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Bill Ackman: Investment Strategy, What the Market is Missing, How AI Breaks Businesses
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AI dramatically increases the risk of business disruption, making high-quality, durable growth companies essential for long-term investors. However, AI also presents a rare opportunity for building valuable businesses, but requires careful underwriting of disruptive potential.
Key Insights
The primary risk for investors is disruption, and AI has dramatically increased the probability of disruption for businesses.
High-quality companies with long-term, durable, non-disruptible growth are the most important factors for investors.
AI presents the 'greatest era in history to build a business' due to unlimited access to compute, capital, and talent.
Traditional tech giants like Microsoft, Amazon, and Meta are currently undervalued because investors are hyper-focused on new AI developments, similar to the dot-com bubble.
Founder-led companies have an inherent advantage in navigating changing environments and generating outsized returns due to their deep commitment and authority.
Bill Ackman is building a 'compounding machine' by reinvesting cash generated from Howard Hughes' real estate assets into an insurance business, inspired by Berkshire Hathaway's model.
The shift to durable growth and long-term holdings
Bill Ackman describes a significant evolution in his investment philosophy over the past two decades. While he remains an activist investor, his focus has intensified on 'business quality, long-term durable, non-disruptible growth.' This shift is partly driven by his move to becoming a larger, more concentrated investor. Early in his career, as a smaller, more liquid investor, long-term thinking was less critical. However, as his capital base grew, the importance of identifying companies with sustained, protected growth became paramount. His activism, while still present, is now more frequently expressed on platforms like Twitter rather than solely through direct corporate engagement, a change from his early days where he had to 'bang down the door' to get attention.
AI as both an opportunity and a disruptive threat
Ackman views Artificial Intelligence as a defining force in the current investment landscape, presenting a dual nature of immense opportunity and significant threat. He states that AI has 'gone up dramatically' the risk of disruption for any business. This is because AI lowers barriers to entry, providing founders with unprecedented access to compute, capital, and talent, enabling rapid innovation and the potential for novel solutions to emerge from anywhere, such as 'two guys, two women from Stanford in a garage.' This elevated risk of disruption makes identifying companies with truly durable competitive advantages and predictable growth pathways more challenging and crucial than ever. However, this same accessibility of resources makes it, in his view, the 'greatest era in history to build a business,' suggesting that the potential for creating value is also at an all-time high.
Undervalued tech giants in the AI era
Despite the intense focus on new AI companies and technologies, Ackman believes that established tech giants like Microsoft, Meta, and Amazon are currently undervalued. He draws a parallel to the dot-com bubble of 2000, where high-quality companies like Berkshire Hathaway traded at historically low valuations as investor attention was solely captivated by internet stocks. He observes a similar phenomenon today, where the excitement around AI has led investors to overlook the enduring strengths and deep value existing within these large-cap technology firms. These companies, he argues, are 'old-fashioned companies' in the context of the OpenAI-centric narrative, but their underlying business models and market positions position them well for long-term success, offering attractive investment opportunities at current multiples.
Underwriting disruptive potential and SPACs
When assessing companies, particularly those with sky-high valuations like SpaceX or AI ventures, Ackman suggests a venture capital-like approach. The key elements to underwrite are the people ('talent is enormous'), the opportunity, the context, and the deal. For companies like SpaceX, while the deal structure can be complex, the long-term potential of ventures like Starlink and its near-monopoly in low-cost space launch are critical factors. He notes that in the AI era, 'time has become increasingly valuable,' implying that delays in product development or market entry can have significant financial consequences. He also touches on the 'SAS apocalypse,' warning that software companies charging exorbitant prices for niche products are at high risk, especially compared to platforms like Microsoft whose pricing is more customer-friendly and scalable.
The advantage of founder-led companies
Ackman emphasizes the significant advantage that founder-led companies possess in navigating volatile markets and technological shifts. Unlike CEOs with shorter tenures and less personal stake, founders are deeply invested in their company's long-term success and reputation. This commitment, coupled with their proven track record of making difficult decisions, empowers them to make radical changes necessary for persistence and growth. He cites examples like Mark Zuckerberg's acquisitions of Instagram and WhatsApp, which, though controversial in pricing at the time, demonstrated a foresight crucial for sustained success. This inherent authority and deep-seated motivation make founder-led businesses more resilient and capable of generating outsized returns, especially in the face of rapid change.
