20VC: Bill Ackman on The Banking Crisis, What the Fed Should Do, The Three-Tiered Banking System, Why SVB is the Safest, Why Jamie Dimon Should Run For President & Investing Lessons; Losing $400M on Netflix and Making $2.8BN in COVID
Posted on 20th March 2023 by Harry
Top 10 Takeaways From Today’s Episode with Bill Ackman
1. What does Bill Ackman tell himself when he is losing?
“Don’t let the past, disrupt the future. If you just focus on the past, it will distract you. Start with a blank sheet of paper. It’s a new set, new opportunity, and a rebuild from there.”
2. What investment loss is one of the most memorable to Bill?
“Netflix. We took about a $BN position in Netflix after the stock fell about 50%. However, we learned information within a few months of the initial investment which led us to question our entire thesis in the company. We exited and promptly lost $400M.”
3. What is one of Bill’s most recent trading successes that comes to mind?
“I had a very early view of what the economic implications of Covid would be. That enabled us to make a fortune hedging Covid. I had a very similar view about interest rates and we were completely ahead of the curve and the mistake was not making that a bigger bet. We should have made $10BN bet hedging interest rate risk. Instead, we made $2.8BN. We were a little timid and some of the mistakes we made were where we had a pretty variant view that we were quite confident about but we didn’t put enough capital behind our confidence.”
4. Why does Bill believe Universal Music is the “10 Year Long”:
“It is the world’s most dominant music company, it has very little debt. It has a great market position. You can predict the business with a very high degree of confidence and you’re buying it at a fair price. What’s the chance of our losing 25% of our investment over a several-year holding period? The answer is very close to zero. What would have to happen for us to be permanently impaired and lose 25% of our capital in that investment? Something pretty extraordinary. That kind of investment can be 25% of our assets because it’s something where the risk of loss is very diminished by virtue of the capital structure of the company.”
5. Why does Bill believe First Republic Bank is Different to SVB:
“Silicon Valley Bank was unique in the disproportionate amount of exposure it had to long-duration fixed-income assets versus other banks. If we compare to First Republic Bank, which has been an underperformer; its balance sheet, its loan portfolio, and its business model, look very different from Silicon Valley Bank, but it’s still getting shot in the market. That is because the government has still not given people assurance that every deposit is safe.”
6. How Can We Prevent More Bank Runs:
“First, we cannot have another bank closure. The first thing to do is guarantee deposits on a temporary basis where that temporary guarantee stays in place until they update the FDIC insurance program to have greater than $250,000 guarantees per account for business accounts. Over time, they can then charge for this insurance, and then they can get rid of this temporary guarantee at all banks. If they don’t do that, people are going to be concerned and move from Silicon Valley Bank to the JP Morgans of the world.”
7. Why does Bill believe we have a “Three Tiered Banking System”:
“The first tier is the two banks that have an explicit guarantee from the US government, that is Signature Bank and Silicon Valley Bank. The second tier is JP Morgan, Citi, Bank of America, maybe Wells Fargo, which are systemically important institutions because they’ve got whatever, $250BN+ in capital. Those also have the implicit backing of the US government. So those are pretty safe too. That’s why people are putting their money there. And by the way, they tend to be run better and they’re, I would argue, probably over-capitalized today versus certainly where they were before. Then the third tier is the rest of the banks, which have $250,000 per account insured with no explicit government guarantee.”
8. Who does Bill Ackman think will be the next President? Who does he want to be?
“If it’s Biden vs Trump, Trump wins. If Biden runs again, it’s a very interesting opportunity for someone who’s not inside the political system to run for office. On the Democratic side, my favorite version of events is Jamie Dimon. He would make for an excellent candidate. I’d like a better version of Trump, a better business leader to run for office. If this were to happen, I think they could get the Democratic nominee and they’ll get the center and center-right part of the Republican Party.”
9. What economic initiative would Bill do to increase financial inclusion in the US:
“We should give every baby that’s born in America $6,500. This would be put in an account and they can’t remove it from that account. It’s tax-exempt and it compounds and gets invested in like an index fund. If it earns historic rates of returns in markets by the time that baby is 65, it’s $1M. It gives someone a minimum stake in the success of the country. It makes them an owner. That would cost $20BN a year to do that. A tiny number.”
10. Why does Bill Ackman believe Biden’s tax regime would ruin entrepreneurship:
“If you’ve got the Biden wealth tax; 25% of the appreciation of things that you own privately, it’s going to bankrupt every startup. No one will ever start a business in America anymore. Someone puts money in your company at a $1BN valuation. If you own half the company, you owe a hundred million dollars in taxes that year. That is destructive. You don’t want to have a tax policy that destroys the economy.”
Bill Ackman is the CEO of Pershing Square Capital Management, L.P., an SEC-registered investment adviser founded in 2003. Pershing Square is a concentrated research-intensive fundamental value investor in long and occasionally short investments in the public markets. Bill is also a member of the board of Universal Music Group N.V. He serves as a member of the Investor Advisory Committee on Financial Markets for the Federal Reserve Bank of New York, and a member of the Board of Dean’s Advisors of the Harvard Business School. Prior to forming Pershing Square, Mr. Ackman co-founded Gotham Partners Management Co., LLC.
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In Today’s Episode with Bill Ackman We Discuss:
1.) From HBS to Starting Your First Fund:
How did Bill go from HBS to raising his first fund in Gotham Partners? How was that first fundraise?
From 100 meetings, what worked? What did not work? What were the core fundraising lessons?
What did Bill learn about great partnerships from his time with David building Gotham?
2.) Bill Ackman: A Winner’s Mindset: How To Deal with the Highs and Lows:
On reflection, what have been the most challenging times for Bill professionally?
What does he say to himself when he is going through the hardest times? What is his mind talk?
When the war is lost and it is time for learning, how does Bill reflect and learn from losses?
Bill has previously described himself as “the most persistent man in America”. How does Bill know when enough is enough, he was wrong and it is time to change his approach?