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Warren Buffett, the greatest investor of all time, he was not able to perceive the risks of disruption created by the internet. Well, now we have AI.
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>> We're the beginning of an industrial revolution.
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>> It's a much more complicated problem.
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If you had to guess, how do you think it plays out over the next 18 months?
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>> The pace of improvement [music] is by far the fastest of anything we've ever seen.
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There will come a time there'll be some form of a blow up where people lose a whole bunch of money.
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What's your investment process like?
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How do you go from I'm interested in this company to now we're writing a check for a billion dollars.
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>> Over time, you develop a spidey sense on people.
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If you look at our most successful investments, they've usually been cases where we've done something that someone hasn't done before.
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>> What advice do you have for the ordinary person who's making a paycheck and wants to invest?
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So, if you want to be an investor, [music] >> you've had a challenging year this year with Lucy. What happened?
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>> You know, otherwise healthy child.
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What happened was uh she had unbeknownst to us a what's called an arterial venus malf for which is a kind of structure in the brain where the the way they doctors describe it is the arteries you know typically blood flows into 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.
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So they um in her case she had what they like a bridge that went from the artery directly to the vein.
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So over time there was too much pressure going into the this these veins in her brain and one of those veins burst and then a large amount of blood you know filled her brain which is a confined volume.
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And so it you know it's a bit like a balloon blowing up inside your brain and that put pressure on the surrounding brain and and the skull.
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And obviously the skull doesn't move.
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So the pressure goes downward.
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It puts pressure on the midbrain.
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The midbrain is, you know, what keeps you breathing, keeps your heart beating.
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And the really unfortunate thing, we believe this happened around 9:00 in the morning based on her or ring.
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She lived, you know, young woman lives alone on in Williamsburg.
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And I texted her at 4:00 that day.
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I had called her another time that day.
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Other family members had done the same, but only when she hadn't picked up her luggage.
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She was, you know, she was leaving for Abu Dhabi for a wedding.
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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 2 hours late and no one could reach her that week.
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Uh I was I was sleeping at the time, but uh my oldest daughter went to find her and they and they found her lying she found her lying on the floor of her apartment barely breathing uh you know face down on her right side.
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So and she thought she was dead. Called 911.
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She could hear her breathing in a very labored way.
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And then uh I don't sleep next to my cell phone.
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My daughter doesn't know the landline number for my house.
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So she was able to call someone in the building.
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Guy in the building knocked on the door, you know, pounded on the door um and uh handed me the phone with my daughter on it and then hopped in a cab.
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The EMT didn't know which hospital to take her cuz they didn't know what had happened to her.
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One of the big problems uh sometimes you know the EMT thinks someone's just drunk and that's why they fail and the way you treat a drunk person is you just let time go by right time going by for a person where the brain hemorrhage is very you know the more time the brain is under pressure the more damage that can
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take place to the hospital at 12:05 uh and she was just you know sitting on a gurnie 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 um and and the What you need to do is you need to release the pressure on the brain as quickly as possible. And the
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And the way you do that is you remove about 40% of the skull to allow the brain to expand beyond the skull.
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And uh we moved her from um you know Elmhurst Hospital uh by the way uh very pleased with how they cared for her there city hospital uh in Queens.
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We moved her to Mount Si where you know uh Ner and I spent some time helping Mount Si.
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got we knew the team there and uh they also have very good neurosurgeons and and a and a neuroscience uh brain practice and you know she was on a breathing tube.
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Um you know she was wearing some she had bandage of course on her head and it said no bone right to make sure the nurses knew not to to be careful and uh that's how we started and so uh you know the the I basically gave the doctors the what I call the dare to be great speech.
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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 we don't know what kind of deficit she's going to have
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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 5 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. Um, and so we didn't know what
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Um, and so we didn't know what would what would become of her, but I'm I'm very optimistic person.
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And, uh, she's regained over time her cognition.
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She's the same Lucy we knew.
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She's got the same sense of humor.
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Uh, she's really kind of remarkable.
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She, you know, woke up not being able to to walk, to speak.
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Uh, and unfortunately to see, uh, her, uh, walking is coming back.
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I think she's going to regain her ability to walk.
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uh her speech very slowly is coming back.
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You there's something like 17 vowels beyond the vowels that we were taught.
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Uh and she can do about 15 of the 17 now.
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She's you each day she's almost learning a new consonant.
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Uh she can say a few words. Certainly no.
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She's quite good at and then vision.
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She's even shown some progress uh there.
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even shown some progress uh there. Uh but I've you know I spent a lot of time and you know working with the doctors and you know my pitch to them was let's see what we can do for her and everything [snorts] we learned for her we can help others and you know Ner and
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I are going to make this available to everyone and uh 3 months after I guess I was coming back from my birthday party and I got a call from a friend we were talking about Sinai actually about doing a redevelopment of their fifth avenue venue uh campus to build a brain institute, some kind of brain center. Uh
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Uh and we had very aligned with our idea.
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Problem with that is probably a 10-year project and super complicated.
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Obviously, taking down the existing hospital, moving people, bringing people back and a vacant biotechnology building became available on 65th and 11th Avenue, 10 blocks from the office.
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And 60 days later, we closing the building.
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We signed a contract to buy the rest of the site. It's a 3.
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4 4acre site and our goal is to build the world's greatest brain institute.
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You know, everything from, you know, a focus on the patient.
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How do we get treatments to patients and there's a ton of interesting things going on in technology.
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Obviously, everyone knows Neurolink, but there probably a dozen other companies working on brain computer interfaces and other ways to get data from the brain, right?
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You think and you know, of course, AI, right? this.
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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.
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So, you know, I'm hoping Lucy can speak normally and I I'm on on her own just working at it.
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I'm hoping her vision returns.
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But if she has deficits in those areas, there will be solutions in the relative short to intermediate term.
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you know, envision a world in where you wear a pair of glasses that basically have a camera and the camera takes in, you know, the vis the vision and and kind of ports it to your visual cortex and that's how you see.
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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 5 years I actually I've reached out to pretty much everyone for help on this and he told me he said 5 years we people have better vision than we'll have bionic vision in effect. The way the uh my Dr.
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[clears throat] Kelner describes it to me is that um it's been Lucy's lead on this whole thing.
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A lot of neurologists [clears throat] uh and even neurosurgeons are nihilists.
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They don't believe that uh the patients can make really material recoveries and they can.
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And we've heard, you know, a lot of interesting stories of recovery which are great to share with Lucy.
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Um but we're going to be able to do a lot more.
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And New York's actually probably one of the best places uh to do this.
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And there isn't anything like it.
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So we're we're excited about it.
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>> What you guys have done in response is just incredible. >> Yeah.
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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 uh to to help my daughter and to help other people that have this have this problem. Right?
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[clears throat] I'm like a real estate investor, right?
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So I was able to buy the building, you know, uh at a fraction of um of of what it cost and uh you know, architecture, design, also married to a very talented architect who's going to, you know, play a pretty important role here.
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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 want we love people who write to us you know who've dealt with this on a very personal level have a brother a sister a mother a parent who've who suffered and they've seen kind of the nature of the treatment that's available today and they want to change that.
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It's interesting and actually you know people say Bill how how do you deal with something like this?
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Well, the first thing I had to do is figure out how to help my child.
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Um, and uh, as I made progress with that, this other thing is an amazing, you know, makes me feel like something good is coming out of, you know, I I have this view that you every bad thing, something good comes from it.
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You know, this is among the good that's coming from what she's going through and that makes me feel good.
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>> Did you always have that view or was that learned?
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>> I figured that out over time.
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when was there a moment when that >> Well, you know, I've had a few near uh death experiences in uh in business and in each one of those cases, I was materially better off after that.