Building a 'compounding machine' with Berkshire Hathaway's model
Ackman is actively working to build a 'compounding machine,' inspired by Warren Buffett's Berkshire Hathaway. His current endeavor involves the Howard Hughes Corporation, a real estate company he acquired through a bankruptcy restructuring. Instead of solely reinvesting cash into real estate, Ackman plans to strategically funnel these funds into an insurance business. This model mirrors Buffett's success, where insurance premiums provide 'float' – capital collected upfront that can be invested. By focusing on both managing liabilities and expertly investing assets, Ackman aims to create a tax-efficient, compounding engine. He believes this strategy, supported by buying assets at a discount to their liquidation value (like Howard Hughes at '60 cents on the dollar'), can replicate the long-term wealth creation seen at Berkshire Hathaway.
The evolving media landscape and investor communication
Ackman acknowledges the significant changes in how investors communicate and influence markets, particularly through social media. While he believes his personal notoriety hasn't fundamentally altered market mechanics, he points to figures like Ryan Cohen (from GameStop fame) as examples of individuals leveraging social media to move stock valuations, sometimes independent of traditional fundamentals. He notes that increased company value, often driven by narrative and follower engagement, can paradoxically lower a company's cost of capital, providing greater flexibility for growth and acquisitions. Ackman himself uses platforms like Twitter not just for activism but to directly communicate his vision and research, a powerful tool enabling him to reach millions and effectively shape market perception as he did with his public calls for a COVID-19 shutdown.
Investing alongside Bill Ackman
For those seeking to invest alongside Bill Ackman, he outlines three distinct avenues. First, Pershing Square Holdings (PSUS), a publicly traded vehicle managed by his firm, offers exposure to his best ideas at an 18% discount to net asset value, aiming to function as a royalty on investment compounding with minimal overhead. Second, the Howard Hughes Corporation represents an investment tied to his vision of building the next Berkshire Hathaway. Finally, his management company, Pershing Square Capital Management, is itself an 'intellectually interesting business' that receives fees from permanent capital vehicles, offering a unique 'royalty on the compounding of investments.' Each option provides a different mechanism for alignment with Ackman's long-term, value-driven investment philosophy.
Mentioned in This Episode
●Products
●Companies
●People Referenced
Common Questions
Bill Ackman's strategy has evolved from early activism and short-term plays to a focus on long-term, durable, and non-disruptible growth. He now often invests in companies with the intention of holding them for decades, appreciating business quality as the most crucial factor.
Topics
Mentioned in this video
CEO and founder of Pershing Square, discussing his investment strategy, evolution, and views on AI and market dynamics.
Referred to as a potential chair of OpenAI, with discussion on working with him.
Agreed to write a fairness opinion for Wendy's regarding spinning off Tim Hortons.
Advised Bill Ackman to invest in SpaceX.
Cited as an example of a successful founder who made bold acquisitions like Instagram and WhatsApp.
Mentioned as an example of someone who has built an army of believers to enable company growth, referencing Tesla and SpaceX.
Referred to as the 'GameStop guy,' signifying a change in market dynamics where stock valuation can be driven by personality and follower armies.
Investment management company founded by Bill Ackman, discussed in terms of its investment approach and vehicles for investment.
Discussed regarding its leadership, with praise for its CFO, and its position in the AI landscape.
Mentioned as an early investment of Pershing Square, illustrating a strategy to spin off valuable assets.
Owned by Wendy's, its value exceeded Wendy's itself, serving as a key part of an early activist investment strategy.
Mentioned as the firm where a friend worked, who helped with a fairness opinion on the Wendy's/Tim Hortons situation.
Mentioned as a significant investment and a company potentially undervalued due to AI hype, with a strong AI-enabled platform.
Mentioned as a significant investment and a company potentially undervalued due to AI hype.
Mentioned as a significant investment and a company potentially undervalued due to AI hype.
Cited as an example of a software company that might be more at risk in the current market compared to others.
Discussed as an example for underwriting venture capital investments, with a focus on its talent, opportunity, and future prospects like Starlink.
Mentioned in relation to SpaceX, noting it is significantly behind in space launch capabilities.
Ackman mentions investing in X.AI.
Mentioned as a company similar to OpenAI and Palantir that could be underwritten as venture investments.
Mentioned as a company where Ben Graham made significant money, contrasting with his focus on liquidations.
Discussed as a company Ackman is operating, aiming to build it into a compounding machine by reinvesting cash into insurance, modeled after Berkshire Hathaway.
Used as a model for long-term compounding and investment strategy, particularly its insurance operations and investor approach.
The bankruptcy of this company led to the creation of Howard Hughes Corporation, and Ackman describes buying its stock as a contrarian investment.
Mentioned as a comparison for Howard Hughes Corporation, highlighting its success in managing a city and creating wealth.
Mentioned as a company built with the help of an army of believers, an example of leveraging influence for growth.
Mentioned in the context of Ryan Cohen and market changes where stocks can be valued based on personality and follower armies.
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