The Citadel Finance Speaker Series Featuring Bill Ackman

Thank you all for being here. I'm very glad to see you. It's an exciting night for the Baker School of Business. This is a great, great event. We've got a great turnout, and this is just another in our, uh, financial speaker series, uh, hosted by PermCap and John Rean. He's been a great, uh, advocate for the business school, and we're very grateful for all that, all that PermCap has done for the school, school of business, and bringing Bill Aman here tonight.

As I looked at, uh, I did a little research on Bill tonight, and there were a couple of themes that emerged as I, I looked there. And one of those was that consistently, he's known as being an advocate for transformational change in a lot of different areas. And I think, uh, it's especially appropriate that we have, uh, Bill Aman here because at the Citadel, we are all about transformational change, that, uh, change that character development that builds on our core values year after year in that four-year cadet experience. We have a lot of cadets in the audience. We're grateful for that. Um, build on our legacy of honor, duty, and respect. If this screen wasn't here, you'd see honor, duty, and respect on the walls up there. And that transformational change is something that we strive for every single day in this character development process that we call the Citadel experience. Um, as we develop those leaders of principle, that's what our mission is, to develop leaders of principle. Um, and we are excited about that. And one of the other things that I saw that has emerged about Bill, uh, consistently said that, uh, evil fears strong leadership, and that is what we're all about here at the Citadel. We're about developing strong leaders for the next generation. We're proud to showcase our cadets and our other students that are here, as well as our alumni. The Citadel, for over 175 years, has striven to, uh, develop strong leaders for our nation and beyond. So without further ado, I'm going to turn it over to John and welcome Bill Hackman.

Thank you. Um, I want to thank Dean Weekes for, uh, and the Citadel Foundation board for allowing us to continue with this speaker series. Um, a big thank you to Joy Law in the dean's office and, uh, to also Bill's office to, uh, arrange this. And, uh, Bill, thank you so much for taking your time. Uh, you know, time is the most precious commodity. You're spending it with us tonight, and I really appreciate the support. U, and also thank you to Trey Hamilton, uh, for giving us a great tour of the air base, uh, today. And, um, I'm sure it's going to be a very interesting evening.

Uh, my business partner, our business partner, Joe Steinberg, uh, says very often when we start any meeting, "Why are we here?" Um, we ask that, u, and the answer is, is that I moved my family and my business down here, uh, during COVID in 2021. I was very lucky to connect with, uh, Sam Havlock and Trey Hamilton, uh, who quickly drafted me into the board of advisors here. Um, although I'm not an alumnus of the Citadel, I wanted to contribute my resources to this institution, um, in honor of the two guys and the many others in the room who have spent their careers serving the country. Uh, the speaker series was designed to bring world-class financial leaders to the Citadel. I think we've done that tonight, and to show the cadets, uh, how to illuminate the path to institutional finance and Wall Street. Uh, we do this by connecting the business community to the cadets at these events, and we source internships for them. We've been very successful over the last two years in sourcing internships for pretty much anyone who wanted one. Um, and this is, I can tell you that if you're here and you're not wearing a cadet outfit, um, this is a great place to recruit employees, and, uh, the employees know how to show up on time, properly dressed, and they're properly educated. So nothing in life is free. So, if you're here tonight and you would like a guaranteed seat in front, um, next time, contact, uh, the QR code that's there, which maybe as it gets a little darker, you'll be able to pull it down and contact us directly with your offer of internships for our cadets.

Um, why is Bill here? Uh, so now I've explained why we're here. Why is Bill here? The other founding partner of PermCap is Joe Steinberg. Uh, Joe is now the chairman of the investment bank Jeff, and he was also, little known, long ago, at a company called Lucadia, the seed capital for Pershing Square. Um, Joe was also the seed, the seed and partner for PermCap, my firm. So we are both, in a way, part of the Joe Steinberg family tree. Uh, we share investments together, we share deal deals together, and we also share the occasional dive trip together. If you ever want to feel lazy and unaccomplished, spend a few hours with Bill Aman on his plane. I've personally seen Bill deftly handle an interview with an aggressive Wall Street Journal reporter, switched to an extended board meeting, and then simultaneously launch a Twitter attack about excessive expenses charged to a nonprofit, all before lunch was served. He has focused big ideas. He has solutions for big problems, and he always wants to do the right thing. He retains a sense of urgency in everything he does, and that urgency and energy stays with you after you're with him for a while, and it makes you want to clear a higher bar in everything you do. Like all great athletes and leaders, he makes everyone around him better. I've seen it. You feel it. You feel it after you talk to him. Bill is the CEO of Pershing Square Capital Management, which he founded in 2003. He's a member of the B, uh, board of Universal Music Group. He serves as a member of the investor advisory committee on financial markets for the Federal Reserve Bank in New York, and as a member of the board of deans of advisors at Harvard Business School. Uh, he takes his philanthropy as seriously as his business and his tennis. Bill is the co-trustee of Pershing Square Foundation, which is part of Pershing Square Philanthropies, which bets on innovative leaders solving humanity's big societal problems. Please welcome Bill to the Citadel.

[Applause]

We had a script. We had a slideshow, and pretty much Bill threw it away, and he said, "Ask me any question." So, we'll start with that as a rough outline for the evening. What we like to do in the early part of these things is to, uh, take you back to the beginning. And I'd like you to talk. That's a picture of you and Whitney up there. Um, I'd like you to talk about your $2,000 bet with your father and your SAT scores.

Okay. So, uh, I was a risk-taker. Um, and I, my parents didn't believe in allowance. So, I would, you know, I became an entrepreneur pretty early on, and I'd saved up about $2,000 by the time I was, uh, going to take my SATs. And I told my dad I was going to get an 800 on the verbal and probably an 800 on the math. And he says, "Okay, well, how much do you want to bet?" And I said, "Okay, let me just see how much I have in the bank." I said, "Okay, $2,000." He said, "Okay." This was a week before the SATs. On the Friday before the SATs, my dad got a bit nervous, and he withdrew the bet. True story. So then I went into the investment business.

So you were going all in from the age of 17. Yeah. Yeah. For sure. Um, okay. So, the most important thing we can impart tonight, $2,000 was a lot of money when I was out in 1983. Um, the cadets, what would you advise, uh, the young cadets in school today who are coming out? How do, how should they be preparing right now to get onto Wall Street or get into the job market?

Uh, so one of the things I say to, uh, when I talk at business schools, uh, and colleges, and I, I go to a lot of great schools, is I, the speech I give, or the, the advice I give, is that if you're here, you're unprepared, uh, for what's coming. And the reason for that is most of the places where I speak, you have students who did really well in high school, did well in their SATs, they got into a really good college. Uh, they did really well there. Um, they got a job for a couple years, they did well in their job, now they're at Harvard Business School. Uh, they're about to graduate. And I said, "The problem is that if you're here, you've had no experience with the most important thing that you need to understand in order to be successful. You've had no experience with failure, and you're going to fail. It's going to happen. And life is like that. And you're might get fired from your first job, your first startup. You may not be able to, you know, raise the second round. Uh, you could fail personally. You could have challenges in your personal life. You could, your partner, your girlfriend could, you know, uh, have some challenge that takes you off offline. And every successful person I know has, uh, their key to success was how they dealt with failure. And I think what's interesting about this place is I think they try to teach that while you're here. And it's one of the few schools I've, uh, spoken at. My biggest piece of advice is that be prepared for the unknown. Be prepared for the uncertain. Be prepared because you're, you're going to fail. You're going to go bankrupt. Something. But the great thing about this country is that there's always a second act. And actually, people like betting on people, uh, that, that have failed. If I look at my trajectory, you know, it was not a straight line up. Uh, it, I've had, you know, significant moments of major setbacks in business and personal life and otherwise, and I just, uh, you know, I think the most meaningful part of my college education was I rode crew. And maybe it's something like the equivalent of some of the challenges you deal with here, but you learn to deal with a lot of pain, a lot of adversity, and you make it through. And if, as long as you believe that, um, you know, if you find yourself in a deep dark hole, you just power through one day at a time. And this thing they teach you in business school about compounding and the laws of, you know, the power of compounding, it applies to saving yourself from challenges. Meaning, just make a little bit of progress every day. You won't notice the progress for the first 30 days. 90 days in, you're starting to notice the curve is starting to move. 6 months in, you've made huge progress. Uh, don't look at where you fell from. Don't look at the startup that had a $300 million valuation where you raised money and now you're starting all over again because the original idea didn't work. Don't, don't focus on the 300. Focus on where you are. Focus on the next step. Make a little progress every day, and it works every time. Uh, and, you know, the never give up thing is entirely true. Um, and I'm a good example of that. So I've, I've made bigger mistakes in the investment business than almost anyone. I lost $4 billion on one investment. And yeah, it's a big number. Um, and, uh, and despite that, all of my investors who stayed with me over time have done extremely well. You know, it's been a 16% compounded return for 20 years at Pershing Square, but it wasn't a straight line up. There was a moment where we were down 35% uh in 2017 from the peak. Uh, investors were redeeming capital. I was going through a divorce. Um, you know, there I had a litigation in connection with one of my investments. It was a really sort of grim moment. And, um, you know, I took my own advice, made little progress every day, used good judgment, and I'm way better off, uh, today having gone through that sort of moment. Our firm is, you know, one of the important things about our, uh, the investment business. The problem with the investment business, if you're a long-term investor, is investors generally give you money over relatively short periods of time, and you're, and you're trying to generate value over a long period of time, and there's this mismatch. And people talk about, you know, asset-liability mismatch problems. You have a bank where you're taking deposits, you're making longer-term loans, that creates risk. The same thing is true in the investment business. So, my ambition was always to get to a place where the capital was permanent, where it would never leave. And the path by which I got there, it was that failure that created the opportunity to create permanent capital, and that's been a huge advantage for us. So look at every challenge as an opportunity. The good always comes from the bad. You just have to look for it.

