Speaker 1So the thing that you need to think through is the risk of disruption. What AI has done is massively increase the risk of disruption.
Speaker 2You've had a challenging year this year with Lucy, what happened?
Speaker 1You know, otherwise healthy child, what happened was she had unbeknownst to us a what's called an arterial venous malformation, which is a kind of structure in the brain where the in the way that the doctors describe it as the arteries, you know, typically blood flows in the arteries and then to the capillaries and then to the veins. And when you go from arteries where there's a huge amount of blood flow to capillaries, the blood flow slows down and then to the veins. So they in her case, she had what like a bridge that went from the artery directly to the vein. So over time, there was too much pressure going into this veins in a brain and one of those veins burst and then a large amount of blood, you know, filled her brain, which is a confined volume. And so it's, you know, it's a bit like a balloon blowing up inside your brain and that put pressure on the surrounding brain and the skull and obviously the skull doesn't move. So the pressure goes downward, it puts pressure on the mid brain. The mid brain is, you know, what keeps you breathing, keeps your heart beating and the really unfortunate thing, we believe this happened around nine in the morning based on her oral ring. She lived, you know, young woman lives alone in Williamsburg and I texted her at four o'clock that day I had called her another time that day, other family members had done the same, but only when she hadn't picked up her luggage. She was, you know, she was leaving for Abu Dhabi for a wedding. A friend of hers was getting married the following day and she was picking up her luggage from her mom's house and she didn't show a couple when she was two hours late and no one could reach her that week. I was, I was sleeping at the time but my oldest daughter went to find her and they found her lying, she found her lying on the floor of her apartment, barely breathing, you know, face down on the right side. So and she thought she was dead. Called 911, she could hear her breathing in a very labored way and then I don't sleep next to my cell phone. My daughter doesn't know the landline number for my house. So she was able to call someone in the building, guy in the building knocked on the door, you know pounded on the door and handed me the phone with my daughter on and then hopped in a cab. The EMT didn't know which hospital to take her because they didn't know what had happened to her. One of the big problems, sometimes, you know, the EMT thinks someone's just drunk and that's why they fell and the way you treat a drunk person is just let time go by, right? Time going by for a person with a brain hemorrhage is very, you know, the more time the brain is on a pressure, the more damage they can take place. Got to the hospital, 12.5 and she was just, you know, sitting on a gurning there while they were trying to figure out what she had. Eventually they gave her a CT, they figured out she had a hemorrhage, they called the surgeon. And what you need to do is you need to release the pressure on the brain as quickly as possible and the way you do that is you remove about 40% of the skull to allow the brain to expand beyond the skull. And we moved her from, you know, Elmer's hospital, by the way, very pleased with how they cared for her there. City hospital and Queens, we moved her to Mount Sinai, we're, you know, near and I spent some time helping Mount Sinai, so we got, we knew the team there. And they also have very good neurosurgeons and a neuroscience brain practice. Then, you know, she was on a breathing tube. You know, she was wearing some, she had bandage, of course, in her head and it said no bone, right, to make sure that nurses knew not to, to be careful. And that's how we started. And so, you know, the, I basically gave the doctors the, what I called the dare to be great speech. I said, you know, let's, let's see what can be achieved by, you know, whatever you need from us, unlimited resources, you know, let's look at latest and greatest technologies. I mean, they basically told us, you know, look, Bill, we don't know what kind of deficit she's going to have. You know, 19 hours of pressure on the brain, you know, I didn't learn actually until weeks later, they don't normally do the surgery to save someone when it's been more than five hours because the assumption is brain death basically. So 19 hours, she's as close to death, you know, hours, minutes, I don't know exactly. And so we didn't know what would, what would become of her, but I'm a very optimistic person. And she's regained over time, her cognition, she's the same Lucy. We knew she got the same sense of humor. She was really kind of remarkable. She, you know, woke up not being able to, to walk, to speak, and unfortunately to see her walking is coming back. I think she's going to regain her ability to walk. Her speech very slowly is coming back. You know, there's something like 17 vowels beyond the vowels that we were taught. And she can do about 15 to the 17 now. She's, you know, each day she's almost learning a new consonant. She can say a few words, certainly no, she's quite good at it. And then vision, she's even shown some progress there. But I've, you know, spent a lot of time working with the doctors and, you know, my pitch to them was, let's see what we can do for her and everything we learn for her. We can help others. And, you know, Nari and I are going to make this available to everyone. And three months after, I guess, I was coming back from my birthday party. And I got a call from a friend who we're talking about, Sinai actually about doing a redevelopment of their fifth avenue campus to build a brain institute, some kind of brain center. And if we had a very aligned with their idea, problem with that is probably a 10 year project. And super complicated, obviously taking down an existing hospital, moving people, bringing people back. And a vacant biotechnology building became available on 65th and 11th Avenue, 10 blocks from the office. And 60 days later, we closed in the building. We signed a contract that by the rest of the sites, a 3.4 acre site, and our goal is to build the world's greatest brain institute, you know, everything from, you know, a focus on the patient. How do we get treatments to patients? And there's a ton of interesting things going on in technology. Obviously, everyone knows neural link, but there probably a dozen other companies working on brain computer interfaces and other ways to get data from the brain, right? Of course, AI, right? So not only are we able to get more and more data from the brain, we're able to interpret that data better than ever before. So, you know, I'm hoping Lucy can speak normally and I'm hoping on her own, just working at it. I'm hoping her vision returns. But if she has deficits in those areas, there will be solutions in the relative short to intermediate term, you know, in vision of world and where you wear a pair of glasses that basically have a camera. And the camera takes in, you know, the vision, the vision and kind of ports it to your visual cortex. And that's how you see. I mean, that that will be how Elon says, you know, he's going to have a rudimentary way for people to see within a relatively short amount of time. And within five years, actually, I've reached out to pretty much everyone for help on this. And he told me, he said, five years, well, people have better vision than will have bionic vision and effect. The way the, my Dr. Kelner describes it to me is that Lucy's lead on this whole thing. A lot of neurologists and even neurosurgeons or nihilists, they don't believe that the patients can make really material recoveries and they can. And we've heard, you know, a lot of interesting stories of recovery, which are great to share with Lucy. But we're going to be able to do it a lot more. And New York's actually probably one of the best places to do this. And there isn't anything like it.
Speaker 2So we're excited about it. What you guys have done in response is just incredible.
