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Bill Ackman: Investing, Financial Battles, Harvard, DEI, X & Free Speech | Lex Fridman Podcast #413

Lex Fridman2024-02-20
agi#ai#ai podcast#artificial intelligence#bill ackman#elon musk#joe rogan#lex ai#lex fridman#lex friedman#lex jre#lex mit#lex pod#lex podcast
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💫 Short Summary

Bill Ackman discusses investing lessons from 'Intelligent Investor' by Benjamin Graham, emphasizing value over price. He shares insights on businesses, systems, and long-term growth strategies, using examples like Universal Music Group and Chipotle. The video also covers AI advancements, leadership, and challenges in the financial industry. Ackman recounts successful investments, activism, and battles like General Growth. Governance issues at Harvard and personal resilience are discussed. The segment concludes with reflections on academia, journalism ethics, and political leadership, advocating for financial stability and effective succession planning.

✨ Highlights
📊 Transcript
Bill Ackman emphasizes the importance of understanding the difference between price and value in investing.
00:52
Ackman highlights the distinction between speculation and investing in the stock market.
He shares insights on predicting cash flows, evaluating businesses, and identifying non-disruptible companies with long-term value.
Ackman uses Universal Music Group as an example of a reliable investment due to its position in the music industry and streaming business.
Evolution of the music industry with streaming services like Spotify and Universal Music Group's early adoption of new technologies.
09:09
Human artists are still valued for their stories and live experiences despite advancements in AI-generated music.
AI may enhance artists rather than replace them, with potential legal and ethical implications of AI systems with rights similar to humans.
Discussion on investing strategies, focusing on predicting the long-term growth and value of companies like McDonald's.
Analyzing businesses through SEC filings, annual reports, and industry expert insights.
17:06
Understanding the importance of evaluating management and competitors for investment decisions.
Identifying great businesses with long-term growth potential, strong cash flow, and barriers to entry.
Recognizing the risks of disruption in the technology-driven world and the value of investing in resilient businesses.
Highlighting the success of investing in the restaurant industry, illustrated by Chipotle's scalable business model.
Importance of systems in running successful quick service businesses like Chipotle.
21:50
Chipotle emphasizes building a replicable model for franchisees.
Chipotle's unique approach involves using fresh, sustainably sourced ingredients and cooking food in-store for high-quality, healthy meals at an affordable price.
Google's resilience as a dominant player in online advertising is highlighted.
Potential risks posed by advancements in AI technology are discussed.
Comparison between Google's AI capabilities and Microsoft Chat GPT sparks market scrutiny.
27:41
Google's release of Bard shows caution but its data resources and financial backing make it a strong player in the AI industry.
Google's business model focuses on efficiency and growth to maximize profitability.
Risks associated with AI disruption in the business world are highlighted, stressing the importance of understanding incentives and governance structure in investing in companies.
Importance of leadership in recruiting top talent and the impact of company relocation on culture.
35:14
Warren Buffett's influence on investment strategies, focusing on long-term view, emotional detachment, and financial security.
Maintaining a calm demeanor during market volatility, learning from mistakes, and owning few well-understood investments.
Practical advice for everyday investors, including not investing money that cannot be lost and avoiding leverage in securities.
Importance of Long-Term Thinking in Investing
42:16
Unexpected events can cause market fluctuations, so it is crucial to remain financially secure and think long-term.
Warren Buffett's consistent decision-making and long-term approach serve as a valuable lesson for investors.
Index funds are often a better option than mutual funds, as only a few truly earn their fees.
Investing in a small number of well-understood companies can lead to better returns than typical mutual funds.
Bill Ackman discusses the impact of activism on company management and operations.
49:37
Activism led to significant changes in Wendy's and Tim Horton's, restoring balance of power between owners and management.
Activists can influence companies without majority control, emphasizing thought leadership and long-term decision-making.
Ackman highlights the impact of activist investors on CEO decision-making and the value of respected major owners on a company's board.
Pershing Square's strategic investment saved General Growth from bankruptcy during the 2008 financial crisis.
57:14
The mall business's stable fundamentals were overshadowed by short-term borrowing issues.
Pershing Square initially bought 25% of General Growth and later increased its stake.
By demonstrating that the company's assets exceeded liabilities, Pershing Square prevented bankruptcy.