That podcast I, uh, I've sent that reel with Friedmen, that interview that you did about the little steps, and I, I sent that to, uh, both of my kids, and we play, and I keep sending it to them every time it pops up on my Instagram. I repeatedly send it to my son and daughter. Um, I was going to try to figure out how to tempt you into doing it, but you did exactly that podcast of the little steps of compounding. Nutrition, sports, health, maintain your health first.

Yeah. Actually, I, I'll tell that part of the story. Yeah. So, I'm also a huge believer that you can't make it through a challenge unless you're physically, mentally healthy. So at, you know, good sleep, weightlifting is actually, this is a good audience to talk to. It's very, it's good for your muscles. It's also really good for your brain. And, uh, nutrition. I don't know, I haven't checked out the food here. Um, but I'm kind of a believer that this seed oil thing is not good for you. I went zero sugar beginning in November. It's been amazing. Uh, I recommend you do that as early as possible. Sugar is poison. Uh, and, uh, the sooner you give it up, I mean, you, the withdrawals are like a couple weeks without heroin, I think. But, but once you're through the, the, uh, the withdrawal, um, it's kind of a life-changing thing. So, nutrition, sleep, exercise, uh, you know, some sun, uh, and you can, you can get through anything.

Um, you, this is a slide of the mere 45x return of Pershing Square since inception. Um, do you want to explain the, uh, best investment, worst investment?

Actually, the thing I'll point out here, you see if the line sort of gradually goes up, that that's a 21% compound return for the first dozen years, and then there's like a relatively small decline. That relatively small decline is down 35%. And at the time, it felt momentous. But the beauty of compounding with the passage of time, as you look back, that doesn't look that, doesn't look that meaningful, right? So that's the thing that you have to remember. The challenge you're feeling feels monumental. You know, the business loss, the money loss, the maybe you got sued, maybe you lost a lawsuit, a divorce. I mean, you have a health issue. It feels just like your life's over. Um, and, uh, it's how you, successful people, it's how you deal with the challenge, how you deal with the failure that determines your success. It's a little, it's less about the success. It's more about the inevitable challenge and making it through. And a lot of people, you know, just sort of veer off and give up at that moment. If you don't, you know, it, it works. Yeah.

Um, let's talk a little bit about your path, your very, very short path to a hedge fund immediately from undergraduate, um, business school. From business school, um, you found your way to Joe Steinberg, Lucadia. Joe made one of the worst investment decisions of his career by not taking the, the full stake in Pershing, uh, for later on. Um, but talk a little bit about the path that took you, uh, to Gotham and then to Pershing.

Sure. So I went to business school to learn how to be a good investor. And the first investment lesson was to read the course catalog before going to business school. I went to Harvard Business School to learn about investing. I get there, I look at, there was a thing called a course catalog. You guys don't know what that is, but it was like a little book, and it had a list of classes in it. And I literally, first day, I pick up the book, you know, and there's not a class on investing. And I'd already committed $40,000, which is what it cost to go for a year at Harvard, including housing. Um, so I learned the first lesson in investing is you do due diligence before you pay, right? Very powerful lesson. Um, and then what I did is I opened up a Fidelity brokerage account. Um, I had $40,000. My parents were paying for my education, which is an enormous advantage in life. I had made, I had $40,000 in savings. I said, "Look, this is my tuition in the investment business. If I lose it all, it's another year at Harvard Business School, but this, I'm going to pay a lot better attention in class if I have some money at risk." And I designed my own investment program, which was, you know, accounting, finance, competitive strategy with Michael Porter. Um, and then I started investing. And a classmate of mine, uh, it was kind of lonely. It was an investment club of one. There was no investment club, believe it or not, at Harvard back in 1990. And so we created an investment club with the two of us. We started looking at companies together, reading annual reports, and, uh, it was fun. And then by the second year, I said, "Imagine if we could do this and people would pay us to do this, right?" That's how you know you've found your career. If you find something that you're excited about doing, even if they, you're not paid to do it, that's what you should do. And then actually, if you can pick one of those things where the pay is good, you know, obviously, uh, even better. Um, and then I said, "Well, why don't we just start an investment firm?" And there was a guy named Seth Klarman who had graduated 10 years before us who ran a firm called Baupost Group. Uh, and he was hired by a group of faculty that, uh, they, a very number of wealthy families were looking to create or to invest in an investment firm, find a firm like John's, for example, and they couldn't find one. And they hired this HBS graduate to kind of do some due diligence on who would be a good firm, you know, who would be good to invest with. And they turned out they were more impressed with him than were any of the firms they met with. And they backed him in launching a hedge fund right out of, uh, Harvard Business School. And I figured, okay, he did it, uh, and we could too. And I figured the worst case is I would get a job, right? All my classmates were getting jobs. I figured if I did this for a couple years and it didn't work, you know, that's what they call, you know, experience is making mistakes and learning from them. So I've had a lot of experience. And if it worked, it would work. And that's how I started. And I, and then I raised $3 million, which took a few months. Um, but it was enough. Uh, didn't have any, wasn't married, didn't, you know, my, um, business partner and I shared an apartment. Uh, and, uh, that's how we kept the costs low.

The first big ditch where you were discovering mortgage insurers. Take us through that scenario. Most people, you know, I think even some of the guys I work with can't even remember back, but like you were being investigated by Elliot Spitzer, sued by the mortgage insurers.

Not sued, but yes. I mean, they didn't like us. Pilloried in the press by these people, and they're chasing you out of town, but you're right, but you're very early. Take us through that and then how that then transitioned into Pershing.