Speaker 1Yeah. So what's interesting is that all of the skills, experiences, relationships, resources that I've developed over my career work set me up to be incredibly well positioned to help my daughter and to help other people that have this problem. I'm like a real estate investor. So I was able to buy the building at a fraction of what it cost. And architecture, design, also married to a very talented architect who's going to play a pretty important role here. So I think we're going to do something really interesting. And we've had an incredible outpouring of people who want to be part of this, who, in many cases, we love people who write to us, you know, who've dealt with this in a very personal level. I have a brother, a sister, a mother, a parent, who've who've suffered. And they've seen kind of the nature of the treatment that's available today. And they want to change that. It's interesting. And actually, you know, people say, "Bill, how do you deal with something like this?" Well, the first thing I had to do was figure out how to help my child. And as I made progress with that, this other thing is an amazing, you know, it makes me feel like something good is coming out of, you know, I have this view that you, every bad thing, something good comes from it. You know, this is among the good that's coming from what she's going through. And that makes me feel good. Did you always have that view or was that learned? I figured that out. Every time. When was there a moment when that? You know, I've had a few near death experiences in business. And in each one of those cases, I was materially better off after that. So those are kind of, you know, good lessons. What does not kill you makes me stronger thing is it's definitely true. And by the way, for my child, for Lucy, I think this is going to be good for her. Same more about that. looks she's a wonderful, amazing person. But if you can recover from something as devastating as this, it's going to make her into like a superhuman person. And she was, she is a wonderful human being. I mean, one of the things that's helping her recover is, you know, one, you know, her mom has been there every day. You know, I moved my office into the hospital, you know, that with within a day of her moving into the hospital, I did two IPOs, the two perching IPOs, I did from room 1107, room 107 on the 11th floor of 11 west at Mount Sinai Hospital, Power of Zoom. So I did, I would do a Zoom meeting for 45 minutes. And then I would go spend 15 minutes with my daughter. And then I do the next meeting. And so I had my daughter as the inspiration, you know, for these two IPOs that we were working on. And we only moved her out of the hospital, August 8th. And she's been rehabilitating in Bridge Hampton. And then she's coming back into the city, you know, for a little procedure. And then she's moving into her own apartment that we've been, we've gone in the apartment in our building within a few weeks of the incident. And we've been designing it to be, you know, the best rehab recovery place for her to live. And, and, you know, socialization, social interaction is absolutely critical for someone recovering from something like this. The emotional support that you get and everything and her friends have been amazing. Her friends have been with her every day, every day, one or more of her friends shows up and talks to her, eats with her and gauges with her. And, you know, she's like this super giving person ton of friends. Everyone loves Lucy. And so she's, she's getting an amazing return on that, you know, because her friends are showing up to save her.
Speaker 2All of this makes me feel that humans can be so amazing.
Speaker 1Yeah. I mean, you know, the, you couldn't recover from almost anything. Yeah. And, and by the way, there's a lot more hope for people who've had strokes, brain injuries, military, TBI type stuff. And there are a number of people in the field that have been really frustrated with, you know, how far we've not gone, who want to be the ones that fix this.
Speaker 2What's been preventing us from going further? Like, why, why haven't we pushed the limits on this stuff?
Speaker 1And the answer is some combination of the insurance industry and just economics and hospitals, how they work. I mean, neurosurgeon wants to do their surgery and then move out to the next one. neurosurgeons are highly compensated, but they get paid for doing surgeries. They don't get paid for the recovery of the patient over time. You know, rehabilitation, every hospital has some kind of rehabilitation program. But in many cases, it's embarrassingly inadequate. And the insurance company might pay for only six weeks of care. And then they get sent home. And their home is, you know, not the ideal place. And you need, it's an a major takes a village. What if they're the principal breadwinner and they're, you know, devastated by this? Maybe the other family of them has to go out and work as opposed to care for them. You know, the one of the most depressing things I was told by the head of rehab, that actually a mass general, we've been talking to. And he said, Bill, you know, what Lucy's achieved is remarkable. She's had incredible care, the typical person. One, they wouldn't do the surgery. Two, if they do the surgery, the typical patient, you know, ends up in a nursing home with when they check out of the hospital because the family can't take care of them and they die a few months later from the menu, because just the care that can be achieved in a nursing home, it's like super depressing. And so, you know, this is one of the cases where, you know, I'm financially unconstrained in my ability to help her. And so we can maximize the care. And now what we're going to try to figure out in the Institute is how we do this in a way that everyone can have the benefit of the care and technology is going to help a lot. A great speech therapist could be $500 an hour. That insurance will pay for whatever percentage of that, but only for some period of time. But people can keep recovering years and years later. But of course, AI could be an amazing speech therapist. So there are lots of ways that technology are going to enable us to help people recovering these injuries. And by the way, this is all, you know, we're calling it the focus is brain rehab recovery and longevity, right? What is a brain rehab recovery institute to it? It focuses on brain recovery and your physical recovery, the brain plus your physical recovery. It's fundamentally longevity. And the other thing that hospitals don't aren't very good at is nutrition, right? The food in hospitals is frightening, right? They have someone who has a, you know, heart attack. And the next morning, they're having like pancakes with served with orange juice and Lucy's case. You know, we made food for every meal. The Institute's going to have amazing food because nutrition is, you know, critical. So there are a lot of things we can do. Taking advantage of this financial circumstance, I'm going to use it in a way that will enable us to build something optimal. And I think ultimately self-sustaining.
Speaker 2You're an incredible father. Like what an amazing response to terrible circumstances.
Speaker 1You know, I would, I would feel if I couldn't do it, I would be one of the most frustrated people in the world. I literally feel like I was designed to help her, like everything I know how to do.
Speaker 2You mentioned the aura ring, the data on the aura ring. What was the data that indicated something was, so I've
Speaker 1been in touch with the CEO of already actually reached out on Twitter. And I think you can certainly within Apple Watch and hopefully with an aura ring. So what happened was, if you look at her spike actually put it on Twitter at like nine o'clock or so it, there was a, there was a very quick spike in her pulse. And then kind of a drop off that looked, you know, kind of unusual. And if you combine that spike in a drop off with someone falling like the Apple watch has an alert when someone falls. Right. Well, if it, that happens and it happens when there's a huge spike in there, they're, they're, you
Speaker 2can reach out.
Speaker 1You can say, you know, do they have a heart attack? Do they have a whatever, you know, things you can look at. And I think aura ring should have the same capability. And they're, I think they're working on it.
Speaker 2How do you keep your mind in a healthy place? Like what do you do to keep your, your head right?
Speaker 1I play tennis almost every morning or do some form of exercise. I think that's probably the most important thing I do because it's the one thing I do with the course of the day where I'm, I'm completely focused on the ball that's coming at me as opposed to whatever else is going on. So I think that is a really important form of meditation for me. That's one. I got a good night's sleep. I spent time with my family, things like that. Do you still meditate? I haven't in a while. I did for this challenging year. And I, yeah, I was a little divorce. I was not kind of on my own. And it really helped. And I probably should find 20 minutes a day to meditate. What do you manage at all?
Speaker 2I mean, you have four effective public entities. You have this with your daughter. You have a seven year old. You want to be a great husband. How do you harmonize all of these things?