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So, those are kind of, you know, good lessons.
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The what does not kill you makes me stronger thing is it is definitively true.
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>> And by the way, for my child, for Lucy, I think this is going to be good for her. >> Say more about that.
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Look, 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.
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And she was, she is a wonderful human being.
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I mean, one of the things that's helping her recover is, you know, one, you know, her mom has been there every day.
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You know, I move my office into the hospital.
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you know that with within a day of of her moving into the hospital, I did two IPOs, the two Persing IPOs I did from the room 1107, room 107 on the 11th floor of of of 11 West at uh Mount Si Hospital. Um the power of Zoom.
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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'd do the next meeting.
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And so I had my daughter as the inspiration, you know, for [clears throat] these two IPOs, uh, that we were working on and we only moved her out of the hospital uh, August 8th.
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Um, and she's been rehabilitating in Bridgeampton.
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Then she's coming back um into the city, you know, for a little procedure and then she's moving into her own apartment that we've been uh we bought an apartment in our building within a few weeks of the incident and we've [clears throat] been designing it to be you know the best rehab recovery place for her to live and and uh you know socialization, social interaction is absolutely critical for someone recovering from something like this.
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the emotional support that you get and everything.
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And her friends have been amazing.
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Her friends have been with her every day.
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Every day one or one or more of her friends shows up and talks to her, uh, eats with her and engages with her and, uh, you know, she's like this super giving person, ton of friends.
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Um, everyone loves Lucy and so she's she's getting an amazing return on that.
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Uh, you know, because her friends are are showing up to save her.
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All of this makes me feel that humans can be so amazing. >> Yeah.
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I mean, you know, the uh you can recover from almost anything. Yeah.
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Um and and by the way, there's a lot more hope for people who've had strokes, uh brain injuries, uh military TBI type stuff.
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Uh 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.
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>> What's been preventing us from going further?
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Like why why haven't we pushed the limits on this stuff?
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>> Uh the answer is u some combination of the insurance industry and just economics and hospitals that how they work.
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I mean a neurosurgeon wants to do their surgery and they move on to the next one.
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Neuros surgeons are highly compensated but they get paid for doing surgeries.
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They don't get paid for the recovery of the patient over time.
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Um you know rehabilitation every hospital has some kind of rehabilitation program but in many cases it's embarrassingly inadequate.
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Uh and the insurance company might pay for only 6 weeks of care.
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Uh and then they get sent home and their home is you know not the ideal place and and you need it's in a major takes a village.
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What if they're the pre principal bread winner and and they're, you know, devastated by this?
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Maybe the other family member has to go out and work as opposed to care for them.
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You know, the one of the most depressing things I was told u by the head of rehab at u actually at Mass General we've been talking to and they said, "Bill, you know, what Lucy's achieved is remarkable.
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She's had, you know, incredible care.
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The typical person, one, they wouldn't do the surgery.
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to if they do the surgery, you know, 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 pneumonia because just the care that can be achieved in a nursing home.
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It's like super depressing.
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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.
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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 and uh technology is going to help a lot.
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A great speech therapist could be $500 an hour that you know 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.
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Um so there there are lots of ways that technology are going to enable us to help people recover from these injuries.
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And by the way, this all, you know, we're calling it, the focus is brain rehab, recovery, and longevity, right?
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What does a brain rehab recovery institute do?
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It focuses on brain recovery and your physical recovery.
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The brain plus your physical recovery, it's fundamentally longevity.
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And the other thing that hospitals don't aren't very good at is nutrition, right?
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The food in hospitals is frightening, right?
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They have someone who has a, you know, heart attack and the next morning they're having like pancakes with syrup with orange juice.
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In Lucy's case, you know, we made food for for every meal.
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Uh the institute's going to have amazing food [snorts] um because nutrition is, you know, critical.
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So, there are a lot of things we can do um taking advantage of this financial circumstance.
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I'm going to use it in a way that will enable us to build something optimal and I think ultimately self-sustaining.
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[clears throat] >> You're an incredible father.
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Like, what an amazing response to terrible circumstances.
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You know, I would I would feel if I couldn't do it, I would be one of the most frustrated people in the world.
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I I literally feel like I was designed to help her.
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Like everything I know how to do.
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>> You mentioned the Aura ring, the data on the Aura ring.
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What was the data that indicated something was >> So, I've been in touch with the CEO of AR.
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He actually reached out on Twitter and I think you can certainly with an Apple Watch and hopefully with an Aura ring.
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So, what happened was um if you look at her spike, I actually put it on Twitter at like 9:00 or so, it there was a there was a very quick spike in her pulse and then uh kind of a drop off that looked, you know, kind of unusual.
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And if you combine that spike and a drop off with someone falling, like the Apple Watch has an alert when someone falls, >> right?
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Well, if it that happens and it happens when there's a huge spike in their their uh you can reasonably assume >> you can say you know did they have a heart attack did they have a whatever you know these are things you can look at and I think or ring should have the same capability >> and they're I think they're working on it.
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>> How do you keep your mind in a healthy place?
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Like what do you do to keep your your head right?
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>> I play tennis almost every morning or do some form of exercise.
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I think that's probably the most important thing I do cuz it's the one thing I do over the course of the day where I'm I'm completely focused on the ball that's coming at me uh as opposed to whatever else is going on.
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So, I think that is a really important form of meditation for me. That's one.
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I got a good night's sleep.
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I spent time with my family. Things like that.
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>> Do you still meditate? >> I haven't in a while.
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Uh I did for this challenging year and I, you know, I was middle of divorce.
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I was not kind of on my own and it it [clears throat] really helped and I probably should find 20 minutes a day to meditate.
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>> How do you manage it all?
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I mean, you have four effective public entities.
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You have this with your daughter.
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You have a seven-year-old.
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You want to be a great husband.
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How do you harmonize all of these things?
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>> So, Persian Square has come a long way from when I started it.
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When I started it, I was sort of the chief bottle washer guy.
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Um, and I would come up with all the ideas and I have an analyst that would help me prosecute them.
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And that's how we and and there was activism. I was the guy, etc.
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Over 22 years, we built an amazing team.
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We're in an industry where the half-life of someone who works for a firm, you know, people are paying in the top people can move from one place to another and get huge, you know, $100 million bonuses for showing up, things like this.
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>> And the result is a lot of turnover in the industry.
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We have no turnover at Persian Square. >> Is that good or bad?
18:30
Well, if there's someone that we've, you know, we we've had no turnover.
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We obviously we've made some mistakes and we and we replaced some people over time, but if you look at the investment team, the investment team has been the same team for now 9 years um with a couple of new additions.
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And that's actually a really good thing.
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You know, if you have a constant revolving door of new people, you don't really know that you can trust people over time.
18:54
Um you know, are they really telling you the truth?
18:57
Are they really telling you all the risks and rewards of a particular situation?
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When you've built a relationship with people and you work with them for 9 years [clears throat] and you have this culture of 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.
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They're telling me the the flat, you know, candid truth.
19:15
That's a very comfortable uh place.
19:17
So the answer to your question is the Persian investment process is incredibly wellrun by a very experienced team uh 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.
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I'm someone that generates a minority of the ideas in the portfolio. So that's helpful.
19:37
And then the business itself uh you know the way it's structured is you know Ben is responsible for running a lot of the business elements of Persian Square.
19:45
Um, so that frees me up to think.
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It frees me up to work on more strategic stuff and it frees me up to come up with the occasional, you know, kind of uh idea.
19:54
Um, so Persian kind of takes care of itself.
19:58
Well, we have a number of public entities.
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We have an amazing accounting team.
20:01
Um, and you know, those public companies all sort of do the same thing.