Sure. So, I, Gotham Partners, my first investment firm. The vast majority of our investments were, we'd find companies we liked, we invested in them, they would grow in value. Uh, we'd look for companies where we could help make them, you know, they were underperforming or undervalued because they were making sort of bad decisions, and we'd buy a stake and, you know, help them make better decisions, so-called shareholder activism. We came across a company called MBIA, Municipal Bond Insurance Association, and it was a guarantor of muni bonds. So, uh, they would put their credit wrap, uh, on, you know, small, small, medium, and large, uh, credit, you know, issuances of states and and municipalities. And a friend had recommended it as a long investment, a stock that you should buy. And as I was reading the letter from the CEO, it was a very strange letter, and it made me kind of go deeper. And the more I read about this company, the more I concluded that this is not actually a good investment. This is potentially a totally fraudulent company. They had a AAA rating. They had a trillion dollars worth of liabilities, and they had five billion of capital. You know, pennies, literally pennies supporting these obligations. And the whole premise was they were guaranteeing bonds that would never default. Um, but with that AAA rating, over time, they started guaranteeing much riskier things. And by the time I was looking at the company, they were guaranteeing subprime mortgages and, uh, so-called CDOs and synthetic CDOs, these very complicated instruments. Uh, and it just, it led me down a rabbit hole, and I concluded that this AAA company was, was basically insolvent, and that it would go bust the moment there was any stress, uh, in the housing market. And so there was an instrument invented a year or two earlier called a credit default swap, which is basically like an insurance policy you can buy on a company. And the insurance policy pays off if the company goes bankrupt. And the insurance policy trades every day, and there's a market for it. And because the company had a AAA rating, the insurance on the company defaulting was almost paid nothing, paid very little for it. So this is an incredible investment. And so we bought, you know, well over a billion dollars of this insurance policy, and it cost us, you know, uh, 23% of the total value of the policy. But the problem is that no one knew what we knew. And so I talked to our lawyers and I said, "Look, how do I get the word out on this company?" They said, "Look, write everything down. Uh, you know, write a little white paper. You know, we'll make sure we've got footnotes for every fact we allege, uh, we allege in the, and we'll have all the proper disclaimers, and then you just put it out there, and free speech, and the world can decide." And so I did, in fact, this, uh, and then actually Joe Steinberg, who, uh, John mentioned before, uh, invested. We set up a separate entity, separate partnership, just to buy more of this insurance. Um, and, uh, you know, for $20 million, we could have, you know, if the company went bust, we made a billion and a half. That sounded kind of exciting. Um, and then we put out a little white paper. It was a 66-page white paper entitled "Is MBIA AAA?" And then the turd hit the fan.

And basically, uh, you know, I, I pricked the bear. And the bear here was the largest guarantor of New York State and City, uh, bonds. And they knew every, you know, governor, state treasurer. They were an incredibly influential company. And so they called, uh, the, uh, treasurer of the state of New York and said, "Look, there's this evil hedge fund guy. He's claiming that we don't deserve our AAA rating, and Moody's, S&P, and Fitch say we're AAA, and he has an investment on which he'll profit if, you know, his market manipulation." Uh, and that was really the beginning of this incredible sort of, uh, life experience where they went after me very aggressively in the media. They, uh, Elliot Spitzer, uh, launched an investigation. He was like this, you know, the toughest attorney general ever. Uh, and that's, uh, my first real, you call it a ditch. Seemed like, uh, a very deep mine is the best way I would describe it. And that was my first challenge. Uh, and, uh, I was investigated for six or seven. It's actually not even clear how long, but I had six or seven interviews with the, they requested every document. It was like 186,000 pages of due diligence I had underlined on the company. If you can imagine how much reading I did here, you know, and then I had to explain to a group of lawyers who knew nothing about finance what a credit default swap was, the accounting for these instruments, why it was wrong. And my lawyer said, "Look, just try to keep the answer short and kind of like this answer." So, you know, seven days of on-the-stand testimony with the attorney general. Then the SEC didn't want to fall behind Spitzer, they launched their own investigation. And it was like a moment, um, in my life, and, uh, I had to wind up my fund because I couldn't, you know, while this was going on, uh, you know, we had to kind of push pause. Um, but I just believed in free speech. I knew I was right. Um, and, uh, you know, they just tried to find something wrong with my white paper, and there was nothing wrong. And at a certain point, my favorite moment with the SEC, all this, all these transcripts, by the way, are public. At a point, they said, "Well, Mr. Aman, you seem to be implying that we should be investigating MBIA instead of you." I said, "Yes, yes." Uh, and they didn't. Uh, this was 2003. Uh, and then in 2007, uh, the, the financial crisis, the first companies to blow up in the financial crisis were the bond insurers. And basically, after Spitzer's investigation, one of the things that's really remarkable about Joe Steinberg, we mentioned, you know, I was tarnished in the press, uh, when the government investigates you and they find nothing wrong, they don't write you like an apology note that you can show, "Mom, see, Mom, I did nothing wrong." They just disappear and they go quiet. And I wanted to go back into the business. I wanted to launch a new firm. And, uh, I, I'll give, I'll tell you a small little anecdote that, uh, John doesn't know. So my wife and I, my, my then wife, I've been remarried since, she and I went away just to get away from all this bad press and everything else. And we went to Cabo San Lucas and went to this beautiful little resort. And, uh, we got there early, and, you know, we just went there for peace, just to get away from all the press and everything else. And we check into the hotel, and they're like, "Your room's not ready. You can wait down by the pool." We go down by the pool, and I kind of walk in in my New York City clothes. Everyone else is, you know, it's just this beautiful scene. And this guy gets up, sees me. He says, "Aman, what the hell is going on?" And, uh, it's a guy named Ian, and it's Joe Steinberg's partner. He's there with a bunch of friends. And he says, "Bill, we need to talk." And we sit down, and we have lunch, and I tell him the whole story. And he says, "You know what, Bill? When this smoke clears, let us know. Joe and I want to back you in a significant way in your next, whatever your next thing is." Which is an amazing thing for someone to say. And it took me about 10 months to work through all this stuff. And I launched Pershing Square, and they put $50 million in, and they were, you know, very reputable, you know, amazing firm. And with that and a little money I scraped together, I started Pershing Square. But it's kind of a good example that you can come back from. It was pretty good, you know, grim. So, but best investment, best investment. Why don't we just talk about the bad ones?

Oh, no. The good news is, by the way, you feel good. MBIA eventually, I, I rebuilt the position, and then it blew up in the financial crisis, and I made, you know, a billion and a half dollars for our investors on like a $30 million investment. And so, it was a good, good end of the story. And there's a, there's a book about it called "Confidence Game." If you ever, we did use the slugs. Ah, okay. There's the book. Uh, it's out of print. It's such a popular book. Best investment.

So the best, I would say there, so that was one of the best investments. The, the best investments are generally ones where everyone else thinks you're wrong. Right? So we had this company where everyone believed it was the most creditworthy company in the world. It was as good as the federal government, AAA rated. And actually, the federal government today is not even AAA rated. It's like double A plus or something. Uh, and we were, we bet that a company with a AAA rating was going to go bankrupt, and we made, you know, 354 times our money. Um, the inverse of that is in November of 2008, uh, a shopping mall company called General Growth, second largest shopping mall company in the country. The stock went from $63 a share to 34 cents in like six months. And the reason why the stock went down 99.5% was they had a lot of debt. Uh, they borrowed money in the CMBS market, which is the securitized real estate market. And that market shut down during the financial crisis, and, uh, everyone said they're going to go bankrupt because they can't pay off their debts as they come due. They had $27 billion of debt, about $15 billion coming due in the next 18 months, and the stock went from, you know, like a $6 billion market cap to a hundred million market cap. And, uh, my bet was, you know, the malls had gone from 93% occupancy in 2007 to 95% occupancy in 2008. So the occupancies were up, the rents were up, the net operating income was up, the fundamentals of the company were solid, and these were basically class A, sort of the fanciest, you know, best malls. And so the assets were fine. And if you, now, before this company, everyone who had invested in a company that had gone bankrupt, the shareholders had lost all their money. But I didn't understand why that had to be the case. You know, I'd read, you know, a book on bankruptcy. I called our lawyers. I'm like, "Look, I think the assets are worth more than liabilities. Why shouldn't the shareholders be able to make a meaningful recovery?" And they said, "Look, it can happen, but it never does." Because what happens when a company gets delisted and goes bankrupt is people sell the stock. Uh, distressed investors buy the debt at a discount, and then they work the process through the courts, uh, and end up keeping 100% of the company. So, I said, "Well, we're going to do something different." We bought 25% of the company in the market for $60 million, starting at 34 cents a share. I joined the board, and then I, I helped the board run a process that benefited not just the creditors, but also the shareholders, and the stock went from 34 cents to ultimately $31 a share. Um, but it was so, again, the most contrarian investment you can make, buying something is to buy stock in a company going bankrupt, right? Because everyone says it has to go to zero. And if you do a little bit of work, a little lot of work, and have an insight, those are the best examples.

You've absolutely changed your style over the years. You used to be an aggressive activist.

I'm not, I'm always aggressive. Always aggressive. Why not be aggressive? Is everyone here aggressive? I assume you're aggressive. You go to this place. You want to be aggressive. You, you're either aggressive or you're weak. Which do you prefer?

You don't publicly short companies anymore.

We don't short stocks. Big mistake. Don't short stocks. And you've achieved a measure of permanent capital in the last few years, which is very important to Pershing Square.

Yes. Um, how has that changed your risk tolerance? Has that, how has that changed your risk parameters?