Speaker 1So Persian squares come a long way from when I started it. I started it. I was sort of the chief bottle washer guy. And I would come up with all the ideas and I have an analyst that would help me prosecute them. And that's how we, and if there was activism, I was the guy, etc. Over 22 years, we've built an amazing team. We're in an industry where the half life of someone who works for a firm, you know, people are paying the top people can move from one place to another and get huge, you know, 100 million dollar bonuses for showing up, things like this. And the result is a lot of turnover in the industry. We have no turnover Persian square. Is that good or bad? Well, if there's someone that we've, you know, we've had on no turnover. Obviously, we've made some mistakes and we've replaced some people over time. But if you look at the investment team, the investment team has been the same team for now nine years with a couple of new additions. And that's actually a really good thing. You know, if you have a constant revolving to work, new people, you don't really know that you can trust people over time. You know, are they really telling you the truth? Are they really telling you all the risks and rewards of a particular situation? When you've built some relationship with people and you work with them for nine years, then you have this culture of transparency and candidness. I don't for a second ever question anything that's being told to me by a member of the investment team, they're telling me that the flat, you know, can the truth. That's a very comfortable place. So the answer to your question is the Persian investment process is incredibly well-run by the very experienced team that I play an important role in at the ultimate say, but I am no longer the guy that generates the bulk of the ideas. I'm someone that generates a minority of the ideas in the portfolio. So that's helpful. And then the business itself, you know, the way it's structured is, you know, Ben is responsible for running a lot of the business elements of Persian Square. So that frees me up to think and frees me up to work on more strategic stuff and frees me up to come up with the occasional, you know, kind of idea. So Persian kind of takes care of itself. Well, we have a number of public entities. We have an amazing accounting team. And, you know, those public companies all sort of do the same thing. They're really just, you know, there's the management company that earns fees from the entities who are on that's Persian Square Inc. PS ticker. There are two funds that are publicly traded that own effectively the same portfolio. You know, there's certain governance responsibilities we have for those entities, but they're really actually, each of them have independent boards of directors. So our role there is as the kind of external investment manager. We have excellent boards at both of those. You know, the typical closed-end fund board is a bit of embarrassment. I don't know if you how close you follow the space, but You've seen Boas Weinstein going into proxy conscious. The typical closed-end fund board is a group of people who, I don't know, let's say BlackRock for the moment. I think I read somewhere that they sit on 86. The same six directors sit on 86 closed-end fund boards. It's hard to do real governance when you sit on 86 boards of directors, right? The typical limitation is four, from by ISS. We hired actually real directors. We pay them like real directors. They're not serving on multiple, you know, 50 other. So we have really good boards. And what we do is fundamentally simple. So a Persian kind of runs itself to some degree just because of delegation incentives, alignment. You know, we have the best alignment because everyone's paid on individual stocks are based on performance. The end of the day, performance is going to be the biggest driver of our management company because the compounding of the underlying assets is what grows our feed stream. So it's just a very aligned entity. You know, I own about 45% of the company. The team owns another, I think 35% of the company. And then we have, you know, a minority interest held by the public and some strategic investors that I'm best with us. So it's, you know, if you get the alignment right, you get the people right. And you've got, you know, some principles written on a stone tablet and you've been doing it for a while. But you're super competitive.
Speaker 2Sure. I know you want to be the best investor in the world. Sure. And so you're, this is like one path. And then there's another path. It's like, dad and husband.
Speaker 1And I would say the one thing I would say in the last, you know, the setup of this AI thing has consumed some mind share of mine as you would expect over the last 60 or 90 days because I'm assembling the team. Just like with, you know, there's a moment, it's a bit like we ran a proxy contest. We took control of the board of directors. Now we got to bring in a new CEO. Once we bring in the CEO and the teams in place and announce and everything else, I don't get involved in the day-to-day operations. And the same thing's going to be true for the AI. It's going to be like another portfolio company in some sense. Although, you know, we're all put a sit on the board. You know, I'm going to chair the board. But there is a, you know, it is similar to, I don't think I could be doing setting up the AI and we had a proxy contest underway at the same time.
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Speaker 1That's h-u-y-g-e-n.com/tkp. When do you do your best thinking? Often it's when I'm on vacation actually. So my best ideas are ones where I'm literally totally relaxed or I'm in the shower.
Speaker 2You've done a lot of research about bubbles. I'm curious like how would you explain what a bubble is?
Speaker 1A bubble is when human nature, but a lot of money is being made and people have a lot of FOMO and they want to participate in having money being made and it leads more and more money going into the same trade if you will until over valuation takes place and then abullions and then eventually the bubble bursts.
Speaker 2They seem to happen around these technological changes like railroads, automobiles, transistors, the internet. Sure. Are we in one now?
Speaker 1Well, we're certainly in a transition. You could say, AI is absolutely transformational. It's the most transformational technology, I think of all of our respective lifetimes. There are bubble-like elements. There's a lot of crazy stuff going on. In the private world of venture, I think. We're starting to invest in some, talk about a bubble where Persia is now investing in some venture-stage businesses. Met with a company, let's say two weeks ago, and they weren't raising money. Two days later, they closed around. They were preempted by some investor who put $50 million in it, a $400 million valuation. And then two weeks later, they raised another $50 million at a billion dollar valuation. So there's a lot of people fearing missing out on the future. And so a lot of capital going into venture, a lot of competition, and a lot of preempting. And leading to very high valuations. I saw a company series a round at a $5 billion pre-money. How do you avoid that, phoma? It depends on where you are in life. You know, Warren Buffett was remarkable for his discipline over a 60-year career. And actually, interestingly, in the last real bubble, the internet bubble, that's when Berkshire Stock hit like an all-time low, 'cause people said he's kind of lost it. All these other people are making money. He just didn't participate, but he just shouldered on. I think it's a question of short-term versus long-term
Speaker 2perspective. What advice would you give founders right now who might be trying to raise? It's a great time to raise capital.
Speaker 1And assuming you raise the capital, don't spend it so quickly, expecting money will be there forever. What this is reminiscent of is in the internet bubble. There was effectively unlimited amount of capital available for kind of suspect business plans. And then there was a peace and balance one weekend. And it listed all of the internet companies in the public markets and how much cash they had left based on kind of their burn rate, how many months to go before they went to zero. That was probably the week before the market blew up. What happens to a private company that has no capital is a certain discipline associated with bootstrapping yourself. And then you take in 50 million or 100 million or and you completely change the way you deploy capital, betting that there will, anytime you need money, you could just tap the markets. There will come a time. There'll be some form of a blow up, a pretty high profile one where people lose a whole bunch of money. And that will cause a reset. And I think the companies that are disciplined and how they spend the capital, so they have years of runway will be the survivors and the ones that have to raise money in three months will be gone. My advice to founders is treat every dollar as if it's your own money and spend it really carefully and don't expect the kind of a billion freely available capital thing to exist forever.
Speaker 2So raise money now, but keep in the bank don't spend it. Or spend it judiciously. How do you see the difference between investing, which is what you've typically done in the public markets versus private markets in terms of ventures?
Speaker 1For some public markets, we're investing in what you call super durable growth companies, businesses that are the most dominant companies, the respective spaces, they're highly profitable, they have strong balance sheets. And the key sort of success factor is predicting kind of their ability to continue to either gain or maintain market share and grow their business and have pricing power. In the public markets, yes, the CEO matters, but we've always had the few wealth. We don't like the CEO, we can find a better one. In Venture, you're really betting on the person and more than the business plan. And you're investing in a company that is maybe pre-revenue or it's losing money. You're betting on their ability to grow at a fast enough rate that ultimately they go from being a capital consumer to one that's going to generate cash over time. So it has some similar elements, but it's much more founder-dependent CEO-dependent than the public markets. The best public market companies, something happens to CEO, you can find another great person to run it. The best private companies, you know, without the CEO, you probably would write it off.
Speaker 2How much are you waiting sort of the idea versus the person?