20:05
They're really just, you know, there's the management company that earns fees from the entities we're on. That's Ping Square Inc. PS ticker.
20:13
uh there are uh two funds that are publicly traded that own effectively the same portfolio.
20:17
You know there's certain governance responsibilities we have for those entities but uh they're really actually each of them have independent boards of directors.
20:24
So our role there is as as the uh kind of external investment manager.
20:29
Um we have excellent boards at both of those.
20:32
You know the typical closedend fund board is a bit of an embarrassment.
20:36
I don't know if you how closely you follow the space, but you know, you've seen Boaz Weinstein going into proxy coms.
20:41
The typical closed end fund board is a group of people who not to I don't want to pick any I let's say Black Rockck for the moment.
20:50
I I think I read somewhere that you know they they sit on 86 the same six directors sit on 86 clos fund boards.
20:57
It's hard to do real governance when you sit on 86 boards of directors, right?
21:01
The typical limitation is four, you know, from by ISS.
21:03
We hired actually real directors.
21:05
We pay them like real directors.
21:08
Uh they're not serving on multiple, you know, uh 50 other uh so we have really good boards and what we do is fundamentally simple.
21:15
So Persian kind of runs itself to some degree just because of delegation, incentives, alignment.
21:22
You know, the we have the best alignment because no one's paid on individual stocks.
21:26
They're based on performance.
21:27
At 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 fee stream.
21:33
So it's just a very aligned entity.
21:34
You know, I own about 45% of the company.
21:36
Uh the team owns another I think 35% of the company and then we have, you know, a minority interest held by the public and and some strategic investors that invested with us.
21:47
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. >> Sure.
21:59
>> I know you want to be the best investor in the world. >> Sure.
22:02
And so you're this is like one path and then there's another path.
22:05
path and then there's another path. It's like dad and husband and >> I would say the one thing I would say in the last you know the setup of this AOI thing has consumed some mind share of mine as you would expect over the last 60 or 90 days cuz I'm assembling the team just like with you know there's a
22:23
moment it's a bit like we ran a proxy contest we took control of a board of directors now we got to bring in a new CEO once we bring in the CEO and the teams in place and announced and everything else I don't get involved in the day-to-day operations and the same think it's going to be true for the AOI. It's going to be like another portfolio
22:38
It's going to be like another portfolio company in some sense.
22:39
Uh although I'll you know we're all going to sit on the board you know I'm going to chair the board but there is a you know a bit it is similar to I don't think I could be doing setting up the AOI and we had a proxy contest underway at the same time.
22:52
>> AOI is the Aman Oxman Institute just for everybody listening. >> Yes.
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24:37
When do you do your best thinking?
24:37
Often when I'm on vacation, actually some of my best ideas are ones where I'm literally totally relaxed or I'm in the shower.
24:47
>> You've done a lot of research about bubbles.
24:49
I'm curious like how would you explain what a bubble is?
24:53
>> A bubble is when human nature uh when 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 overvaluation takes place [snorts] and then you know a bullance and then eventually the bubble bursts.
25:15
They seem to happen around these technological changes like railroads, automobiles, transistors, the internet. >> Sure. >> Are we in one now?
25:25
>> Well, we're in certainly in a transition.
25:26
You could say AI is absolutely transformational and it's the most transformational technology I think of of uh of all of our respective lifetimes.
25:34
There are bubble-l like elements.
25:36
Uh there's a lot of crazy stuff going on, you know, in the private world of venture.
25:41
I think we're starting to invest in some you talk about a bubble where Persian is now investing in some venture uh stage businesses, you know, met with a company, let's say two weeks ago and they weren't raising money.
25:54
2 days later they close around you like they were preempted by some investor who put 50 million in at a $400 million valuation and then two weeks later they raised another $50 million at a billion dollar valuation, you know.
26:05
So there's there's a lot of people fearing missing out on you know [clears throat] the future and so a lot of capital going into venture a lot of competition and a lot of preempting and uh leading to very high valuations you know that I saw a company you know series A round at a 5 billion pre- money.
26:26
>> How do you avoid that FOMO?
26:26
It depends on what you where you are in life, you know.
26:30
Um Warren Buffett was, you know, remarkable for his discipline over a 60-y year career.
26:36
And actually, interestingly, in the last real bubble, the internet bubble, that's when Bergkshire stock hit like an all-time low, cuz people said he's kind of lost it.
26:43
While all these other people were making money, he just did didn't participate, but he just shouldered on.
26:49
I think it's a question of short-term versus long-term perspective.
26:52
>> What advice would you give founders right now who might be trying to raise?
26:56
It's a great time to raise capital and assuming you raise the capital, don't spend it so quickly expecting money will be there forever.
27:02
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 piece in Barren uh one uh weekend and [snorts] it listed all of the internet companies in the public markets and how much cash they had left based on kind of their their burn rate and how many months to go before they went to zero.
27:27
That was probably the week before the market blew up.
27:30
What happens to a private company that has no capital?
27:34
There's a certain discipline associated with bootstrapping yourself and then you take in 50 million or 100 million or [snorts] and you completely change the way you deploy capital betting that there will anytime you need money you could just tap the markets.
27:45
There will come a time there'll be some form of a blowup a pretty highprofile one where people lose a whole bunch of money and that will cause a reset.
27:52
And I think the the companies that are disciplined in how they spend the capital so they have years of runway will be the survivors and the ones that have to raise money in 3 months will be gone.
28:02
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 bulliant freely available capital thing to to exist forever.
28:14
>> So raise money now but keep it in the bank.
28:16
Don't don't spend it >> or spend it judiciously.
28:18
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? >> Sure.
28:28
So public markets were investing in what we call super durable growth companies.
28:31
You know businesses that are the most dominant companies their respective spaces.
28:34
They're highly profitable.
28:35
They have strong balance sheets.
28:37
Uh and the and the key sort of success factor is predicting kind of their ability to continue to you know either gain or maintain market share and grow their business and have pricing power in the public markets.
28:48
you know, yes, the CEO matters, but we've always had the view, well, if we don't like the CEO, we can we can find a better one.
28:54
In venture, you're really betting on the person and more than the business plan.
29:02
And you're investing in a company that is, you know, maybe pre-revenue or it's losing money.
29:07
You're betting on their ability to grow at a fast enough rate that ultimately they they go from being a capital consumer to one that's going to generate cash over time.
29:15
Uh so it has some similar elements but it's much more founder dependent CEO dependent than the public markets.
29:23
You know the the best public market companies something happens to the CEO you can find another great person to run it.
29:28
Uh the best private companies you know without the CEO it's it's you probably write it off.
29:37
>> How much are you waiting sort of the idea versus the person?
29:39
I wait the person more than the idea because often the the original idea is not the idea that turns out to be the success and the founder is going to hit a roadblock.
29:49
Original idea doesn't work.
29:49
You know my most successful venture investment.
29:51
Uh I didn't like the idea.
29:53
Uh this was um Kang which was uh Bomb Kim and his his business plan was to create the Groupon of South Korea and even at that time which was 2009.
30:03
I thought Groupon was a really bad business model but he made a very powerful case for why South Korea was a great place to launch an internet business. and I liked him.
30:10
Um, [snorts] and ultimately he built the the Amazon of South Korea.
30:13
Really nothing to do with with the original business model.
30:17
So the the most successful you're really betting on their ability to to manage through, you know, the challenges that emerge and and figure out a business model over time.
30:27
>> How is AI changing the investment profession?
30:29
>> The most important thing an investor has to do is assess the risk.
30:31
I mean, the value of a business is the present value the cash generates over its life.
30:35
And it's life, you know, the early years of the life matter more than the later years.
30:41
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 if you want to make a illquid long-term investment in the business.