So our, I would say our risk parameters haven't changed, but what's changed is when I first went into this business, uh, no one knew who we were, and we were telling kind of big public companies that we had a better way for them to run their business or structure their business than they did. And, and the idea was, how could someone outside of McDonald's or Wendy's, some of our early investments, have a better insight to how our company should be run or structured if you don't even work here? And so the early days of shareholder activism, companies really pushed back on shareholders who had ideas. Um, but we had some big early successes. Shareholders did really well. You build what I call reputational equity over time. You know, when I started Pershing, I was 37. Today I'm 58. I'm basically the age of most, I'm, I'm sort of one person removed from or one or two people removed from every CEO in America. I've been on many public boards. Uh, so, you know, built a reputation. People can kind of check me out by talking to CEOs that we work with. And the advice they give is, you know, "What you should hear what he has to say." And so we haven't had to barge our way into the boardroom. Uh, today we get invited in, uh, and we can do what we do without having to run a proxy contest. So that, that's what's changed. It's not really a change in risk, it's a change in sort of the maturation of the firm.

Um, switching gears a little bit to more current events, because you said we could throw away the script. You can ask me anything. Tariffs. Uh, we have. Interesting. What's a tariff? Uh, [Music] the the last guy who sat here is in charge of that effort. I think in charge is not entirely helping. Helping. Yeah. Um, how do you think this is all going to work out? Is this a negotiation or is this a trade war?

So I think, uh, a tariff is a tool, uh, that can be used to accomplish certain objectives, and I think the president's objectives are important. So one, we have unfair trading relationships with various countries around the world where they charge a higher tariff on our goods than we charge on theirs, or they have other practices that make it very difficult for US products to enter their market. Uh, and, uh, you know, President Trump is America First. He doesn't like the country being taken advantage of, and he wants to fix those arrangements. So, that's one way you can use a tariff. What I thought most of his effort would be so-called reciprocal tariffs. You're charging us 10%, we're charging you nothing. You know what? We're going to charge you 10. And if you, uh, don't like that, if you'll take yours to five, we'll take ours to five. And we'll use the tariff as a way to kind of create fair trading relationships. That's one important potential use of a tariff. Another one is, you know, the world has become, I would say, riskier, uh, geopolitically and otherwise. And, uh, we learned in COVID that relying on other countries for PPE or, you know, far the ingredients that make pharmaceuticals is, you know, potentially threatening, uh, to the United States. So we have to bring, we have to be able to make certain products here that's important for the defense of our country, that's important for the health of our citizens. Um, and, uh, relying on semiconductor production on an island off of China, that seems like a bit of a risky, uh, proposition. So, we got to bring that, uh, activity here. You know, TSMC, you're amazing at what you do, but, you know, if you want us to buy from you, we need you to build the plant here. Uh, and so, another way to use tariffs is to say, "Hey, we're going to put very big tariffs on these important strategic assets, uh, that we need in America." Uh, and that works to bring that sort of, um, activity home. And then the third thing I would say is this question of balance of trade, uh, and, uh, you know, here I, I'm, this is where I would say I feel like the president has, uh, thinks tariff is a little too beautiful a word. And what I mean by that is, you know, when the president got up on, as he called it, Liberation Day, uh, and he talked about reciprocal tariffs, the market went up, was up about 2% when he first talked about, um, you know, the, uh, reciprocal, uh, tariffs because people thought he was going to use them as a tactical device to lower tariffs. And then he put up that very famous chart which calculated what was called tariffs, but really was a calculation of kind of the trade balances between the US and other countries. And used that as the basis to say, "Okay, Vietnam is effectively charging us a 92% tariff, so we're going to make a fair deal with them and only charge them a 46% tariff." Uh, and that calculation, I think, is not one that fits into my understanding of the economic world, if you will. And it makes sense to me that the United States, as, you know, it doesn't make sense, let's put it this way, that Madagascar or Lesotho is going to buy as much from us, okay, as we buy from them. That's just really the reality. We're a much bigger economy. We're a vastly bigger country. I'm giving you kind of the extreme examples, but the same thing's true for Vietnam. And the same thing's even true for South Korea and kind of otherwise. And, uh, there's, you know, we learn somewhere in the economics class, you learn about something called comparative advantage. Uh, it does not make sense to, um, produce t-shirts and blue jeans and baseball caps generally, uh, in America. Uh, other countries with lower cost labor, you know, it's a better place to make those kinds of goods. Uh, so I think the kind of, I guess I have trouble giving short answers, but the, the answer here is it sort of depends on how the tariffs are being used. And the other point I would make is you can't make changes in your supply chain overnight. Uh, and, you know, when the president announced tariffs at this, you know, very, very high level, um, my advice to the president was, pause. You've gotten the world's attention. People had a, a real opportunity to feel like what, what the impact of these tariffs would be if they were instituted immediately. Let's pause. Let's give Scott time, uh, to negotiate deals with our trading partners and let's set up, you know, so that this, you know, we can do this without disruption. The risk of what's happening now is that business people are, you know, in order to be in business, you got to predict the future, right? You got to say, "How much am I going to sell next quarter, next year?" You got to plan for that. You know, you may have to make an addition to your factory, you have to hire workers, you have to make investments. It's hard to plan for the future if the future becomes uncertain. And what the sort of tariff, uh, what war, to the extent it's become one, has done is create a lot of uncertainty. And uncertainty causes businesses to pause. When businesses pause, the economy gets weaker. And, uh, this, this community knows better than any other. If you're going to go to war, you want to be at your strongest and fittest. And that same thing's true if you're going to go to a tariff war. United States has got to be, have a really strong economy, uh, and you can't, you don't want to disrupt that economy. The other thing you do when you go to war is you want to work with your allies, and you want to focus on your enemy. And I think we kind of launched a tariff war against 170, 80 countries at the same time, and the vast majority of, of those countries are are friends of the United States. Uh, and I think, you know, in retrospect, we should have focused on China. Uh, so I think, you know, uh, we're going to get to the right place. The president has shown a willingness to make, to adapt and make changes, uh, on the fly, and I, ultimately, I'm a big believer in the country. I believe in the president and his advisors, and I think we will eventually get it right.

And China, where do you wind up? How, how do you negotiate that out? Um, because you did use the term war.

Yeah. Look, when you have a 145% tariff, it just means you've just turned off trade. You know, I, there are very few, I, I can't think of a product that a company buys from China that if the price, you know, goes up 145%, that they can pass along that cost, or where they have enough margin to their business where that doesn't wipe out, you know, their business. So a lot of companies are, as quickly as possible, uh, moving their supply chains to other places. But there's still, even Vietnam, which is sort of a natural place, for example, to, if you're making sneakers in China, Vietnam is a logical place, uh, to do that. And even the Vietnam situation is kind of uncertain. So I think it's likely that this, you know, we've had a, a brought forward of demand into the first quarter as businesses assumed some amount of tariffs, and so they said, "Look, let's ship as much as we can, uh, out of China and other places where we're expecting some kind of tariffs." And we've kind of front-loaded some demand. And I think you're going to see kind of a pause, kind of going into Q2. So I think the, you know, we, we'll be at the beginning of a recession, I think for sure, in, in Q2. And the, and what keeps us from going into a deep recession is that this gets resolved, you know, fast. We start hearing about a deal with Japan, you know, soon, South Korea, India. All of a sudden, the business community starts to say, "Okay, this is going to work. This is going to get resolved. Um, I can start predicting the future again. I can start hiring people. I can start making commitments."

Um, I want to ask one more question before we go to Q&A. Harvard. Um, you're trying to help them improve themselves. Um, with sage advice. Um, I think, you know, we both had the benefit of going to these schools that have drifted away from what their core mission was. The other night at dinner, you laid out, "Here's my activist plan for Harvard." This is what I was. Can you, how do you fix Harvard?