The case emphasizes the significance of long-term perspective and value-driven choices amidst market uncertainty and short-term challenges.
Bill Ackman recounts his experience joining a company's board to restructure for shareholder benefit.
01:02:50
Ackman describes convincing Maddie to help him get on the board and leading a successful restructuring effort over eight months.
He emphasizes the importance of reading, relationships, and legal knowledge in distressed investing success.
Ackman shares a story about a NYC taxi driver who invested in General Growth at 60 cents per share and made a significant profit.
He reflects on missed opportunities like Rockefeller Center and the importance of learning from failures.
Shareholders gaining power to propose board membership with just one share has led to recent changes in corporate governance rules.
01:08:51
Companies are now required to include all candidates in shareholder materials for board selection, changing the landscape of proxy contests.
Proxy contests now involve significant expenses and campaigning similar to political campaigns, leading to increased shareholder activism.
Shareholder activism has risen as shareholders have the power to dislodge board members, resulting in more serious board responsibilities.
Activists on boards can bring diverse perspectives and prompt collaboration, as seen in the Pershing Square proxy battle with Canadian Pacific.
The segment highlights a proxy battle at a Canadian company and the challenges of recruiting high-profile individuals for the board.
01:16:05
Rebecca McDonald was recruited as the first female CEO of a publicly traded Canadian company, leading to a tenfold increase in stock value.
The importance of governance structures, specifically emphasizing for-profit solutions over nonprofits for hiring top talent, is discussed.
Insights on successful investments and the impact of governance complexity on organizations like Open AI are shared in the conclusion.
Importance of Governance in Companies
01:23:43
Boards of directors and shareholders play a crucial role in ensuring proper structure and decision-making within companies.
Private venture backed boards can face issues with conflicting incentives and lack of independence.
Personal experience shared of significant financial loss in a pharmaceutical company due to poor decisions and lack of active governance involvement.
Challenges highlighted include market to market losses, the ruthless nature of Wall Street, and managing a hedge fund business at scale.
Speaker overcomes challenges and achieves success.
01:32:10
Speaker faced litigation, divorce, and financial difficulties, with his ex-wife's lawyer overestimating his net worth.
To prevent a hostile takeover, he borrowed $300 million from JP Morgan and retained control by buying enough stock.
An activist investor shorted their stocks, but failed after the speaker's strategic move.
Relationship with Neri Oxman played a significant role in his perseverance, leading to a successful turnaround and the best six years in his firm's history.
The speaker shares personal struggles and emphasizes the importance of making progress daily.
01:36:31
Finding solace in a dog and meditation during difficult times.
Reflecting on the journey of recovery and the value of mental health, nutrition, exercise, and support from friends and family.
Discussing a method for dealing with challenging moments by focusing on incremental progress.
Mentioning the risks of short selling and success of a previous short investment in a company called MBIA.
Herbalife's deceptive business practices targeting impoverished and undocumented individuals.
01:43:05
The company operates as a pyramid scheme, relying on recruitment for sales.
Investor Bill Ackman's conflict with Carl Icahn involving Harwood Realty Partners led to a legal battle.
The legal battle dragged on for years before Ackman eventually won.
Ackman received compensation for his investors despite the relatively small amount involved.
Carl Icahn and Bill Ackman's Litigation Process and Investment Discussion.
01:50:17
Carl Icahn owed $9 million to Bill Ackman but eventually paid and proposed investing together.
Bill Ackman started Pershing and discussed successful investments before delving into the Herbalife situation.
The FTC investigated Herbalife as a pyramid scheme, but settled with Icahn despite Ackman's short position.
Ackman reflects on the experience, emphasizing the importance of learning from losses and shares a mixed view of Icahn.
Importance of Peace and Prosperity in the Middle East.
01:56:22
Speaker emphasizes the need for governance to promote peace and economic development in the region.
Education plays a key role in shaping attitudes towards violence.
Challenges of corruption and terrorism funding are highlighted.
Optimism is expressed about achieving peace and prosperity through collaborative efforts.
Lack of action by Harvard University in response to protests and disruptions on campus, particularly regarding issues in the Middle East.
02:04:21
President's initial response to George Floyd's death was criticized, leading to further protests and investigations into antisemitism.