30:52
Um, and we we look at even liquid investments that way.
30:54
You want to invest in something that you know if the stock market were to shut for 10 years, you're happy to own it. It's good discipline.
31:01
So the thing that you need to think through is the risk of disruption.
31:02
You know what AI has done is massively increase the risk of disruption.
31:06
So you got to be very very thoughtful about you know the businesses you in you know businesses you know go back to Warren Buffett.
31:13
If you go back and read Warren Buffett the great greatest investor of all time uh he was not able to perceive you know the the risks of disruption created by the internet for example you know Wikipedia disrupting World Book.
31:24
Um well now we [clears throat] have AI.
31:30
It's it's a much more complicated problem.
31:31
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.
31:37
>> What businesses do you think become more valuable as a result of AI?
31:39
actually met with the one of the founders of cognition yesterday.
31:43
cognition yesterday. very interesting company and their uh software or their AI in effect enables uh 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 elomeration of acquisitions they did over time they
32:04
can kind of rewrite the cobalt into uh 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 uh because of AI big spenders if you will on tech
32:19
are going to be able to bring some of that they're going to become a lot more efficient that's now the question is are they going to be able to keep the profit right if everyone uh everyone's going to be forced to uh use the best software to run their business you more efficiently become more AI native and the question
32:35
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 you know the problem with money generally is It's a commodity and banks are in the business of providing providing money. So it's it's
32:46
So it's it's a complicated question depends on the business.
32:50
I think AI will enable the creation of many businesses that here too for cannot be created before and AI will enable entrepreneurs people to become entrepreneurs who never been entrepreneurs before.
33:02
Just even the most recent uh like 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. >> Yeah muse. ai. Yeah. >> Yeah.
33:13
How easy it is for people to now create their own agents to do stuff for them.
33:17
The pace of improvement is by far the fastest of anything I've ever seen.
33:23
You know, if you think about Microsoft in the old days, you know, 1. 0 versus 2.
33:26
0, it might be, you know, a couple years or more between between [snorts] updates of of consequence.
33:31
You know, here you get an update of consequence in days.
33:35
It's a bit like driving a Tesla and they're, you know, overnight they're updating the software.
33:38
>> Does that scare you as an investor?
33:40
>> I'm generally not frightened.
33:40
So scare is probably the wrong word but I would say you you have to be very thoughtful about the moes and how wide they really are and uh I think it's the most complicated question for an investor how to predict the risk of disruption businesses that that seem like the most dominant businesses in the world.
33:58
There will be some that will just disappear.
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35:24
How do you go from I'm interested in this company to now we're writing a check for a billion dollars into it?
35:30
>> Usually, it's not a company we just woke up and heard of.
35:33
So, we're looking for the best businesses in the world.
35:35
So over time we kind of build this you know call it a library of companies that we've followed for a long period of time.
35:40
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 but we said look at this price at 35 times earnings or whatever it's hard for us to get to a 20 plus% rate of return which is our ambition.
35:53
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 a some macro event happens covid gives us a chance to buy that kind of a business or even you know the [clears throat] sas apocalypse >> yeah apocalypse >> which caused you know pretty much
36:13
everything to do with software to get repriced that gave us an opportunity for example to buy Microsoft in our view at a very uh attractive valuation and ao a host of other really high quality businesses but the process process is uh we typically have two members of the team do a deep dive on a company. They'll start obviously with kind of the
36:30
They'll start obviously with kind of the SEC filings, 10Ks, 10 Q's, conference call transcripts.
36:33
[snorts] Then uh we'll kind of assemble what the key issues are that we're trying to understand.
36:37
We spend a fair amount of time on expert networks.
36:41
We'll talk to former employees of the company.
36:42
We'll talk to other industry experts.
36:44
We'll talk to people like competitors to kind of get to, you know, the the underlying issues and and then we kind of build a a model of the business um and kind of get an assessment of, you know, how does this pencil what kind of return does this generate at the price we can buy it for today?
36:59
You know, those are some of the elements.
37:01
Then that team will put together like a a deck um and they'll present it to the group.
37:06
Now, that twoerson team is usually is not Ryan or myself.
37:11
myself. Uh Ryan's our C our CIO uh our 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
37:27
and that group comes together to discuss an investment and out of that meeting may come a decision to make an investment in the company or may say okay there's still some open issues let's get to the bottom of this concern and then they'll go back and do the work and come back to the team that's the basic process. How are you guys using AI
37:40
How 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?
37:48
>> Yeah, today we're really using AI more as a research tool to learn about a certain subject that's relevant.
37:53
It hasn't, I would say, crept too deeply into a process.
37:58
We're not using it to build models.
37:59
In a world where everyone has the same access to AI, it's hard to be differentiated.
38:05
I 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 gleaned from looking at all the facts.
38:16
Whereas AI is a bit of a review of everything that happened before.
38:18
And if you look at our most successful investments, they've usually been cases where we've done something that someone hasn't done before.
38:23
you [snorts] know, buying a credit default swaps before, you know, a a pandemic, for example, or investing in a the stock of a bankrupt company or shorting the credit of a AAA company before the financial crisis.
38:36
Those are among our best investments and they were you you couldn't have found in a model, you know, AI would not have told you to do any of those things.
38:44
>> A lot of value investors have underperformed sort of like post 2010, 2011, but you haven't.
38:49
Why do you think that is?
38:51
We've been very good about continually sort of increasing our standards for business quality.
38:57
We want to own the best businesses uh in the world uh that are have a very low risk of disruption and I think we're quite disciplined about that.
39:05
And the other thing is that we're not just a longon only equity investor.
39:08
Uh we have opportunistically made a pile of money in a couple of cases when we've had a view about macroevents that's different from others.
39:17
And when you have that uh and you can find an asymmetric way to make that bet, you can make a lot of money.
39:22
So we made a lot of money kind of going into COVID because we I would say were weeks ahead of the world and and of a few that there would have to be a global economic shutdown.
39:31
Uh and we made a lot of money because we said there has to be massive inflation.
39:34
[snorts] So we bet that rates would rise.
39:36
One of the things we did that you know we we had a we've talked about it before but we had this very large laws circa 2015 2016 and after that experience I said we got to take our investment principles and literally engrave them on a stone tablet and put them on our desk.
39:49
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.
39:57
>> What's on that checklist?
39:59
>> 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.
40:05
focus on large cap kind of liquid uh public companies an aversion to shortselling.
40:11
Um that was an something a good uh a good lesson and uh 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 that 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.
40:29
But you know it's a very simple we're looking for the best super durable growth companies in the world.
40:33
We spend a lot of time thinking about moes and uh obviously we want them run by the best teams in the world or if it's not run by the best team in the world we want to have someone in mind that we could install if we need to replace the team.
40:47
>> Why did you stop shortelling?
40:49
>> I never actually liked shortselling.
40:49
Uh because it's it's asymmetry in reverse, right?
40:54
You can lose infinity and your amount you can make is finite.
40:56
But I was uh we shorted the bond insurers going into the financial crisis and that was a very >> that was the MBIA one. >> Yeah.
41:06
But most of the money we made we made on the credit default swaps as opposed to shorting stock and then we did nothing.
41:11
And then someone pitched me on a fraudulent pyramid scheme.
41:13
And then we did the work and said, "It's a fraudulent pyramid scheme."
41:17
And we said, "How can we lose money shorting a fraudulent pyramid scheme and then delivering to the FTC, you know, detailed analysis?
41:25
You know, they they'll have to investigate.
41:27
And the people being harmed are the most disadvantaged people in society."
41:30
So, we thought it was an amazing setup.
41:32
And we like to make investments where the the wind is at our back.