So, um, Harvard's a great place. I, you know, you feel a loyalty to any institution that's played a meaningful role in your life. I went there four years undergrad, as I mentioned, I rode our varsity crew for four years. I went back for the business school, had a great education, made lifelong relationships, care about the place. Um, what's happened at Harvard, and actually other so-called elite institutions, is what I describe as almost ideological capture of the institution. And, you know, there's been a lot of discussion in this administration. I wrote a like 4,000-word, uh, uh, essay, you might call it, on Twitter on DEI in, uh, January of of 2024, and I talked about how this ideology had kind of permeated Harvard. And, you know, we had an institution that was focused on meritocracy and excellence and, uh, colorblindness, I would say, and it became an institution focused on race, on gender, or what some people call intersectionality, on a, a kind of a framework for the world where their world is divided into two groups: people who oppress other people, and people who have been oppressed by other people. And this ideology, kind of, permeates, unfortunately, um, kind of the humanities at Harvard and has affected everything from, uh, the admissions office to how faculty are selected. And the other thing that's happened is that each of the various, you know, the government department, the economics department, etc., uh, the departments kind of appoint their own faculty. Uh, Harvard did a survey a couple years ago, an anonymous survey. Uh, 2% of the faculty identified as conservative or very conservative, and the rest of the faculty basically identified as, uh, some portion moderate. Vast majority described themselves as left or far-left, uh, from a political perspective. And when a department tips 70% progressive left, the departments at Harvard tend to, so maybe it's natural about how academia works, they appoint people that share similar political views. And that's what led the institution to kind of veer so far, uh, ideologically to the, to the kind of left politically. And the problem with that is that, in my view, education, the way you learn, is you get

exposed to broad diverse viewpoints. Uh, and uh, Harvard has lost that. Um, and uh, the way you fix that, uh, is, I think it starts at the very top. It starts with a board of directors who, you know, the Harvard, my advice to Harvard was, you need to fix this, or you're going to, your, your alums are going to stop giving money, and the federal government's going to stop funding you, and that's how it's going to get fixed.

And uh, financial pressure focuses the mind. And, you know, Harvard has a $53, $53 billion endowment, um, but it's extremely illiquid. It's like 85% of the assets are in private equity, real estate, and venture capital. And I question the carrying values of those assets, um, a lot of them. Commitments, you know, 2021 values are being used to carry a lot of venture investments, uh, that are not, I would say, today accurate. Um, they, Harvard has, you know, six, $7 billion dollars of debt. Uh, they just had to borrow, or another $750 million. They rely a lot on alumni donations to fund kind of current, um, you know, investments. And the endowment itself is actually 10,000 smaller endowments that have very strict limits on what the money can be invested in. So, Harvard's in a pretty tight spot. With $53 billion, the only way they can get liquidity is borrowing money. And it's, they're, they're setting themselves up for a problem because if you're an alum, you don't, I, I wouldn't be excited about giving money to Harvard and knowing the money is going to pay debt service, you know. Uh, so I, so I think financial pressure will cause, and, you know, the government withdrawing $2 billion of funding, um, you know, this is going to, the faculty at Harvard are going to, I think, revolt because if you're a top scientist where none of the ideological stuff has actually affected your work, and now you're going to lose a chunk of your funding because of, you know, the radicalization of the humanities at Harvard. It's going to cause you to question whether, you know, I would say that the faculty will should, you know, 15% of the faculty are causing 100% of the problem, and I think that's how it resolves itself. Harvard may be able to hold out for a couple of billion dollars, but Cornell, you know, not too far away with only $10 billion and 70% of liquid, only really has $3 billion of liquid funds. So, you withhold a couple billion of research finance from Cornell, and you're in a tighter spot much more quickly. Yeah, a crisis can solve a lot of problems. As I said before, good always comes from the bad. Um, let's go to Q&A. Yeah, someone just asked a question. I'll answer it. Y, uh, take this, everyone. Why is it so hard to make mechanical watch movements in the UK?

Okay, the question is, why is it hard to make mechanical watch movements in the UK? So, this is a bit of an arcane question. The reason why I'm being asked is I recently took control of a watch company that's based in the UK. It's called Vermont. Uh, Vermont's well known actually in the military community because 26% of their sales are to Navy Seals, special forces, uh, Air Force, uh, SAS, uh, around the world. I kind of walked into a watch store, liked the watches, wrote a note to the guys who started the company, and then ended up, uh, owning it. It happens to me sometimes. Uh, and, um, they, the history of watchmaking is all the innovations in watchmaking came out of, uh, actually England, uh, because the, the British were the big adventurers and they, you know, they had to figure out, you know, how to track where they were in the world and, and they had to be come up with a mechanism to keep time. There's a very famous book called Longitude, which is about this, uh, which is worth a read. Um, but the Swiss were a bit like the Japanese of the US auto industry. Initially, they didn't make very good cars. But eventually, the Japanese really took over and made better cars than the US. The Swiss were sort of the, made cheap copies of British watches, and then eventually they became the better watchmakers. Rolex is actually a British company. Um, but tariffs were introduced, and so they, they moved Rolex to Switzerland. Um, and so watchmaking itself requires talent, and, you know, all the watchmaking schools are in Switzerland, but eventually we'll be able right. So today, Vermont watches our Swiss movements, uh, assembled in the UK. So, tech, check out Bermal. Yes, please.

I watched the short documentary on Yeti about the thousand cats, and you and Oliver White, uh, came together and on that Argentina fishing trip, um, he guided you that whole week. Uh, what did you see in him to make you decide to send him the three books in the mail for him to read? Basically testing him to see if he read or not. And then those are two parts, right? So when y'all went to to structure that deal, how did you structure that deal with the Bohemian government, and how did that end up? These are by far the most obscure questions I've ever received.

So, uh, there's a, there's a, there's a small, this is a short documentary. It's like playing on Delta Airlines, uh, funded by, by Yeti. And it's about a guy named Oliver White, uh, who is kind of the Roger Federer of, of fishing. Uh, I met him when he was around 25 years old, uh, fishing in Tierra del Fuego, Argentina. Uh, and it's kind of a funny story. I went to like a charitable type, you know, dinner. Uh, and, and, uh, it was a, it was an organization that promotes entrepreneurship in South America, run by a friend of mine. And, uh, my dad, you know, loved fishing. He wasn't, he was sick at the time. He couldn't go, uh, to the dinner. So I, I bought one of the auction prizes, which was a week at the best fly fishing, uh, uh, lodge in Tierra del Fuego. And I went without having fly fished before. And it's, it's the equivalent of going to, uh, the Indy 500 without a driver's license, right? And we went down there and there were a dozen guys from Jackson, Mississippi that for 30 years, their dream was to go to this place. And then me and my friend, my high school friend, had never fished before. And that was kind of the setup. Uh, and I met this guy named Oliver White. And, uh, he taught me fly fishing. Um, and, uh, I'm good at picking people. I don't know exactly how to describe that. It's like a skill you kind of learn over time. But I was super impressed with this young man. Uh, went to, actually UNC, uh, philosophy major, outdoorsy guy, uh, and, uh, I said, "Look, if you're ever, thanks for teaching me fly fishing. If you're ever interested in learning about investing, let me know." Uh, and, uh, I'll teach you investing. And, um, got in touch, uh, a few months later. He said, "If you were serious about that, uh, let me know." I said, "Yes." And so I sent him actually about 10 books. I said, "Read these and then call me back." And then he read them, uh, and he called me back, and I hired him, and he worked for Pershing Square in the very early days, um, for about 18 months. Now, the problem was, this guy is a real, you know, guy who likes to live in the woods. And I moved him into New York City, um, but, uh, he found an apartment with a disastrous roommate on Craigslist, um, you know, in the, in the concrete jungle of Manhattan, and there was only so much he could tolerate of that. Um, but after 18 months working in Pershing, he learned about investing. He learned about companies, uh, and we decided to go in business together, and, and, uh, he went to the Bahamas, and he bought a failed hotel, uh, with me as his partner, and we turned it into, or he turned it into, uh, one of the best fly fishing lodges in the world. And the only thing we underestimated was the hurricane risk. So, it was, it was about a million and a quarter investment, and it was generating about a million dollars a year in cash flow, uh, which it did for five or six years until it disappeared in a storm. Um, so that's what happened to Amatch. First question like that that I've ever got in the back. Yes.

So, Mr. Ackman, I'm Paul Meeks. We met earlier. I'm a hired hand, Mr. Meeks. I teach finance and accounting, and I supervise the super manage investment fund, which for which I managed about $2 million. I might be less today because we own that video. Yet, we should do that. But, um, I had 90-some odd students come through my three classes today, and I asked everybody to write a question that they could pose to you. Okay. So I've got 90 questions I have to answer. We have a, I got to shorten up the answer. Uh, so I, I suggest that we hit, uh, one of these, uh, cadet questions. They'll introduce themselves and ask a question. You don't need, need to hear me say it. And then we'll go to student, non-student, student, non-student. Is that cool with everybody? Great. Take that. So, first of all, this is, uh, Cadet Angel. Oh, and she has a question for you. Hello. Um, in a world driven by short-term results, how do you maintain a long-term vision in both investing and leadership?