Speaker 1I wait the person more than the idea because often the original idea is not the idea that turns out to be the success. And the founder is going to hit a roadblock, original idea doesn't work. You know, my most successful venture investment, I didn't like the idea. This was Coupon, which was Bom Kim and his business plan was to create the Groupon of South Korea. And even at that time, which was 2009, I thought Groupon was a really bad business bottle, but he made a very powerful case for why South Korea was a great paste to launch an internet business. And I liked him. And ultimately he built the Amazon from South Korea, really nothing to do with the original business bottle. So the most successful, you're really betting on their ability to manage through, you know, the challenges that emerge and figure out a business bottle over time. How is AI changing the investment profession? The most important thing an investor has to do is assess the risk, I mean, the value of businesses, the present value of cash generates over its life. And it's life, you know, the early years. of the life matter more than the later years, but you need to predict with a pretty high degree of confidence what a business is going to look like, 10 years out, 20 years out, 30 years out, if you want to make a illiquid long-term investment in the business. And we look at even liquid investments that way. You want to invest in something that, if the stock market were to shut for 10 years, you're happy to own it, it's good discipline. And what AI has done is massively increase the risk of disruption. You've got to be very, very thoughtful about the businesses. You know, businesses, you know, go back to Warren Buffett. If you go back and read Warren Buffett, the greatest investor of all time, he was not able to perceive, you know, the risk of disruption created by the internet, for example, Wikipedia disrupting World Book. Well, now we have AI. It's a much more complicated problem. All of us are guaranteed to look foolish with one business or another that we didn't anticipate the risk of disruption because of AI.
Speaker 2What businesses do you think become more valuable as a result of AI?
Speaker 1Actually met with the, one of the founders of cognition yesterday, very interesting company. And their software or their AI, in effect, enables, you know, banks, you know, big financial institutions, for example, that spend a ton of money on, you know, dealing with legacy systems because of an agglomeration of acquisitions they did over time. They can kind of rewrite the cobalt into, you know, modern code and do it in a matter of days as opposed to many months. And I think the cost to run big financial institutions is going to come down meaningfully because of, because of AI. Big spenders, if you will, on tech are going to bring some of that, they're going to become a lot more efficient. That's, now the question is, are you going to be able to keep the profit, right? If everyone, everyone's going to be forced to use the best software to run their business, more efficiently become more AI native. And the question is whether they get to keep that profit or whether the profit or the margin gets passed on to the customer. And that's a function of the nature of the business and pricing power. The problem with money generally is it's commodity and banks from the business of providing money. So it's a complicated question, depends on the business. I think AI will enable the creation of many businesses that here to four cannot be created before. And AI will enable entrepreneurs, people to become entrepreneurs who have never been entrepreneurs before. Just even the most recent overnight release of meta, I haven't had a chance to play around with it. But guys in the office were talking about how easy it is to use, I think it's muse, whatever it's called. >> Yeah, muse. >> How easy it is for people to now create their own agents to do stuff for them. The pace of improvement is by far the fastest of anything I've ever seen. If you think about Microsoft and the old days, 1.0 versus 2.0, it might be a couple of years or more between updates of consequence. Here, you get an update of consequence in days. It's been like driving a Tesla and they're, you know, overnight they're updating the software. Does that scare you as an investor? >> I'm trying not to frighten. So, scare is probably the wrong word, but I would say you have to be very thoughtful about the modes and how wide they really are. And it's the most complicated question for an investor. Had to predict the risk of disruption. Businesses that seem like the most dominant businesses in the world, there will be some that will just disappear.
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Speaker 1Usually, it's not a company we just woke up and heard of. So we're looking for the best businesses in the world. So over time, we kind of build this, you know, called a library of companies that we've followed for a long period of time. We've liked the business and we haven't had a chance to own it because, you know, we may have done a lot of work. We said, look at this price at 35 times earnings or whatever. It's hard for us to get to a 20 plus percent rate return, which is our ambition. So we do the work and then put it aside on valuation concerns and then we wait for the day that either some macro event happens, COVID, it gives us a chance to buy that kind of a business or even, you know, the SaaS pop up. Apocalypse, SaaS pop up, which caused, you know, pretty much everything to do with software to get reprised. That gave us an opportunity, for example, to buy Microsoft in our view at a very attractive valuation and a host of other really high quality businesses. But the process is, we typically have two members of the team do a deep dive on a company. They'll start obviously with kind of the SEC finance, 10Ks, 10Qs, conference called transcripts. Then we'll kind of assemble what the key issues are that we're trying to understand. We spent a fair amount of time on expert networks. We'll talk to former employees of a company. We'll talk to other industry experts. We'll talk to people, a competitors to kind of get to, you know, the underlying issues. And then we kind of build a model of the business and kind of get an assessment of, you know, how does this pencil kind of returned? Does this generate at the price we can buy it for today? You know, there's some of the elements. Then that team will put together like a deck and they'll present it to the group. Now, that two-person team is usually not a Ryan or myself. Ryan's our CIO, I guess I call it the portfolio manager. And we do our own sort of independent assessment, which gives us enough information to be dangerous to ask the right questions. And then we have the balance of the team, another five people who haven't done the work in the name. And that group comes together to discuss an investment. And out of that meeting, they come up a decision to make an investment in the company or they say, okay, there's still some open issues. Let's get to the bottom of this concern and then they'll go back into the work and come back to the team. That's the basic process.
Speaker 2How are you guys using AI internally in that investment process to either speed up the work or do work that you normally couldn't do?
Speaker 1Yeah, today we're really using AI more as a research tool to learn about a certain subject that's relevant. It hasn't, I would say crept too deeply into a process. We're not using it to build models. In a world where everyone has the same access to AI, it's hard to be differentiated. I think there, you know, what's left to humanity is kind of the outside the box, thinking the creative process, the insight that's clean from looking at all the facts where AI is a bit of a review of everything that happened before and if you look at our most successful investments, they've usually been cases where you've done something that someone hasn't done before. You know, buying a credit default swaps before, you know, a pandemic, for example, or investing in a stock of a bankrupt company or shorting the credit of a AAA company before the financial crisis. Those are among our best investments and they were, you couldn't have found in a model, you know, AI would not have told you to do any of those things.
Speaker 2A lot of value investors have underperformed sort of like post 2010, 2011, but you haven't. Why do you think that is? -
Speaker 1We've been very good about continually sort of increasing our standards for business quality. We want to own the best businesses in the world that have a very low risk of disruption and I think we're quite disciplined about that. And the other thing is that we're not just a long-only equity investor. We have opportunistically made a pile of money in a couple of cases when we've had a view about macro events that's different from others. And when you have that and you can find an asymmetric way to make that bet, you can make a lot of money. So we made a lot of money kind of going into COVID because we, I would say, were weeks ahead of the world and of a few that there would have to be a global economic shutdown. I made a lot of money because we said there has to be massive inflation. So we bet that rates would rise. One of the things we had talked about before but we had this very large loss circa 2015, 2016. And after that experience, I said we've got to take our investment principles and literally engrave them on a stone tablet and put them on our desk. It's a very good way. Having a checklist is actually not a bad way to make sure you avoid mistakes. And we have a good checklist. - What's on that checklist? - The nature of the businesses we're investing in, simple predictable free cash flow, generative companies, the kinds of management teams that we're looking for, focus on large cap, kind of liquid public companies, an aversion to short selling. That was something a good lesson. And on the asymmetric side, we're looking for a case where we have a view that's different from the rest of the world. And then we can express that view with an instrument where the payoff is very large, relative to the amount of capital that we put to work. But it's a very simple, we're looking for the best super durable growth companies in the world. We spent a lot of time thinking about modes. And obviously we want them to run. by the best teams in the world, or if it's not run by the best team in the world, we won't have someone in mind that we could install if we need to replace the team. Why did you stop short-selling? - I never actually liked short-selling because it's asymmetry and reverse, right? You can lose infinity and you can make his finite, but I was, we shorted the bonniture is going into the financial crisis, and that was a very, that was the MBAA one. - Yeah, but most of the money we made on the credit-fault swaps as opposed to shorting stock. And then we did nothing. And then someone pitched me on a fraudulent pairment scheme and then we did the work and said, it's a fraudulent pyramid scheme. And we said, how can we lose money shorting a fraudulent pyramid scheme and then delivering to the FTC, you know, detailed analysis, you know, they'll have to investigate and the people being harmed are the most disadvantaged people in society. So we thought it was an amazing setup. And we liked to make investments where the wind is at our back and we said, look, the winds at our back were helping, you know, a group of disadvantaged people are being taken advantage of. It's an evil company. This has to work. And we underestimated the risk of market dynamics. IE Carl Icon showing out buying the stock, putting capital to work against us. And it just reminded us that it's a really shady business. -
Speaker 2The company that you were, they're shorting the pyramid scheme. We won't mention the name. But that generated this huge attack against you. There was websites against you. There was a famous CNBC segment that I think came as a result of that. Was that what about the personal cost to you when you're willing to put out a contrary opinion like that? -
Speaker 1Well, it's much easier to be an investor in companies. You make a lot more friends, right? You buy a stock, other people pile in with you, it goes up, everyone wins. You short a stock, and in that case, we were the vast majority of the short interest. So everyone else was sort of on the other side. Then at a company that we were an existential threat to, they were willing to use whatever they had been attacked over time by critics, by media, by otherwise. They built up a lot of infrastructure to go after the critics. So they were kind of well prepared to kind of go after us. And then we became a bit of a hedge fund trade where let's go squeeze bill. That was kind of the unfortunate part of it, where in some sense the interest is like, "Okay, these guys are over their skis. We can squeeze them out." And that was not the fun part.