41:36
And we said, "Look, the wind's at our back.
41:37
we're helping, you know, a group of disadvantaged people are being taken advantage of. It's an evil company. This has to work.
41:45
And uh we underestimated the risk of market dynamics, i. e.
41:48
Carl icon showing up, buying the stock, putting capital to [snorts] work uh against us.
41:52
And it just reminded us that it's a really shitty business.
41:55
The company that you were, they're shorting the pyramid scheme.
41:57
We won't mention the name, but that generated these huge attacks against you.
42:03
There was websites against you.
42:04
There was a famous uh CNBC segment that I think came as a result of that.
42:07
Was that what what about the personal cost to you when you're willing to put out a contrary opinion like that?
42:15
>> Well, it's much easier to be a investor in companies.
42:17
You make a lot more friends, right?
42:19
You buy a stock, other people pile in with you, it goes up, everyone wins.
42:22
You short a stock and in that case we were the vast majority of the short interest.
42:26
So, everyone else was sort of on the other side.
42:28
that you had a company that we were an existential threat to.
42:32
They were willing to use whatever they had been attacked over time by critics, by media, by otherwise.
42:39
They built up a lot of infrastructure to go after the critics.
42:44
So, they were kind of wellprepared to kind of go after us.
42:45
And then we be it became a bit of a of a hedge fund trade where let's go squeeze Bill.
42:50
That was kind of the unfortunate part of it where, you know, the in some sense the industry is like, okay, these guys are over their skis. we can squeeze them out.
43:00
And uh that was not the fun part.
43:03
>> You were relatively quiet, I would say, from a public life point of view compared to what you were before.
43:07
And now in the last few years, you've you've been a lot more vocal. Why now?
43:12
>> I've always been kind of a free speech kind of thing.
43:14
You go back to my high school yearbook.
43:16
Um I was I was listed as most verbose and uh my my yearbook epithet was a closed mouth gathers no foot.
43:23
So I was sort of known for being expressive about uh my point of view.
43:29
You know, one of my important drivers in life was I always wanted to be able to say what I believed.
43:33
You know, as my follower count grew on Twitter, it gave me on the margin more influence.
43:37
And as I cared about various issues, you know, I wanted to help advance a narrative.
43:44
And that's why I've been more public about it.
43:45
And I've I've been rewarded by it working, you know, beginning with smaller things.
43:50
Um, and uh, you can actually influence uh, the administration, the course of history with a with a tweet, which is pretty cool.
43:58
A lot of evil can go by if no one's willing to say the emperor is not wearing clothes or or more.
44:04
>> I want to come back just one second to the AI thing before we move on from it.
44:07
Like, how are you using that personally?
44:09
>> I'm using it a lot more recently.
44:09
Uh, you know, my daughter's had a major health incident and AI is amazing at, you know, vetting, helping you make medical decisions for a child.
44:18
It's an incredibly powerful tool and I think every doctor should actually be checking their work with with you know Dr.
44:25
Claude or pick your favorite u website favorite AI.
44:33
>> 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?
44:40
And there's another bet and I'd love to hear your reaction to this which is you know sort of Thrive is starting to buy these sports teams under the assumption that we have this barbell right we have AI in in one hand and uh 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.
45:01
>> So [snorts] on Brookfield I think it's a incredibly well-run amazing company.
45:06
They're very good at infrastructure and they're very good at financing.
45:08
They're very good at building things.
45:09
So think data centers, think power.
45:11
Um, you know, there's effectively infinite demand for compute and uh, you know, they're very well positioned.
45:19
So I think Brookfields is an AI winner for sure.
45:21
They'll provide a lot of the backbone, you know, [clears throat] power and otherwise.
45:25
You know, I'm big big Josh Kushner fan.
45:27
Um, you know, I I don't know how much of the recent uh, baseball investment is is Thrive related or personal.
45:36
I'm I'm not not quite clear to me, but I do think uh that there's a lot of um people sitting home being lonely, but you go to a big sport event, you know, the feeling that you have at a Knicks game, maybe at the end of the game, you half the half the crowd is unhappy, but while it's underway, it's sort of a very human elation type experience.
45:57
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.
46:06
I think they're valued more more like an artwork than than a a financial enterprise.
46:11
You know, the vast m, you know, number of sports teams, as far as I know, if they make money, it's not it's not a lot.
46:18
And it's not like the owner is expecting them to generate massive cash.
46:22
You know, they're taking a small return today on the basis that it's going to generate a lot more cash flow in the future.
46:28
I would think vast majority of sports owners prepared to spend every dollar that they're allowed to, you know, [snorts] in expanding the franchise.
46:35
>> Are you going to buy a sports team? >> No.
46:36
So, >> you went from being uh an occasionally loud activist to trying to enact change behind the scenes. Why the change?
46:43
And is it more effective this way?
46:48
>> It's because we were able to effectuate change behind the scenes and we weren't when we started, right?
46:51
When we went into the business, we didn't have credibility or reputation.
46:54
We hadn't been in the boardroom.
46:56
I was 20, you know, 20 plus years uh younger and uh in that world where you have limited financial resources, you have limited reputational resources, you can buy 5% of a company uh and you have to win on the power of the idea to get the big institutions to support you.
47:14
You might have to end up in a proxy contest, etc.
47:16
20 years later, I've been on multiple boards as have other members of the team.
47:21
uh we have a track record for of success of investing in a company being a long-term investor.
47:26
In the early days, they would say, "Oh, you're just a short-term investor."
47:29
Well, over time, we've been able to prove that we're actually our interests are the interests of the long-term holders of the business.
47:35
And so, today, when we buy a stake in the company, we literally get letters from the CEO.
47:39
You know, recently, we made a number of new investments.
47:42
And in a couple of the cases, we actually got very nice, 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.
47:51
you know, I read your second quarter letter.
47:52
You think about the business in the way we do, you know, let us know and we can come see you.
47:56
And if we have any ideas, you know, for them, I'm sure they'll be very receptive in taking them.
48:00
Uh, in that world, we don't have to be an activist.
48:04
>> Do you think if you're going to go activist, you should have to hold your shares for a certain period of time?
48:10
>> I don't think you should be legally required, but I think yes.
48:11
I I think activism to more direct answer to a 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.
48:22
You know cut your expenses dramatically i.
48:23
e and underinvest so that we can report a more profitable quarter that's not going to be [snorts] lead to a good outcome or you know what lever up the company and return the capital to shareholders.
48:34
You know, the the most extreme version was green mail, which has largely been outlawed, but you can view certain kinds of activism as as a form of almost green mail.
48:45
You know, let's let's benefit the short-term holders at the expense of people who are stuck owning the stock.
48:50
And the board's job is to kind of shut that stuff down.
48:51
And I think shareholders today, you know, the the the Vanguard, Black Rockck, you know, the index fund owners are not going to be they're forever owners.
48:59
they're not going to support some kind of short-term initiative that that will cause long-term negative consequences.
49:06
>> You talked about index funds there for a second.
49:07
What advice do you have for the ordinary person who's like making a paycheck and wants to invest?
49:14
>> So, if you want to be an investor, it's something you got to allocate real time to.
49:17
It's something you have to study and learn.
49:18
You got to do your homework on companies. So, that's a decision.
49:20
If you just want to 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.
49:30
>> How would you do that?
49:30
Would you do um dollar cost averaging on a monthly basis?
49:34
Would you be like, "Oh, it's high now, so I'll hold off."
49:35
Like, how do you think about >> I think the key is to one, start young, um so the sooner you can start putting aside money that you can invest for the long term, the better for your retirement.
49:45
You know, the power of compounding.
49:46
I wouldn't sit around holding cash because you think the market's expensive.
49:51
>> You mentioned stock options earlier.