Sure. So, uh, what I would say is, and this is advice I give everyone here, um, the problem being young, uh, is that, uh, you want to get rewards as quickly as possible, uh, and, um, you know, time seems to pass really, really slowly. Uh, but value is very rarely created overnight. It takes a very long, it takes a long time, can take decades to be created. And it's going back to my, you know, compounding. Something you really should spend a little time studying, understanding the curve of compounding, um, doesn't really show much progress. You know, it's a bit like COVID, right? People didn't notice COVID in the early days of co-compounding, but it was compounding 100% a day or some number like that, and then eventually it exploded. Um, once you understand the power of compounding, once you understand it takes a long time to create value, uh, and that many people are short-term focused, uh, if you, one of the great competitive advantages you can have in life or as an investor is just having the long view. Uh, because some of the best opportunities, the, the benefit of that opportunity doesn't show itself, you know, for a number of years. You know, so some people, for example, take the job that pays the highest salary coming out of, uh, the Citadel because, you know, what, u, maybe they've got some student debt, or, you know, they're planning to get married at some point, and, you know, that that extra $20,000 or $30,000 or whatever the number is, uh, is the difference between them living a little nicer place versus otherwise. Um, but the, what matters when you're picking a job is what does it look like over the next, you know, five years, 10 years, uh, etcetera, or what will give you the best experience, uh, that you can leverage over time to create even more value? And so I think, you know, once you figure that out, um, it's really, it's not so hard to make that, you know, uh, to make that kind of decision. And it gets easier, uh, the more successful you are. You know, the, I, my principal driver in life has been independence. I wanted to be indep-independent. I wanted to be able to say whatever I wanted to say. I wanted to not be relying on anyone else, uh, for a job. I wanted to be financially independent. Um, and once you get to financial independence, all that stuff becomes easier. Um, but, you know, I always kind of believed that I would be successful. I actually told my dad when I was 20, I said, "Dad, I'm going to be a millionaire by 30, going to be a 100-millionaire by 40, I'm going to be a billionaire by 50." Dad laughed. And I've always been like a head in my, my plan. And my, uh, not that that's money is the measure of, of, of anything, but the, um, I always, I thought I was a billionaire when I was 22. I just used a high discount rate to discount my future, my future cash flows. And, and by the way, that's what that's how you should think about it as a young person, right? The biggest advantage you have is time. You know, you've got extra years of compounding. Here's an interesting stat. Warren Buffett, when he was 50 years old, what percentage of Warren Buffett's net worth did he create after 50? And 50 sounds old, everyone in the room. The answer is 99 and a half percent of Buffett's net worth he created after 50 years old, and now he's 94. Um, so anyway, think long-term. We have one in the back here.

Uh, first of all, thanks to the for letting a bunch of us College of Charleston people sneak in. Thanks, John. Trey, Paul. Uh, Bill, real quick, I'll shorten until we get back to the students, but when you had your sort of moral crusade against Urbanite, uh, 10 plus years ago, I read some documentation of being surprised at both the distribution and the recruitment of people who were willing to give up their last dollar for a dream that had a very low probability of paying off. Um, did, did you see that same population during this last election? And is there some correlation of our elite institutions like academics where we are today, arts, and finance, that keep missing this group of people?

So, uh, Urbanite, which was a, which is a pyramid scheme, uh, preys on undocumented immigrants, and they sell them the American dream, and they have few other good choices, and the disclosure is obviously very misleading. So, it's sort of this unique, uh, kind of circumstance. Um, I'm not, I'm not sure I completely understood your question, but, you know, the, uh, a big part, another, you know, getting back to the question about tariffs. I give President Trump enormous credit, uh, for working hard for people in our country that have been left behind. You know, the, the focus on bringing manufacturing back to America. And by the way, there, there have literally been trillions of dollars of new incremental investment announced, uh, in the last very short period of time of companies opening, you know, or committing to open and invest in the country that are going to bring more jobs back to the kind of the center, uh, of our country. But, um, you know, the, we've had massive, you know, the, the nature of a world where you can get access to unlimited bandwidth at a very low cost, you can get access to, you can be 22 years old and raise whatever money you need to create a startup, and on your iPhone, you can reach, kind of a global marketplace that's enabled a massive, massive wealth creation where, you know, Mark Zuckerberg can be worth a hundred billion dollars with an idea he had, you know, dropping out of school. Um, but if you didn't have that path and that opportunity, and you grew up in a town in middle America, and the steel mill is gone, where the auto factory shut down, and your parents are unemployed, um, and, you know, people are overdosing on fentanyl, you know, that, these are the people that are left behind in our country. And I give the president enormous credit for trying to, and I think, you know, successfully, uh, bringing back, uh, more, more industry, more jobs, uh, for people that are left behind. Um, so these, you know, people have been, yes, they've been missed, um, and they are more susceptible to scams because they're looking for a way out, and they don't have a lot of other great alternatives. We'll go to a cadet. Cadet Kirk.

So, once you reach the top, where do your priorities shift? Uh, so my priorities really haven't changed, you know, for my, you know, what do I focus on? I focus on, you know, obviously first making sure family's okay. Um, you know, I'm an extraordinary economically fortunate person. My family's been okay for a very long period of time. I can take care of them. I can look after them. Um, you know, one really important thing, uh, that, you know, something that was said to, I was one of the other challenges in, in my life is my first marriage didn't ultimately work out. You know, my ex-wife and I realized ultimately we maybe weren't the best for each other. I probably realized it a little bit more. That's a hard thing, uh, and, uh, I had to, you know, have the courage, uh, you know, to get divorced. And I'm like a super loyal person, you know, three kids, one of whom was 10 at the time, you know, so, but a good friend said to me, Bill, your, your most important obligation to yourself is to be happy. And if you don't accomplish that, okay, it, uh, it's really hard to accomplish anything else. Um, I figured out pretty early on that one of the things that makes me, one of the principal things that makes me be, it's going to sound a little goofy, but helping other people. So, from, you know, for decades, I've been helping people find a spouse, get a job, um, you know, make your list of, uh, you know, get access to a good doctor. And what's happened with the passage of time, I have more resources, I have more connectivity. If my ability to help people has expanded, you know, sort of significantly. So, I used to think that philanthropy was the a good way to help other people. And I think it's actually a pretty good way. I've given away about $850 million. Um, but $850 million later, I have more confidence that capitalism and for-profit businesses are going to help way more people than philanthropy kind of ever will. So philanthropy is still important, but I'm really careful to use it in ways where there isn't a for-profit kind of business solution. So my priorities are, uh, one other helpful piece of advice I got from a very good friend. Um, you know, the advice is, you're going to die. Okay. Um, so how do you have a meaningful life? And the best way to figure that out is pretend you're dead. It's your funeral. Uh, your best friend gets up to give your eulogy. You know, what do you want him to say? And then work backwards, right? Live your life so that when the, you know, that day comes, your friend stands up and, uh, explains your, your life, uh, you feel really good about, you know. And, and for me, that was, okay, I, I want to have the largest beneficent impact on the largest number of people. That's going to be my sort of measure of, of success. And I, so I try to do my platform today on how to do that is, you know, day job, um, you know, it's actually a good thing to make money for other people. I think I've had an impact on, uh, the way companies are, uh, managed and governed. You know, one of the reasons why the United States is more competitive than Japan is shareholder activism has actually made companies much more competitive, have higher margins, allocate capital more effectively. So I think my day job has made a contribution. Philanthropy, we focused on scientific research, backing talented entrepreneurs, you know, kind of solving problems. And then my third leg to the stool is actually, you know, Twitter. You know, I, uh, signed up maybe seven years ago, started tweeting periodically, and I've taken on various issues, everything from child sex trafficking on Pornhub, um, where I had a little campaign, uh, to shut down Visa and Mastercard that were providing, uh, facilitating payments on Pornhub, a website where child sex traffickers were putting up videos of sex with children and then doing a rev share with Pornhub, if you can imagine. And the payments were going through Visa and Mastercard. And I figured out, I read an article about this in the New York Times. And I, you know, I thought this, I could end this pretty quickly. And in two weeks, with a tweet and a 30-minute appearance on CNBC, 80% of the videos were taken down. Visa and Mastercard shut down providing, uh, payment support to those companies. So that the Twitter platform is really powerful. You know, I had very strong views about the election. Uh, I thought, um, you know, I felt strongly, you know, we had two choices. I felt strongly that President Trump would be the better choice, an imperfect choice, but the better choice. I felt for various reasons we're heading in the wrong direction. So I tried to be helpful, uh, on the election. Some people may agree with me on that. Some people, uh, disagree with me on that. You know, we'll never be able to do an A/B comparison on whether we would have been better off with one versus the other. So, I look, I try, you know, I'm, with extreme good fortune, uh, comes the opportunity, uh, to be helpful, uh, to, to other people, and that's what I want my legacy to be. So, that's what I'm working for.