Attempts to engage with the president and the board were met with resistance, highlighting a lack of communication and accountability.
University's handling of free speech issues, including controversial statements made by the president regarding calls for genocide.
Concerns about the university's commitment to free expression and addressing campus tensions.
Issues with Governance at Harvard University.
02:18:27
Criticism of the lack of leadership and ineffective responses to campus controversies.
Emphasis on the importance of free speech while criticizing restrictions on certain viewpoints.
Discussion on the influence of wealthy donors on university decisions.
Call for improved governance and cultural change at Harvard.
Issues with Harvard University's Board of Directors and DEI Ideology.
02:18:41
The board has a self-perpetuating nature, allowing members to elect their own replacements without a rebalancing system.
Efforts to challenge the board's composition face increased signature requirements and limitations on dissident directors.
DEI ideology on campus promotes a divisive oppressor-oppressed framework and restricts free speech.
Concerns exist about the ideology's Marxist socialist roots and its impact on governance and diversity at institutions like Harvard.
Impact of challenging DEI construct and criticizing President Biden.
02:27:34
Speaker shares experiences of facing criticism and cancelation attempts from progressive establishment.
Discussion on governance structure of universities and selection of leaders, questioning if academics are the best fit.
Emphasis on diversity in viewpoints and consequences of limited perspectives in elite institutions.
Importance of intention in academic fraud.
02:34:23
Proper citation and acknowledging sources are crucial in avoiding plagiarism.
Resignation of Harvard president due to plagiarism prompts reflection on leadership selection process.
Challenges faced by institutions in maintaining diversity and addressing plagiarism.
Impact of plagiarism incidents on institutional reputation and decision-making processes.
Speaker's admiration for his wife, Neri, and her qualities.
02:42:45
The couple shares common values and a deep connection despite personality differences.
Neri was involved in a plagiarism scandal regarding her dissertation, which she admitted to and apologized for.
The situation initially seemed resolved, but a media article reignited the controversy, labeling Neri as a celebrity academic and accusing her of academic fraud.
Academic fraud scandal involving scientist Neri.
02:56:18
Accusations of plagiarism were based on inadvertent mistakes and not intentional fraud.
Importance of protecting and celebrating great scientists like Neri, stating she did nothing wrong.
Criticism of media handling of the situation and expression of support for Neri's positive reputation among renowned scientists.
Mention of potential legal action against Business Insider for their coverage of the situation.
False accusations of academic fraud against Neri Oxman led to public backlash and potential legal action.
03:01:01
Neri admitted to clerical errors but received widespread support and continued her innovative work in science and design.
The incident highlighted the damaging effects of false accusations on reputation and mental health.
Concerns were raised about defamation laws in the US and the impact of irresponsible journalism on aspiring scientists.
Neri's resilience and determination to overcome the ordeal were commended.
Shift towards click-based revenue in journalism.
03:05:08
Journalists targeting individuals without giving them a chance to respond.
Importance of intent in academic crimes and media's power to destroy reputations.
Role of social media platforms like X in providing diverse perspectives.
Challenges of speaking out against the establishment and the value of anonymous speech.
Financial challenges in the US and Trump's impact on the economy.
03:13:52
Increasing debt and administrative bloat are highlighted as major issues.
Trump's positive influence on minority employment and NATO defense spending is recognized.
Criticisms of Trump's divisiveness and handling of the Capitol riot are mentioned.
The speaker advocates for a more appealing candidate selection process and criticizes the current party system for prioritizing self-interest over national welfare.
Dean challenges Biden for presidency with a path to victory involving winning delegates and attracting independent and Republican voters.
03:22:22
The speaker criticizes Biden's age and ability to represent the country internationally, particularly in Michigan where he is performing poorly.
Emphasis is placed on succession planning and leaders knowing when to step down, highlighting a failure in Biden's case.
Future financial investments and plans are briefly touched upon in the segment.
Importance of financial markets and impact of the next leader of the country.
03:27:02
Optimism about the resilience of the United States and the effectiveness of capitalism.
Role of technology, AI, and the internet revolution in driving productivity and innovation.
Investment ambitions, team structure, and aspirations to achieve success similar to Warren Buffet.
Positive outlook on the future and a quote emphasizing the balance between money and wisdom.