49:51
I want to come back to that.
49:52
How do you think about stock options from a mature company perspective or it's like let's say Meta or uh Microsoft or an example like that where they could pay cash easily to um but they use options where they use restricted stock as some form.
50:08
I mean the benefit of of of some form of restricted stock or options is the vesting.
50:14
It gives you some ability to retain talent in a way that just paying someone cash every year doesn't.
50:18
So I think it's still a very useful uh tool.
50:22
It's also obviously creates more alignment.
50:24
People actually care about the share price which I think is an important discipline uh for employees.
50:29
Now Persing Square the management company which was the gift we gave with with purchase.
50:33
We don't intend to issue uh any meaningful amount of options or restricted stock.
50:38
We have an employee base that you know already owns.
50:40
We spread equity very widely throughout the firm.
50:44
So you know 80% of the stock or so is held by the held by the team.
50:46
So we we're in the fortunate position of not having to issue equity or options for a very long time.
50:53
But maybe 20 years from now we have a new generation that doesn't have any equity in the company.
50:57
We may choose it can be a useful tool.
50:59
>> I was very happy the market gave me an opportunity to purchase some of that when it came out.
51:02
It went down to like $23 or something.
51:05
>> Yeah, I bought some, too.
51:07
>> Want to talk about Netflix for a second? You bought this.
51:09
You sold it like a month later and then now you've rebought it.
51:13
What went into that decision?
51:13
You were wrong, now you're right.
51:16
How did you change your mind?
51:19
>> Netflix is one of the companies if you will in the library uh that we had done a lot of work on over time and [clears throat] what created the opportunity at least the first time as we thought about it was they had missed subscriber growth uh guidance stock got crushed and uh you know we think Netflix is an amazing business uh with a very dominant position and we bought a meaningful stake in the company.
51:42
Uh we then met with management and we shared our detailed deck with them.
51:47
They they completely agree with our thesis on the company.
51:51
So we felt we were kind of super aligned with management.
51:52
We talked about things like why Netflix and we said why don't you take have an advertising model lower cost advertising model.
51:59
They said we're never going to do it.
52:00
About uh 3 or 4 weeks later um they announced earnings.
52:04
And if you go back and review the earnings call, management seemed like shell shocked.
52:09
uh they were uh you know they missed the subscriber numbers again.
52:16
Uh they seemed very surprised by this.
52:18
They talked well we're going to have to adapt.
52:19
We're going to have to launch an advertising model.
52:22
You know literally 3 weeks before they said they would never do it.
52:24
And you know my takeaway was you make an investment in a company and then you learn new information that's inconsistent with the original thesis.
52:34
you either have to buy a lot more because the stock's gotten cheap and you believe that the new information is uh not material or you have to exit because the thesis is broken.
52:42
And we made the decision to exit on the thesis, if you will, being broken.
52:47
Now, the letter we wrote to our investors, we said, look, um we're selling for this reason.
52:52
We think management is going to be able to work through this problem.
52:56
But what Persian Square invests in the highest certainty companies in the world and we think the dispersion of outcomes here has widened dramatically.
53:03
They may [clears throat] get it right and maybe a home run, but they also there's a much greater probability that they don't get a ride.
53:09
They don't know anything about advertising models and whether that's going to be successful or not.
53:12
And so with the wide dispersion of outcomes, we have a better place to deploy the capital.
53:17
capital. we took the money, we bought uh Google, Alphabet because again for us it's not we don't need to make it back the same way we lost the money right we can always 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
53:34
certainty predictable companies in the world this lost its certainty element at least in our mind and what's happened since they executed extremely well they built a very successful advertising model they became an even more dominant company um they became a much more cash flow generative business and you know the streaming wars they won. You know
53:50
You know the Disneys of the world, the Paramounts of the world, you know, have kind of been pushed aside.
53:56
Netflix, you probably turn off the lights practically before you turn off your Netflix and they're they're incredibly well positioned to to to innovate.
54:04
They're the place you go of any creative person to sell your content or to produce your content.
54:09
And then but the stock because they executed really well went back to a very high multiple and not interesting.
54:15
And then relatively recently the stock got cut in half again.
54:18
So now we had uh the high certainty business we thought we owned.
54:23
They proved themselves at a price that made sense. We bought it back.
54:26
>> The business um that you're involved with that I think people know the least about is Howard Hughes.
54:30
How did you get involved in that and why are you so excited by it? >> Sure.
54:35
So Howard Hughes was an entity we created to make it other another investment successful.
54:41
So we invested in a company called General Growth.
54:43
We bought the stock during the financial crisis.
54:46
We paid the stock was down 99 12%.
54:48
We bought 25% of the company and we 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.
54:57
They were trying to avoid it.
54:58
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 and that's I joined the board of the company we led that restructuring what created complexity in general growth versus its direct competitor which was a company
55:13
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 and a business that they had acquired from Rouse they own these so-called MPCs their small cities and the market hated that business. So we
55:30
So we said, look, let's make general growth look exactly like Simon by taking all of those business, all these kind of land plays, these MPCs out of the company and anything else that didn't look like a class A mall.
55:43
We took all the non-core stuff and stuck it in Howard Hughes on the theory that and 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 cuz it's kind of like a dividend.
55:57
In this case, we spun off general of uh Howard Hughes and John Roto stock went up like the market the overhang from this.
56:04
So it was a David [snorts] Simon called it shitco.
56:08
Uh he was putting in a competitive bid our structure which a deal we did with Brookfield was to create this entity.
56:12
We called it Howard Hughes he called he was making fun of it by calling it but it was really sort of go because it was just everything that was >> the assets nobody wanted so to speak.
56:22
And then we hired I thought of quite a very good entrepreneurial team uh David Winer Grant Hurlist to kind of work through these assets over time until the portfolio was quite focused in the last five or six years to just MPCs.
56:32
We said look the market's finally going to understand why this is a really good business and >> and MPCs are master plan communities.
56:40
>> They're small cities at this point.
56:40
So, we own the Woodlands in Houston, which is, you know, a small city, 150,000 people, something like this, >> [snorts] >> uh, with, you know, high-rise office towers and shopping centers and, you know, uh, schools and churches.
56:52
Uh, I describe the business a bit like Sim City, the game, where we act as kind of the benign owner of these communities.
57:01
And what's in it for us is we own all of the uh, commercial land and all the residential land.
57:06
We sell the residential land to home builders.
57:07
We sell we don't sell the commercial land.
57:10
We use it to build whatever the community needs.
57:11
And if you take a very multi- long multi-deade view, this is a business that over time generates a huge amount of cash.
57:17
And we have uh a series of these small cities.
57:19
But after 14 years of Wall Street wanting nothing to do with the business, uh we said look, we it's time for us to re kind of transform Howard Hughes into something else.
57:31
And the reason why Wall Street doesn't like the core Howard Hughes business is they is, you know, land and development sort of have a bad long-term track record.
57:40
And while our land is very different from just any land, you it's literally imagine you owned New York City and you owned all the vacant commercial land and all the vacant residential land and you owned it over a hundred-year period of time, right?
57:52
You you could you make an absolute you literally make trillions of dollars.
57:57
That's really the opportunity.
57:57
And actually the land that we own is in places where people are moving to.
58:02
Texas, Las Vegas, Hawaii, but still as a public stock, it's it's always traded at a big discount to the value of its assets.
58:09
So over time, we've, you know, we we've bought a significant stake in the company.
58:13
We now own 47% of the company, and we're transforming into what we call a modern day Bergkshire Hathaway. What did Buffett do?
58:18
He started with a dying textile operation.
58:22
Over time, he liquidated the textile operation.
58:24
He reinvested the capital in 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.