Stephen, good evening. Uh, thank you again for Fermcast for putting this on, and I think Charleston really benefits from what you bring to the community. It's amazing, like Bill has got to come here and give their time to share, you know, what is just invaluable knowledge, experience with the students, but also for us here. Um, so I've got one question in a couple of different parts, not many parts. The first question is, did you score 800 on the verbal?

No, I, I got one wrong. And I'm very fortunate my dad didn't take the bet. Um, a key theme you touched on, and I agree 100%, is about, um, the ability to adapt and overcome challenges. And it was interesting, somebody mentioned about British watches. I just happened to be wearing a British watch, the first British watch brand that developed an in-house movement in over 50 years, uh, about seven before breaking. Roger Smith? Or no, no, it's, um, uh, Christopher Ward, the SH21. Anyway, as an aside, the, the, what reason I said is the watch industry is a case in point about adapting to change. So, the reason the Swiss watch industry is what it is today, 16th century Calvinists came in and said, "We're not going to have conspicuous displays of consumption of wealth anymore. We're not going to allow, um, you know, gold, jewelry." Um, and overnight, the, the gold industry had to find a new purpose. And they repurposed by saying, "Okay, well, we can incorporate watches into our, you know, our gold and decorations." And that's, that's how they overcame. And you talked a couple times about the most important thing is being able to overcome those challenges. 2017 sounded like it was a particularly painful time for you. So, I thought we could spend some more time talking about it. Um, and specifically, you know, more direct, you got to ask a question, though. Go ahead. More direct examples of how you cope with challenge. So, is it, uh, tapping into internal reserve? Is it leaning on your network of friends? Is it?

Yeah, actually, one thing. Sure. Uh, so yes, I said, you know, sleep, nutrition, exercise. The most important thing I left off is surrounding yourself with people who love you, right? So family. Uh, very, very good friend of mine, uh, he and I, actually, it was the first time with Elliot Spitzer and the investigation and all the negative headlines and everything. Um, almost every night, we'd go for a walk, uh, and, you know, we'd take a walk from, you know, 10 to 10:30, and we'd just walk to the Hudson River, walk around, walk back, and just sort of companionship, uh, and support. Um, hugely, hugely important. Um, so that combined with the other stuff is how I made it through. Paul, I think we have time for one more question. By the way, I'm, I'm, I'm happy to stay as long as you want me. So, it's okay. So then the other 89 questions, I'm advanced. But we have a cadet next, right? Um, where is Cadet McC? There we go. Go ahead. Ask the question. We can hear you for sure. Number seven.

How do you handle, uh, your emotions when you have to make a big, controversial decision?

Um, so actually, I'm an emotional person, um, but I'm a very unemotional person about investing. And, uh, you know, Warren Buffett talks about what he calls temperament as being a key factor. And what's interesting is, you know, if you think about how human beings evolved, um, usually it was actually a very good idea if all the other people in the village are running that way to run with them, right? Because the enemy is probably coming. Um, but investing, usually the best thing to do when everyone is running that way is to like, you know, go the other direction. So, it's, it's kind of inhuman in a way. Uh, which is why it, it requires a kind of a dispassion. Um, and the reason why markets are so volatile is because when people see their 401k accounts go down, you know, 10% in two days, uh, people panic, and you're sort of in, you're kind of biologically incentivized to do precisely the wrong thing at the wrong time. And that's just, there are two things that help. One is, you should never put yourself in an investment position where the assets you have at risk, if they were to go down 50% tomorrow, you'd have to move out of your house, or it would have some meaningful effect on your kind of life. So, you know, getting yourself to a place where you're sort of independent enough that you can, that the capital you're investing, you don't, it doesn't matter where it, the value of it six months from now, a year from now, two, or even three years from now. What matters is what it's worth in 10 years, 15 years, 20 years. If you can get yourself to that place, it's easier to be sort of dispassionate. Whereas, if you have 100% of your net worth invested in the market, and you use borrowed money, borrowed money, then it, your emotions are probably, there's no way not to be emotional about it. So, get yourself to a place where you can be dispassionate. Emotional, but a lot of it is just training, you know, getting, getting used to the volatility. Um, that's the best answer I can give. I just start Mr. Ackman, will you take one more question here on the record?

Sure. I, again, I'm, I'm, I'm not going to get home before dinner. So that's it. Enough. I'm happy to stay as long as you want me. I just had a, um, question about kind of the global view of the US now, and what you, like, can you convince Trump that we need allies? Or like, where does this play out?

Look, I think, um, we've done some reputational damage in the last couple of weeks. Um, but the United States has done a lot of good over the last 250 years. Uh, and, uh, the president is actually a very charismatic person, very good at building relationships. Uh, and I think, uh, you know, this will remain one of the best places in the world to invest. Legal system, liquidity of the markets, SEC, uh, disclosure, all the various competitive advantages we have. There's a reason why companies list on NASDAQ and the New York Stock Exchange instead of their home markets, even when their companies are completely domiciled and doing business elsewhere, because the highest valuations, uh, are, are achieved here. So I think, um, we make a good deal with a deal with Japan that Japan and we are happy with, and we start knocking these things out. I think people will remember the tariff tantrum. Um, but we will, we will move forward. Um, again, it depends, but that's my expectation of what's going to happen.

Cadet Ruggeri, are you around? All right. Do you need your, uh, question, or do you remember? I remember it. There you go. Please.

So, how do you identify investments early on before the market?