Speaker 2You were relatively quiet, I would say, from a public life point of view, compared to what you were before. And now in the last few years, you've been a lot more vocal.
Speaker 1Why now? We've always been kind of a free speech kind of thing. You know, I would go back to my high school yearbook. I was listed as most verbose. And my yearbook epithet was a closed mouth, gathers no foot. So I was sort of known for being expressive about my point of view. You know, one of my important drivers in life was I always wanted to be able to say what I believed. You know, as my follower count grew on Twitter, it gave me on the margin more influence. And as I cared about various issues, you know, I wanted to help advance a narrative. And that's why I've been more public about it. And I've been rewarded by it working, you know, beginning with smaller things. And you can actually influence the administration, the course of history with the tweet, which is pretty cool. A lot of evil can go by if no one's willing to say the emperor is not wearing clothes or more.
Speaker 2I want to come back just one second to the AI thing for a move on from it. Like, how are you using that personally?
Speaker 1I'm using it a lot more recently. You know, my daughters had a major health incident. And AI is amazing at, you know, vetting, helping you make medical decisions for a child. It's an incredibly powerful tool. And I think every doctor should actually be checking their work with, with, you know, Dr. Claude or pick your favorite website, make them
Speaker 2pay for AI. Do you think companies like Brookfield get more valuable where it's like a tangible, almost infrastructure becomes more valuable in a world of AI? And there's another bad, and I'd love to hear your reaction to this, which is, you know, sort of thrive as starting to buy these sports teams under the assumption that we have this barbell, right? We have AI in one hand and on the other hand, these tangible experiences are going to become more and more meaningful to people. And presumably, they'll pay more for those experiences.
Speaker 1So on Brookfield, I think it's an incredibly well-run, amazing company. They're very good at infrastructure, and they're very good at financing. They're very good at building things. So think data centers, think power, you know, there's effectively infinite demand for compute. And, you know, they're very well positioned. So I think Brookfield is an AI winner, for sure. They'll provide a lot of the backbone, you know, power and otherwise, you know, a big Josh Kushner fan. You know, I don't know how much of the recent baseball investment is thrive related or personal. I'm not quite clear to me. But I do think that there's a lot of people sitting home being lonely, but you go to a big sport event, you know, the feeling that you have at a next game, maybe at the end of the game, you have to craft the craftsman happy. But while it's underway, it's sort of a very human elation type experience. Now, I don't know that baseball teams are, you know, they're not valued in a way that I think about valuing most assets. I think they're valued more like an artwork than a financial enterprise. You know, the vast number of sports teams, as far as I know, if they make money, it's not, it's not a lot. And it's not like the owners expecting them to generate massive cash, you know, they're taking a small return today on the basis that's gonna generate a lot more cash from the future. I think vast majority of sports owners are prepared to spend every dollar that they're allowed to, you know, and expanding the franchise.
Speaker 2Are you going to buy a sports scene? No. So you went from being an occasionally allowed activist to trying to not change behind the scenes. Why the change and is it more effective this way?
Speaker 1It's because we were able to effectuate change behind the scenes when we weren't, when we started. Right, when we went into the business, we didn't have credibility or reputation. We hadn't been in the boardroom. I was 20, you know, 20 plus years younger. And in that world, you have limited financial resources. You have limited reputational resources. You can buy 5% of a company, and you have to win on the power of the idea to get the big institutions to support you. You might have to end up in a proxy contest, et cetera. 20 years later, I've been on multiple boards as I have other members of the team. We have a track record for a success of investing in a company being a long-term investor. In the early days, they would say, oh, you're just a short-term investor. Over time, we've been a proof that we're actually our interests are at the interest of the long-term holders of the business. And so today, we buy, stake in the company. We literally get letters from the CEO, you know, recently made a number of new investments. And in a couple of the cases, we actually got very nice. A three of the five or six cases we got letters from the CEO saying, you know, thank you so much for investing in our company. You know, I read your second quarter letter, you think about the business and the way we do, you know, let us know when we can come see you. And if we have any ideas, you know, for them, I'm sure they'll be very receptive in taking them. In that world, we don't have to be an activist.
Speaker 2Do you think if you're gonna go activist, you should have to hold your shares for a certain period of time? I don't think you should be legally required,
Speaker 1but I think, yes. I think activism, more direct answer to the question that is focused on causing the stock price to go up in the short term, but causing the company to long-term harm, obviously makes no sense. You know, cut your expenses dramatically, i.e. and under-invest it so that we can report a more profitable quarter that's not gonna be lead to a good outcome. Or, you know what, lever up the company and return the capital to shareholders. You know, the most extreme version was greenmail, which has largely been outlawed. But you can view certain kinds of activism as a form of almost greenmail. You know, let's benefit the short-term holders and the expensive people who are stuck on the stock and the board's job is to kind of shut that stuff down. And I think shareholders today, you know, the Vanguard BlackRock, you know, the index fund owners are not gonna be, they're forever owners, they're not gonna support some kind of short-term initiative that will cause long-term negative consequences.
Speaker 2You talk to me, index fund's there for a second. What advice do you have for the ordinary person who's like making a paycheck and wants to invest?
Speaker 1So, if you wanna be an investor, it's something you gotta allocate real time to. It's something you have to study and learn. You gotta do your homework on companies. So that's a decision. If you just wanna have exposure to the stock market, I do think index funds are a very good approach. And they've beaten most active investors over long periods of time.
Speaker 2How would you do that? Would you do a dollar cost averaging on a monthly basis? Would you be like, oh, it's high now? So I'll hold off like, how do you think about it?
Speaker 1I think the key is to one-start young. So the sooner you can start putting aside money that you can invest for the long term, the better for your retirement, you know, the power of compounding. I wouldn't sit around holding cash 'cause you think the market's expensive.