58:41
[snorts] So, what we've done since we've made our investment in the company, since I became executive chair, since Ryan became their CIO, is we acquired an insurance company called Vantage Holdings, a PNC uh specialty insurer and reinsurer.
58:55
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 with that very talented team underwriting the risk that we take on.
59:06
And then Persing Square is managing the assets.
59:09
What Buffett did that was unique is he ran an insurance operation and actually in the beginning he didn't he didn't do a very good job with that.
59:17
It took him time to learn how to run an insurance operation but he managed the assets not in just a portfolio of fixed income securities which is the typical approach for insurer but he 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.
59:33
Then he took the balance of the assets to the insurer and he bought common stocks.
59:38
And Buffett was a very good common stock investor as we know.
59:41
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.
59:49
Uh and that it earned a attractive return on its assets.
59:53
And when you earn 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.
1:00:01
And that's what we're underway to do at Howard Hughes.
1:00:06
Now, no one notices and no one cares. Why?
1:00:08
Because it's still a real estate company that people hate, but the nature of Howard Hughes's core business is over time it selfquidates.
1:00:16
So each year we sell hundreds of millions of dollars of land.
1:00:18
Over time, our land assets will go away.
1:00:20
Each year we sell, you know, hundreds of millions of dollars of condominiums in Hawaii.
1:00:26
We've got 4 billion of condominiums under contract uh in the process of being delivered.
1:00:31
we generate something appro approaching 300 million of uh net operating income from the real estate assets.
1:00:36
So historically we took all of the cash we generated and reinvested real estate.
1:00:40
We bought another MPC in Phoenix for example.
1:00:41
We're no longer going to do that.
1:00:44
We're going to reinvest whatever capital is necessary to make these small cities continue to be amazing places to live and they and they're always highly ranked as among the best places to live in the country.
1:00:54
But beyond that, we're going to generate billions of capital that we're going to deploy initially in insurance.
1:00:57
And 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 will become capital.
1:01:08
Uh we've already put 300 million of additional capital advantage since we bought the company.
1:01:12
And over time, we'll as we generate and over time as we uh 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.
1:01:28
Um, but you what what Buffett had was he had a big stake in the business.
1:01:30
He owned half we owned 47% and that allowed him to think long term.
1:01:35
So, we're taking the long-term approach.
1:01:37
Uh, we've recruited you know uh a very very talented team [snorts] and so I think we have the the liability side uh you know set up for us to be doing smart things in insurance and um we're going to do a good job managing the assets.
1:01:53
>> I have so many questions about this.
1:01:53
So modern day Bergkshire Hathway that term gets thrown around a lot.
1:01:57
What does that mean to you?
1:02:00
>> It 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 Birkshire Hathaway over time is its insurance operation.
1:02:06
When Buffett talked about it buying Coca-Cola or other American Express or other companies, those are assets purchased in the insurance company.
1:02:15
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, right?
1:02:26
So, there are finite number of shares outstanding.
1:02:27
And the beauty of insurance, it's actually a very cash generative business.
1:02:30
So, what you're going to see over the next several years is the business transforming.
1:02:33
You know, today it's probably 70% real estate and, you know, maybe 30% uh insurance by uh capital and then it will migrate, you know, over the next uh 5 years to something maybe 70% or 75% insurance, 25% real estate unless we figure out a way to do that more quickly.
1:02:54
>> So, if you were to list the keys to Berkshire success, sort of like looking back, it's the uh he had control so he could make >> take a long-term view.
1:03:02
He wasn't exposed to the short-term wins of his shareholders.
1:03:04
He had permanent capital. He didn't pay dividends.
1:03:06
He retained all the capital the business generated.
1:03:08
He had a very a talent for investing in common stocks and he was able to recruit talented uh people to run the various businesses of of Berkshire Hathway and he also didn't dilute his shareholders by issuing a lot of stock options or by issuing stock and acquisitions.
1:03:27
>> Why don't more people copy that? It sounds so simple.
1:03:28
It's not sexy to be in the investment operation of insurance company.
1:03:33
I think that's a big part of the reason why people don't do this.
1:03:37
Now, it's difficult to get to a 47% stake of a public company. Usually doesn't happen.
1:03:42
You know, this is sort of a creature of history.
1:03:43
Do you think a lot of Berkshire's success though boils down to the fact that I mean Buffett could have been paid 2 and 20 at some point, but he took this modest salary and sort of grew his wealth alongside the shareholders.
1:03:55
like how different would the success of Berkshire look had he taken two and 20 on not that you're doing that but like on the portfolio.
1:04:03
>> I think his willingness to work for free in effect was a very helpful thing to the the ethos around Berkshire probably made negotiations around compensation for other uh employees uh easier.
1:04:13
Look, Buffett ran a partnership where he he got something like 25% of the profits over a 6% return and the costs were covered by the partnership.
1:04:22
And by the time he retired from that business, I think he had 100 million under management of which 25 million uh was his and the 75 million was held by other investors.
1:04:32
But I think he figured out that if I keep running in this partnership format, one I don't have permanent capital.
1:04:39
He was getting tired of dealing with investors who were giving him money, taking him money that were affecting his results.
1:04:43
He probably did the math and said, "Look at the power of compounding.
1:04:46
If I, you know, if I own half of this little Berkshire Hathaway thing and I generate a 20% return for the rest of my life, I'll end up in a very good place and the marginal promote is not that important to me."
1:04:58
And mother, he was able to run the investment operation as a oneman band, which I think also uh enabled him to do this.
1:05:05
I remember talking to Charlie Mer one night about and I asked him what the most underrated aspect of Berkshire Hathaway success has been.
1:05:11
Hathaway success has been. the one 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 to that >> we've designed our business around that you know the unique thing about Persian Square is if you look at the various we
1:05:30
manage uh an offshore entity called Persian Square Holdings uh employees own 28% of that company we manage Howard Hughes it's owned directly and indirectly about the same by employees plus uh the Persian Square funds and then we just took public an entity called Persing Square USA and employees invested you know 500 and something million dollars in the entity. So you
1:05:51
million dollars in the entity. So you know what's unusual about us is we have sort of these anchor stakes 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
1:06:03
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 enable us to buy stock you know during the covid crash or to buy stock you know during the financial crisis. I think one
1:06:14
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.
1:06:29
You know the the hedge fund business when you do really well institutional allocators take money away from you because you come up too big a percentage of their portfolio.
1:06:37
When you have a bad period people take money away from you because you're having a bad period.
1:06:40
So uh you [snorts] have to be and you really can't close because uh 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.
1:06:56
So it's a >> and you're spending all your time like raising capital.
1:06:59
>> As you get bigger and bigger, it consumes a huge amount of your time.
1:07:00
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 base stable.
1:07:11
And we made a decision to just get out of the business of managing money where the money could leave you know the sort of open-ended funds.
1:07:16
And if you look at Persian Square today, if we just compounded anything close to historic rates, we'll be managing a trillion dollars in 20 years. And that's plenty.
1:07:26
You know, that's a good business.
1:07:28
>> Let's talk about Braymont.
1:07:28
How did you get involved with the uh watch company? >> Yeah, Raymont.
1:07:32
Uh so I I the story here is I was at Haraju's board meeting uh and it was in Dallas and it was the our office at the time was in a mixeduse complex with a shopping center and uh during a lunch break I went down to the mall and I walked by a watch store and uh there was a very good young salesman and uh he talked to me about a Vermont watch.
1:07:56
which I never heard of the brand before and I ended up buying a watch and uh I somehow lost it over time.
1:08:00
I have like a watch safe and it kind of got buried in the watch safe.