So what we do is, the, the most important thing for us is what we call business quality. So we look for businesses that one, we can predict what they're going to look like with a high degree of confidence over a long period of time. So the value of any financial asset is the present value of the cash the business will generate over its life. If you can't predict what the business looks like five years, 10 years from now, 15 years from now, you really can't figure out what it's worth. So we try to find businesses that are first predictable, and then we, and in order for the business to be predictable, it's also has to be protected from the various forces in the world. The hardest thing to do as an investor is to figure out or determine, you know, is this a disrupt-able business that's going to be disrupted by two Citadel students working in a garage, or is it a business that's going to survive whatever technological changes occur, AI, etcetera? That's the hardest part about investing. But once you've found a business that meets that criteria, um, you know, we sort of have a library of these kind of companies, and then we track them on a regular basis. And even the best businesses in the world, at various times, sometimes for reasons completely unrelated to the business, become available at really cheap prices, right? Every stock on the S&P went down, you know, something like 10 or more percent in the couple days after the tariff announcement. Uh, some businesses are materially affected by tariffs, others are not. If you, if you do sufficient work, you know the business as well. Um, because of the volatility in markets, every once in a while, a really great company becomes available at a really cheap price, and we just wait for those moments. And so it's not like we're figuring it out before other people. It's just that we know a meaningful number of companies. When the stock prices move significantly, you know, become a lot cheaper, we update our work. If, if it's still as interesting as we thought before, now available at an interesting price, we buy. There aren't that many companies that meet that description that are available at a cheap price. So the other thing we do is we just concentrate, meaning we own 10 things. Um, most investors own, you know, a typical mutual fund might own a hundred securities. Typical investor, most investors make the mistake of owning too many things. And the reason for that is diversification protects you from ignorance. Right? If you don't know what you're doing, just do a lot of things. Right? If you, if you, you know, most business people know a ton about their own business, and they're super concentrated in their own business. Estimate, you know, if you look through the Forbes 400, the wealthiest people in the country made their money generally in one company. They had a portfolio of one. I mean, that's an incredible degree of concentration, right? So, you know, 10, 12 stocks is more than adequate diversification if you're investing in really high-quality companies. And so, the combination of concentration, kind of doing our homework, and being good at, you know, figuring out through the risk of disruption has enabled us to be successful. You, you added a stock today. You know, stock today, actually, we bought a position, bought a little under 20% of Hertz. Um, and what attracted it, so we, most of our investments are large-cap dominant companies with strong balance sheets, kind of long-term durable growth companies, very difficult to disrupt. And we put 10, 15% of our assets in those. Occasionally, we come across an investment that we call a mispriced probabilistic investment, where there's a much bigger risk that we lose money, but there's a much larger potential for gain. And Hertz is sort of an example of that. So, the Hertz, basically the story here is, uh, Hertz went bankrupt, uh, during COVID because people stopped renting cars, and the company had a fair amount of leverage. It came out of bankruptcy, like General Growth, our bad, we missed it, where the equity basically remained intact. And then the management team made a, in retrospect, a strategic decision that was a disaster, which they decided to buy 100,000 Teslas and have an EV fleet. You know, uh, Tesla's an amazing car. Uh, they thought the market would differentiate them from their competitors, but they underestimated a few things. One, how to keep the car, you know, it's, you go to a gas station, you fill up the car in, in at three minutes. Well, when the guy brings the Tesla back, it takes a lot longer for the car to kind of recharge. Also, the consumer, a lot of consumers hadn't driven a Tesla before. It's a little bit different of a kind of a driving experience. People worry about running out of, you know, power, etcetera. And so that, uh, was a problem, and they realized it, uh, and, uh, they decided they wanted to shrink their Tesla fleet. But then Elon materially reduced the price of the Model. You know why? And as a result, the residual values of Teslas went down. And, and what's Hertz's business has sort of two components. One component is they own a half million cars. And they finance with basically 100% financing that half million cars with, you know, these securitized loans. And the way it works is, um, if residual values of cars go down, Hertz has to put more money into this securitization to keep it sort of meet the various kind of standards. Otherwise, the lenders can liquidate the cars, which of course would be a disaster for the company. So when the residual value of Teslas, uh, went down, they had to borrow a lot of money in the business to put more money into the securitization, and that levered up the company. Bit of mismanagement coupled with this problem, and the stock got, you know, crushed, you know, down 90%. Um, what intrigued us was a couple of things. So, one, a new management team had come in to run the company that seemed very capable, was doing the right things. The second thing is that Trump was talking about tariffs, auto tariffs. What's interesting about tariffs in the auto industry is you don't charge tariffs on used cars. And so if the price of cars is going to go up by 25% because of tariffs, the residual value of cars is going to go up. So the, all of a sudden, they're 500,000, 500,000 cars, uh, the residual value is going to be higher. And so this securitization, which consumed a lot of cash, well, the good news is that when residual values are higher, you can actually take cash out of the, uh, securitized portion of the business. And they had worked them through basically the, the big, kind of one-time loss on the Teslas. And our view is they're going to come out of this, start generating more profits, and because this company is so levered, you know, the, the Tesla, I'm sorry, the Hertz stock is almost like an option, like a long-term option on this sort of turnaround. And, um, you know, you're paying a billion dollars, uh, for the company, and there's like, you know, $12 billion of debt against the cars, there's like $4 billion of debt against the. And the equity reminds me a bit like the General Growth, uh, kind of equity. And so we bought, you know, 20% of the company. There's a 60% smart shareholder that's trying to fix it. It's, you know, for us, a relatively small investment. We invested about $200, $230 million. So it's like a 2% or so, a little under 2% position, but it can be a seven or 10x over the next three, four, five years. So, but you can lose your money, too. That's what we, because there's a lot of debt, and, you know, the risk is, uh, that if, in fact, the whole tariff thing puts us into a, a deep, dark recession, that's not good for rental cars. So, Cab Mour, at at this point, we've been through my top 10 questions from the original 90. How about one more question from one of our visitors before we close up shop? How about the, uh, the gentleman I met before, the professor of some kind? Professor of some kind, economics, finance, some kind. Yes, some kind. Hugh Quan, uh, assistant professor of supply chain management. Thank you for this opportunity, uh, to pick your brains with your insights. As a leader of an organization that deals with tremendous value, high goals, and a multitude of stakeholders, how do you manage internally inside your organization any dissonance, toxicity within your workforce, delegation, and picking your leadership?

Uh, sure. So, we have a very unusual investment firm, uh, for a number of reasons. So, um, one, we're tiny. Uh, so Pershing Square, most firms, we have about $15 billion of under management today, and I think we'll be probably 30 for a couple of initiatives over the next, actually relatively short period of time, and we have 41 people, and maybe we'll go to 42 or 43. Most firms that manage similar amounts of capital have much larger firms. So every time you add an incremental person, that's how many, if you think about the, the kind of matrix, how many interactions they're going to have with other people. Each incremental person is a risk. So, you know, smaller organizations have a competitive advantage in dealing with risk. Uh, the second thing is, uh, everyone at the firm, I interview every employee who joins, uh, Pershing Square. Um, and the most important first criterion for selection is, is this fundamentally a good human being? And if we think the person doesn't meet that standard, we don't care how smart they are, how qualified they are, what they got in their SAT scores, etcetera. So, we, you know, is this someone I want to spend, would enjoy spending time with? Uh, and everyone at Pershing Square meets that, uh, criteria. Um, and the result is, uh, you know, the, the, and then it's, you know, that culture is very appealing, and then we have a business that's extremely profitable. Uh, so you can make more money than any other place. Uh, we, we have no tolerance for toxicity of any kind. Um, and, uh, people respect each other. Um, you know, the, the typical reception desk at a firm might have at turnover of, you know, every two months, there's a new receptionist. We have two women who work at reception that have been with the firm for six or seven years, uh, and they, for, and we take very good care of them. They take very good care of us, but it, you know, the fact that there's no turnover at the reception desk tells you something about the culture of the firm. And part of that is that I, I've always believed, we've heard a lot about watches tonight, more than I expected, um, that I, you know, the way I describe the company is it's like a watch. Okay. And that your experience when you come in the door, from the first person you meet, affects your entire perception of the firm. And that the firm will not succeed without great women, the two women at reception, without Isabelle, who cleans the space, uh, without, you know, the accounting team, finance team. Many hedge funds are structured in such a way where the investment team is kind of elevated, and then other people are sort of called, like the back office, right? Sort of, it sounds like, you know, people that you want to hide. And we're structured in such a way where everyone feels correctly that they can materially contribute to the success of the organization, um, and they have the opportunity to become a partner in the firm. And the result is, you know, our little firm, uh, we sold a 10% interest in Pershing Square, the management company, uh, last year for a billion $50 million. The firm was valued at, you know, call it $9.5 billion pre-money, and at the time, we had $14 billion of fee-paying assets. So about a 65% ratio of, uh, the value of the firm relative to the assets. Um, you know, BlackRock is valued at less than 1% of assets. Um, Blackstone, an amazing firm, is valued at 15% of assets. I think the value assigned to Pershing Square was the highest value as a percentage of assets of any firm, and a huge part of that comes from the culture. Um, and so, I think culture really matters. Incentives really matter. Another problem with investment firms that have a lot of turnover, hedge funds for example, people come in, talented, uh, investors, and they're hugely incentivized to put an idea in the portfolio because until they get an idea in the portfolio, they don't get paid. And they get paid a percentage of the profits on that idea. That sounds good in practice, but it can lead to kind of bad behavior. Because your worst-case scenario, if the idea doesn't work, is you get fired, and then you go to another firm. In our case, there's no individual P&Ls. Everyone in the firm is compensated based on how the overall portfolio does. So there's no incentive to get your idea in the portfolio. It's as important to, to reject a, a bad idea, uh, than to, you know, get good ideas, uh, into the portfolio. Um, and so, combination of those factors, I think have, have led to, in terms of how we promote leaders, it sort of just happens naturally, and we don't really need to have a hierarchical organization because of how, how small we are. So, it's very horizontal, uh, in terms of the structure. You know, obviously, we have, you know, a CFO that leads the accounting and finance operation. We have a chief legal officer that leads the legal team, but it's not, it's not like the US military. It's not command and control. It's much more, um, I would say, partnership and collaboration, and that works very well for our business. Um, with that, uh, I think you've broken the record for attendance and longevity of speaking. Um, thank you so much for spending the time and coming down here today. I really appreciate it. Bill, everybody, everybody goes home with a bag of swag. So, we have a, a Citadel pullover and a Permacast pullover for you. But thank you again, Bill. [Applause]