Speaker 2You mentioned stock options earlier. I wanna come back to that. How do you think about stock options from a mature company perspective? Or it's like, let's say meta or Microsoft or an example like that where they could pay cash easily to, but they use options.
Speaker 1Where they use restricted stock as some form. I mean, the benefit of some form of restricted stock or options is the investing. It gives you some ability to retain talent in a way that just paying some of cash every year doesn't. So I think it's still a very useful tool. It's also obviously creates more alignment. People actually care about the share price, which I think is an important discipline for employees. Now, Purgings Square, the management company, which was the gift we gave with Purchase, We don't intend to issue any meaningful amount of options or restrictance talk. we have an employee base that already owns, we spread equity very widely throughout the firm. So 80% of the stock or so is held by the team. So we're in the fortunate position of not having to issue equity or options for a very long time. But maybe 20 years from now, we have a new generation that doesn't have any equity in the company. We may choose, it can be a useful tool. -
Speaker 2I was very happy the market gave me an opportunity to purchase some of that when it came out. It went down to like $23, just like that. -
Speaker 1Yeah, I bought some too.
Speaker 2(laughing) - Want to talk about Netflix for a second. You bought this, you sold it like a month later. And then now you've re-bought it. What went into that decision, you were wrong,
Speaker 1now you're right, how did you change your mind? - Netflix is one of the companies, if you will, in the library that we had done a lot of work on over time. And what created the opportunity, at least the first time as we thought about it, was they had missed subscriber growth guidance. Stock got crushed. And we think Netflix is an amazing business, with a very dominant position. And we bought a meaningful stake in the company. We then met with management. And we shared our detailed deck with them. They completely agree with our thesis on the company. So we felt we were kind of super aligned with management. We talked about things like why Netflix, if we said why don't you take having advertising model, lower cost advertising model. They said we're never gonna do it. - About three or four weeks later, they announced earnings. And if you go back and review the earnings call, management seemed like shell shocked. They were, you know, they missed the subscriber numbers again. They seemed very surprised by this. They talked about we're gonna have to adapt, we're gonna have to launch an advertising model. You know, literally three weeks before they said they would never do it. And you know, my takeaway was you make an investment on a company and then you learn new information that's inconsistent with the original thesis. You either have to buy a lot more because the stock's gotten cheap and you believe that the new information is not material or you have to exit because the thesis is broken. And we made the decision to exit on the thesis if you will being broken. Now, the letter we wrote to our investors, we said, look, we're selling for this reason. We think management is gonna be able to work through this problem. But what Persian Square invests in the highest certainty companies in the world and we think the dispersion of outcomes here has widened dramatically. They may get a ride and maybe a home run. But they also, there's a much greater probability that they don't get a ride. They don't know anything about advertising models and whether that's gonna be successful or not. And so with the wide dispersion of outcomes, we have better place to deploy the capital. We took the money we bought Google, Alphabet. 'Cause again, for us, it's not, we don't need to make it back the same way we lost the money, right? We just take a tax loss, which has some value to us and redeploy it in something else, which is higher certainty. And again, if you look at the Persian Square portfolio, we own the highest certainty predictable companies in the world. This loss did certainty element at least don't remind. Now, what's happened since they executed extremely well. They built a very successful advertising model. They began an even more dominant company. They began a much more cash flow, generative business. And, you know, the streaming more is they won. You know, the Disney's of the world, and the Paramounts of the world have kind of been pushed aside. Netflix, you probably turn off the lights practically before you turn off your Netflix. And they're incredibly well positioned to innovate. They're the place you go with any creative person to sell your content or to produce your content. And then, but the stock, because they executed really well, went back to a very high multiple and not interesting. And then relatively recently, the stock got cut in half again. Now, we had the highest certainty business we thought we owned. And they proved themselves at a price that made sense. We bought it back.
Speaker 2The business that you're involved with that I think people know the least about is Howard Hughes. How did you get involved in that? And why are you so excited by that?
Speaker 1Sure. So Howard Hughes was an entity we created to make another investment successful. So we invested in a company called General Growth. We bought the stock during the financial crisis. We paid stock with down 99.5%. We bought 25% of the company. And we did so a few months before it filed for chapter 11. And it was actually we were pushing the board to file for chapter 11 and we're trying to avoid it. It was a case where it was inevitable. But our view is we could run a restructuring where the shareholders could keep their investment in the company maybe with some delusion. And that's, I joined the board of the company, we've led that restructuring. What created complexity in General Growth versus its direct competitor, which was a company called Simon Properties, which is still quite successful. Today was they had addition to class A shopping malls. They owned a lot of land, a lot of, and they did a lot of development in a business that they acquired from Rouse. They owned these so-called NPCs or small cities. And the market hated that business. So we said, let's make General Growth look exactly like Simon by taking all of those business at all these kind of land clays, these NPCs out of the company and anything else that didn't look like a class A mall. We took all the non-core stuff and stuck it in Howard Hughes on the theory that, and by the way, it's the first time that I've ever seen normally when you spin off a company from another company, the spinning company stock price drops by the value of the thing you spin off, 'cause it's kind of like a dividend. In this case, we spun off of Howard Hughes and General Stock went up, like the marketly overhang from this, so it was a David Simon called it Shitco. He was putting in a competitive bid, our structure, which a deal we deal with Brookfield was to create this entity. We called it Howard Hughes, he called it, he was making fun of it by calling it Shitco, but it was really sort of Shitco because it was just everything that was in the assets nobody wanted, so to speak. - And then we heard of, I thought of quite a very good entrepreneurial team, David Weinberg, Grant Hurlis, to kind of work through these assets over time until the portfolio was quite focused in the last five or six years to just NPCs. We said, look, the markets finally get to understand why this is a really good business. - And NPCs are master plan communities. - They're small cities at this point. So we on the Woodlands in Houston, which is, you know, a small city, 150,000 people, something like this, with, you know, high rise office towers and shopping centers and, you know, schools and churches. I described the business a bit like Sim City the game, where we act as kind of the benign owner of these communities. And what's in it for us is we own all of the commercial land and all the residential land. We sell the residential land to home builders. We sell, we don't sell the commercial land. We use it to build whatever the community needs. And if you take a very long, multi-decade view, this is a business that over time generates a huge amount of cash. And we have a series of these small cities. But after 14 years of Wall Street wanting nothing to do with the business, we said, look, it's time for us to kind of transform how to use into something else. And the reason why Wall Street doesn't like the core how to use business is they is, you know, land and development should have a bad long-term track record. And while our land is very different from just any land, you know, it's literally, imagine you own New York City and you own all the vacant commercial land and all the vacant residential land. And you owned it over a hundred-year period of time, right? You make an absolute, you literally make trillions of dollars. That's really the opportunity. And actually the land that we own is in places where people are moving to. Texas, Las Vegas, Hawaii. But still, as a public stock, it's always traded the big discount to the value of its assets. So over time, we've, you know, we've bought a significant stake in the company, we know on 47% of the company. And we're transforming into what we call a modern day Berkshire Hathaway. What did Buffa do? He started with a dying textile operation. Over time, he liquidated the textile operation. He reinvested the capital and insurance and banking and a candy company and other businesses over time. And he built a conglomerate ultimately, but a conglomerate that compounded its capital at a very high rate over a long period of time. And it did so without issuing, issuing very little stock. So what we've done since we've made our investment in the company, since I became executive chair, since Ron became their CIO, is we acquired insurance company called Vantage Holdings, a PNC specialty insurer and re-insurer. Most recently, we recruited, I believe, the best management team in the insurance industry. And we're going to build this little insurer into a big insurer over time, that very talented team underwriting the risks that we take on. And then Pershing Square is managing the assets. What Buffett did that was unique is he ran an insurance operation. And actually, in the beginning, he didn't do a very good job of that. It took him time to learn how to run an insurance operation. But he managed the assets not in just a portfolio fixing come securities, which is the typical approach for insurer. But it took basically all of the float generated from writing insurance. And he put that money in short-term treasury so that there was plenty of capital available to pay claims. And then he took the balance of the assets, the insurer or any bought common stocks. And Buffett was a very good common stock investor, as we know. And so the insurer, ultimately over time, made money on the liability side by making a profit writing business, collecting more premiums than it paid in claims. And then it earned a attractive return on its assets. And when you're an attractive return on assets, and you have basically negative cost liabilities, you can run an insurer that generates a 20% or more annual rate of return. And that's what we're underway to do at Howard Hughes. Now, no one notices and no one cares. Why? Because it's still a real estate company that people hate. But the nature of Howard Hughes' core business is over time at self-liquidates. So each year, we sell hundreds of millions of dollars of land. Over time, our land assets will go away. Each year, we sell hundreds of millions of dollars of condominiums in Hawaii. We've got four billion of condominiums under contract in the process of being delivered. We generate something approaching 300 million of net offering income from the real estate assets. So historically, we took all of the cash we generated and read it. invested in real estate. We bought another MPC and Phoenix, for example. We're no longer going to do that. We're going to reinvest whatever capital is necessary to make these small cities continue to be amazing places to live. And they're always highly ranked as among the best places to live in the country. But beyond that, we're going to generate billions of capital that we're going to deploy initially in insurance.
