[Assistant] It's hard to stay, uh, and I wanted her to be fired basically or be forced to resign because of failures of leadership.


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[Assistant] Cause that would have sent a message about the importance of leadership, you know, failure to stop a emergence of anti-Semitism on campus. And you know, there's some news today, the protests are getting worse.


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[Assistant] First of all, uhm, I think free speech is incredibly important and I'm on the side. I'm a lot closer to absolutism on free speech than otherwise. The issue I had was the hypocrisy, right? They were restricting other kinds of speech.


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[Assistant] Uh, on campus, principally conservative speech, conservative views.


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[Assistant] Uhm, so it wasn't a free speech absolutist, uh, campus and the protests were actually quite threatening to students and there are limits to even absolutist free speech and they begin where people feel, you know, intimidation, harassment and, you know,


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[Assistant] Threat to bodily harm, et cetera. You know, that kind of speech is generally, uh, I think, and it's pretty technical, uh, but as people feel like they're an imminent harm by virtue of the protest, that speech is at risk of not meeting the standards for free speech. But Harvard is a private corporation.


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[Assistant] And as a private corporation, they can put on what restrictions they want. And Harvard had introduced only a few months before bullying and harassment policies. And that's why Representative Stefanik focused on, does this, it's not like she said, is calling for genocide against the Jews violate your free speech policies? She says, is calling for genocide against the Jews violate your policies on bullying and harassment?


[User] Please transcribe this text

[Assistant] Students who've used the n-word, for example, have been thrown off campus or suspended. You know, students who've, uh, you know, hate speech directed at LGBTQ people has led to disciplinary action.


[User] Please transcribe this text

[Assistant] But, you know, attacking, spitting on Jewish students.


[User] Please transcribe this text

[Assistant] Or, you know, kind of roughing them up a bit, uh, seemed like, you know, we're calling for their elimination. Didn't seem to violate the policies. So it's, uh, you know, look, I think a university should be a place where you have broad views and open viewpoints and broad discussion.


[User] Please transcribe this text

[Assistant] Uhm, but it should also be a place where students don't feel threatened going to class, where their learning is not interrupted, when final exams are not interrupted by, you know, people coming in and with loud protests.


[User] Please transcribe this text

[Assistant] Students asked me when I went up there, what would you do if you were Harvard president? I said, and this was before I knew what was happening on the Dartmouth campus. I said I would, I would convene everyone together. This is Harvard. We have access to the best minds in the world. Let's have a better understanding of the history. Let's understand the backdrop. Let's focus on solutions. Let's bring Arab and Jewish and Israeli students together. Let's form


[User] Please transcribe this text

[Assistant] That's how you solve this kind of problem and none of that stuff has been done. It's not that hard.