1:08:05
And years later I was uh heading to London for actually Persian Square related reasons and uh a friend had just told me that he was wearing a nice batic Philippe watch walking down the street in London and [clears throat] it was stolen and actually he's like Bill you cannot wear a nice watch in London anymore cuz you're going to get you know at best they're going to steal it at worst you know you can get hurt.
1:08:29
So, I literally said, "What watch can I wear that I can we're a little less concerned about losing it and or it's not a recognized brand that that a thief is going to go after."
1:08:40
I'm like looking through my watch drawer and I found this Burma watch.
1:08:43
I'm like, "This is a super cool watch."
1:08:44
So, I put it on and uh I was in staying in Mayfair and I was walking down the street and I I walked by the Burma store like like literally like the day the next day when I got to London.
1:08:56
[snorts] So, I walked in.
1:08:56
I really like the watches and I end up buying eight Vermont watches uh for basically his for gifts.
1:09:03
And uh that night I I had uh dinner with the chair of Persian Square uh holdings and I gave him a I gave him a Burma watch and and uh oh, I wrote a little note when I left the shop.
1:09:16
They gave me like a free Burma clock that I could put on the wall and I I said, "You know who owns this company?"
1:09:23
and they said, "Oh, two British brothers, the English brothers."
1:09:26
And so I wrote them a little note and I said, you know, "Dear Mr. Mr. and Mr.
1:09:30
English, um, 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."
1:09:40
I've always kind of my father kind of taught me to like watches, you know, a bit of a father-son thing.
1:09:42
And uh, they they uh, emailed me back.
1:09:47
uh, they they uh, emailed me back. I did a zoom and uh they they said actually we have a longtime holder that's interested in selling their interest and uh ended up buying a small a smaller minority stake in the company and time went on uh and the thesis at
1:10:07
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 um they burned through the capital pretty quickly but I view these investments a bit like hobby investments. So I it's not like
1:10:22
So I it's not like something I 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 due diligence.
1:10:28
I just assessed the character of the people I was dealing with.
1:10:30
Shans the only involvement I had was helping recruit a new CEO again a guy named David Gerato.
1:10:38
Anyway, the things weren't working out between David Day and the board.
1:10:41
uh and the board had had a disagreement with him about the direction of the company and I sided with David.
1:10:49
I thought he was making all the right decisions.
1:10:51
He dramatically improved the quality of the watches.
1:10:54
He's a phenomenal watch designer. I love the direction.
1:10:56
But sort of the old guard who had been with the company for 20 years felt it was too much change.
1:11:03
It was coming too quickly.
1:11:05
You know, we even have a new a new logo.
1:11:07
Uh are we losing the ethos of the brand?
1:11:10
And uh there was a bit of a a board fight.
1:11:12
fight. uh and uh you know being a bit of an activist [laughter] I uh was sort of got a little more involved and ended up putting in a chunk more capital buying [snorts] effective control of the company uh I I joined the board as non-executive chair my nephew
1:11:30
uh I inserted as kind of to help fix things and they've made amazing progress in the last uh I would say year or so and it's been kind of a fun you know other people in my industry buy sports teams I own this little watch company and it's super cool. And this is a watch
1:11:43
And this is a watch that's going to go to the moon.
1:11:46
Um >> I got to get one of those.
1:11:49
>> 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.
1:11:57
It looks like these solar arrays in space.
1:12:00
>> You know, it's a ceramic, you know, you got a ceramic uh bezeling.
1:12:04
>> It's a Swiss movement.
1:12:04
you know, one of the highest quality Swiss movements and, you know, it's phenomenal design and uh 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 it. Yeah.
1:12:17
And also because they're they're they're less uh well known, the thiefs don't chop off your wrist for them yet.
1:12:24
I mean, maybe that's when we get to that point, maybe that's good for the brand.
1:12:28
Talk to me about recruiting a new CEO.
1:12:30
That's one of the things that you've done as an activist and you sort of did it here again.
1:12:33
what is the process that you undertake to find the best person in the world for that position? Like how do you do that?
1:12:38
Why are you so good at that?
1:12:40
So, uh, we've done it a couple different ways over time.
1:12:44
For persing, the way we've generally done it is in our experience, finding someone who's done it before is the is the the lowest risk, highest return potential.
1:12:54
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 um uh views and you know just had kind of glowing references and then we meet the guy.
1:13:17
I would say one of my best skills though it's not been perfect.
1:13:21
I've made a few mistakes.
1:13:21
You know, over time I've become a very good judge of people.
1:13:24
Um, you know, [clears throat] what what do you need?
1:13:27
You need people who are super passionate about the job, a lot of capability, a lot of energy, and and you know, honesty, character, etc.
1:13:34
And you can assess that, I think, in in an hour.
1:13:38
>> I want to switch gears a little bit and talk about you as a person.
1:13:40
Um, what are other people's biggest misconceptions about you?
1:13:45
You 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 uh in person.
1:13:52
Bill, you seem like a really nice guy."
1:13:56
>> Yeah, you're much nicer.
1:13:58
>> And and perhaps some of my uh Twitter uh expressions make people think I'm I'm I'm just a fire brand or whatever.
1:14:04
Um but uh I'm not a I'm not a hostile kind of person.
1:14:09
I'm just someone trying to get to the truth.
1:14:11
>> I think media media like positions people in this way, right?
1:14:13
like certain people for whatever reason through your activism you kind of get positioned in this and then people form these misconceptions.
1:14:21
I actually think that we we you know the urbal life thing did do some reputational damage over time because they sort of called me out.
1:14:28
You know being a short sellerist I would say the general populace just thinks that's like an evil bad thing.
1:14:35
And so I think having that be very much in the uh the rearview mirror uh you know the Urbal Life short was like the end of 2012.
1:14:46
That was a long time ago.
1:14:47
>> Believe it or not we not made an activist investment for more than a decade. >> Wow.
1:14:50
The last activist investment was was in 2016.
1:14:53
>> Would you ever do it again?
1:14:55
>> I don't think we'd have to be an activist in any kind of traditional form.
1:14:58
We will get quite involved in the companies were involved in.
1:15:01
And I guess if we were had a big stake in a company we felt they were doing the wrong thing and we thought it was worth the energy.
1:15:09
And I don't know that we're ever going to have to run another proxy contest.
1:15:10
I don't think you run a proxy contest against someone with, you know, three million Twitter followers.
1:15:14
I think I think it ends badly for management.
1:15:15
I think we have a sufficient amount of influence that we can get to the right answer with dialogue. That's what I think.
1:15:24
So I don't think we have to be an activist.
1:15:26
Activism is when you're outside the boardroom and you're not going to get invited in today.
1:15:30
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.
1:15:38
We've got a good reputation.
1:15:39
We're a long-term investor.
1:15:41
We're going to do the right thing for the business.
1:15:43
>> We always end with the same question, which is, what is success for you?
1:15:44
which is, what is success for you? My definition of success for you know obviously Persian Square is you know I want the investors obviously you can measure it have a very attractive you know life-changing make a life-changing investment with us so that by the time
1:15:58
they retire they 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 my definition of uh of you know 60 is like a been a moment for me I celebrated my 60th birthday in May. >> Wait, go deeper on that moment for you.
1:16:17
>> Wait, go deeper on that moment for you. What does that mean?
1:16:20
>> I sort of think about each year like I love the summer.
1:16:22
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 healthy people live to their 80s.
1:16:33
I'm 60 so that's 20 to 25 years from now and I'm I'm hoping to AI and and uh you know doing a better job enables me to live to to meaningfully more than that.
1:16:43
I have a grandmother lived to almost 106 and she smoked and drank.
1:16:48
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.
1:17:01
you know, obviously you start with you 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.
1:17:14
So success for me is getting is having a significant life. [music]