Speaker 2And when you mean deploy that goes into the equity component of sort of the insurance company, which allows you to write more premiums, but allows you to invest sort of the equity that
Speaker 1will become capital. We've already put 300 million of additional capital on bandages since we bought the company. And over time, as we generate more cash from the real estate operation, and we're looking at things we can do to accelerate the transformation from a real estate company to an insurance holding company. But what Buffett had was he had a big stake in the business, he owned half, we owned 47% that allowed him to think long term. So we're taking the long term approach. We've recruited, you know, a very, very talented team. And so I think we have the liability side, you know, set up for us to be doing smart things in insurance. And we're going to do a good job managing the assets.
Speaker 2I have so many questions about this. So modern nature halfway, that term gets thrown around a lot. What does that mean to you?
Speaker 1It means we're going to operate much the same way Buffett did in terms of insurance will be that I mean, the driver of the value of virtue halfway over time is its insurance operation. When Buffett talked about it buying Coca-Cola or other American Express or other companies, those are assets purchased in the insurance company. So we're going to take a long term view on the way we manage this insurance operation. And we're going to grow the business without issuing a lot of common stock. All right, so there are finite number of shares outstanding. And the beauty of insurance, it's actually a very cash-generated business. So what you're going to see over the next several years is the business transforming. You know, today it's probably 70% real estate and, you know, maybe 30% insurance by capital. And then it will migrate, you know, over the next five years to something maybe 75% or 75% insurance, 25% real estate unless we figure out a way to do that more
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Speaker 2So if you were to list the keys to purchase success, sort of like looking back, it's the, he had control so he could make, take a long-term fee.
Speaker 1He wasn't exposed to the short-term wins with his shareholders. He had permanent capital. He didn't pay dividends, he retained all the capital, the business generated. He had a very talent for investing in common stocks. And he was able to recruit talented people to run the various businesses of Berkshire Hathaway. And he also didn't dilute his shareholders by issuing a lot of stock options or by issuing stock in acquisitions. Why don't more people copy that? It sounds so simple. It's not sexy to be in the investment operation of insurance company. I think that's a big part of the reason why people don't do this. Now, it's difficult to get to a 47% stake of a public company. Usually it doesn't happen.
Speaker 2You know, this is sort of a creature of history. Do you think a lot of Berkshire's success there boils down to the fact that, I mean, Buffett could have been paid to in 20 at some point, but he took this modest salary and sort of grew his wealth alongside the shareholders. Like, how different would this excessive Berkshire look had he taken to in 20, not that you're doing that, but like on the portfolio?
Speaker 1I think his willingness to work for free and effect was a very helpful thing to the ethos around Berkshire. It probably made negotiations around compensation for other employees easier. Look, Buffett ran a partnership where he got something like 25% of the profits over a 6% return and the cost recovered by the partnership. By the time he retired from that business, they get 100 million under management of which 25 million was his and that 75 million was held by other investors, but I think he figured out that if I keep running in this partnership format, one on a permanent capital, he was getting tired of dealing with investors who were giving him money, taking him money that were affecting his results. He probably did the math and said, look at the power compounding if I own half of this little Berkshire athlete thing and I generated a 20% return for the rest of my life. All in, I've been in a very good place and the marginal promote is not that important to me. And by the way, he was able to run the investment operations of one man band, which I think also enabled him to do this.
Speaker 2I remember Tyden Trelley Munger one night about and I asked him what the most underrated aspect of Berkshire's athlete's success has been the part that people don't talk about the most. And he said we were almost never forced to make decisions by circumstances. So we always had options. How do you think about that? What's your reaction?
Speaker 1We designed our business around that. You know, the unique thing about Persian Square is if you look at the various, do we manage an offshore entity called Persian Square Holdings? Employees on 28% of that company. We manage Howard Hughes at its own directly and indirectly about the same by employees plus the Persian Square funds. And then we just took public an entity called Persian Square USA and employees invested, you know, 500 and something million dollars in the entity. So, you know, what's unusual about us is we have sort of these anchor steaks in each of the public vehicles. We run and each of them is sort of a permanent capital entity, which means that, you know, if there's a panic in the market and people want liquidity, they can sell the stock of each of these various companies, but the capital stays in the vehicle, which enables us to buy stock, you know, during the COVID crash or to buy stock, you know, during the financial crisis. I think one of the very smart things Buffett did is he decided at a certain age that, you know, how he wanted to live his life. And he didn't want to live a life dealing with constantly raising money, which is what you have to do if you're in the hedge fund business. The hedge fund business, when you do really well, institutional indicators take money away from you because you come up in too big a percentage of the portfolio. When you have a bad period, people take money away from you because you're having a bad period. So you have to be, and you really can't close because what happened if you're not open, people don't do diligence on you so that the next time you need to raise capital, it's a, it's a many month process for people to learn about your business again. So it's a, and you're sending all your time, like a raising capital, as you get bigger and bigger, it consumes a huge amount of your time. And I attribute our biggest investment mistake to my being distracted by having to be on the road to some extent, raising capital to try to keep the capital-based table. And we made a decision to just get out of the business of managing money where the money could leave, you know, this sort of open-ended funds. And if you look at Pershing Square today, if we just compounded anything close to historic rates, we'll be managing a trillion dollars and 20 years. And that's plenty. You know, that's a good
Speaker 2business. Let's talk about Braemont. How did you get involved with the watch company?
Speaker 1Yeah, Braemont. So I, the story here is, I was at Howard Hughes Board meeting, and it was in Dallas, and it was the, our office at the time, was in a mixed-use complex with the shopping center. And during a lunch break, I went down to the mall and I walked by a watch store. And there was a very good young salesman, and he talked to me about a Braemont watch I never heard of the brand before, and I ended up buying a watch. And I somehow lost it over time. I have like a watch safe, and it got buried in the watch safe. And years later, I was heading to London for actually Pershing Square related reasons. And friend had just told me that he was wearing a nice, bad, complete watch walking down the street in London, and it was stolen. And actually, it's like, Bill, you cannot wear a nice watch in London anymore, because you're going to get hit, you know, at best they're going to steal it. At worst, you know, you can get hurt. So I literally said, oh, what watch can I wear that I can wear a little less concerned about losing it? And or it's not a recognized brand that that a thief is going to go after. I'm like looking through my watch drawer, and I found this Braemont watch. I'm like, that is a super cool watch that I put it on. And I was in staying in Mayfair, and I was walking down the street, and I walked by the Braemont store, like literally like the day the next day. I got to London. So I walked in. I really liked the watches. And I ended up buying eight Braemont watches for basically his for gifts. And that night, I had dinner with the chair of Pershing Square holdings. And I gave him a, I gave him a Braemont watch. And, and oh, I wrote a little note when I left the shop, it gave me like a free Braemont clock, but that could put on the wall. And I said, you know, who owns this company? And they said, oh, two British brothers, the English brothers. And so I wrote them a little note. And I said, you know, dear Mr. Mr. Mr. English, if at some point you are interested in having a partner, I would be interested in potentially being that partner. And perhaps I could help you grow your company. I've always kind of, my father kind of taught me to like watches, you know, a bit of a father something. And they emailed me back. I did a zoom. And they said, actually, we have a long time holder that's interested in selling their interest. And, and they're buying a smaller minority stake in the company. And time went on. And the thesis at the time was, we have this really good growth strategy. We're going to open all these boutiques. You know, our boutiques are profitable. Well, it didn't work out and they burned through the capital pretty quickly. But I view these investments a bit like hobby investments. So I it's not like something I put a lot of resources in and doing. It was a it was a bit of a Warren Buffett style investment where I didn't do the diligence. I just assessed the character that people I was dealing with. Showcans. The only involvement I had was helping recruit a new CEO, a guy named Dobby Day Toronto. Anyway, the things weren't working out between Dobby Day and the board and the board had had had a disagreement with him about the direction of the company. And I sided with Dobby Day. I thought he was making all the right decisions. He dramatically improved the quality of the watches. He's a group of phenomenal watch designer. I love the direction, but sort of the old guard who had been with the company for 20 years felt it was too much change. It was coming too quickly. You know, we even have a new logo. Are we losing the ethos of the brand? And there's a bit of a board fight and being a bit of an activist. Was this sort of got a little more involved and ended up putting in a chunk more capital, buying effective control of the company. I joined the board as non executive chair. My nephew, I inserted this kind of to help fix things. And they've made amazing progress in the last, I would say, year or so. And it's been kind of a fun, you know, other people might industry by sports teams. I own this little watch company and it's super cool. And this is a watch that's going to go to the moon. I got to get one of this. Yeah, this is it's called the supernova. And the one of the things that's cool. The face has all of these phosphorescent, the face lights up completely at night. It looks like these solar arrays in space. You know, it's a ceramic, you know, you got a ceramic bezel thing. It's a Swiss movement, you know, one of the highest quality Swiss movements. And you know, it's phenomenal design and we've got a lot of fans out there. And I think people like, I like wearing a watch where the guy does, you know, doesn't know what I paid for. Yeah. And also because they're, they're, they're less, well, known. The thieves don't chop off your wrist for them yet. I mean, maybe that's when we get to that point, maybe that's good for the brand.
Speaker 2Talk to me about recruiting a new CEO. That's one of the things that you've done as an activist and you sort of did it here again. What is the process that you undertake to find the best person in the world for that position? Like how do you do that? Why are you so good at that?
Speaker 1So we've done it a couple of different ways over time. For perishing the way we've generally done it is, in our experience, finding someone who's done it before is the, is the lowest risk highest return potential. So Chipotle went through crazy food safety issues. And we needed someone in Brian Nichols name kept coming up. And then we use these sort of expert networks to talk to people who used to work for Brian or compete against Brian. And you can learn a lot by the kind of 360 views and, you know, just had kind of glowing references. And then we meet the guy. I would say one of my best skills, though it's not been perfect. I made a few mistakes. You know, over time, it became a very good judge of people. You know, what do you need? You need people who are super passionate about the job, a lot of capability, a lot of energy and, you know, honesty, character, etc. And you can assess that I think in an hour.
Speaker 2I want to switch gears a little bit and talk about you as a person. What are other people's biggest misconceptions about you?
Speaker 1You know, I had this experience over the course of my life where people would say, Bill, I had a completely different impression of you based on what I read in the media. And when I meet you in person, you really seem like a really nice guy. Yeah, you're much nicer. And perhaps some of my Twitter expressions make people think I'm just a fire brand or whatever. But I'm not a hostile kind of person. I'm just someone trying to get to the truth.
Speaker 2I think the media, like positions people in this way, right? Like certain people for whatever reason through your activism, you kind of get positioned in this. And then people form these misconceptions.
Speaker 1I actually think that we, you know, the herbal life thing did do some reputational damage over time because they sort of called me out, you know, being a short-sellers, I would say the general populace just thinks that's like an evil bad thing. And so I think having that be very much in the, the rearview mirror, you know, the herbal life short was like the end of 2012. That was a long time ago. Believe it or not, we'd not made an activist investment for more than a decade. The last activist investment was was in 2016. Would you ever do it again? I don't think we'd have to be an activist in any kind of traditional form. We will get quite involved in the companies were involved in. And I guess if we were at a big stake in a company, we felt they were doing the wrong thing and we thought it was worth the energy. And I don't know where ever going to have to run another proxy contest. I don't think you run a proxy contest against someone with, you know, three million Twitter followers. I think it ends badly for management. And I think we have a sufficient amount of influence that we can get to the right answer with dialogue. That's what I think. So I don't think we have to be an activist. Activism is when you're outside the boardroom and you're not going to get invited in today, I think any company that we're a shareholder in, if we wanted board representation, they would give it to us because we're a major shareholder. We've got a good reputation. We're a long term investor. We're going to do the right thing for the business. We always end with the same question, which is what is success for you? My definition of success for, you know, obviously, version square is, you know, I want the investors, obviously, you can measure it, you have a very attractive, you know, life changing, make a life changing investment with us. So that by the time they retire, they can, they can do the things they want to do. They can pay for education for their kids. They can buy the house they want to retire in. Um, you know, for me, my definition of, you know, 60 is like a moment for me. I celebrated my 60th birthday in May. Wait, do a deeper on that moment for you. What does that mean? I sort of think about each year, like I love the summer. It's one of my favorite times of year, and the summer goes by so quickly. And, um, you know, most people live, you know, a healthy people live to their 80s. I'm 60. So that's 20 to 25 years from now. I'm, I'm hoping to AI and, and, you know, doing a better job enables me to live to, to meaningfully more than that. I have a grandmother who lived to almost 106 and she smoked and drank. Um, I don't know if that was contributing to her longevity, but, um, you know, I want to, by the time I have no more time, I want to have had a significant life. And my definition has always been, I want to have the greatest, beneficent impact on the largest number of people. You know, obviously you start with new family and friends and so on. But, um, and actually, I think this institute is going to be a way I'm going to be able to have a huge impact. And something that's really needed. So success for me is getting, is having a significant life.
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