RWH053: Trouble Ahead w/ Bill Priest
We Study Billionaires - The Investor’s Podcast Network
Deep Dive
Why does Bill Priest focus so heavily on free cash flow and cost of capital in his investment strategy?
Bill Priest emphasizes free cash flow and cost of capital because cash flow is harder to manipulate than earnings, making it a more reliable indicator of a company's financial health. Free cash flow represents the cash available for distribution to shareholders after all obligations, and it can be used for dividends, buybacks, debt reduction, acquisitions, or reinvestment. The spread between return on invested capital (ROIC) and the weighted average cost of capital (WACC) is crucial, as companies that consistently reinvest above their cost of capital create long-term shareholder value.
What risks does Bill Priest see in the current global economic environment?
Bill Priest is concerned about several risks, including the potential for stagflation due to onshoring and tariffs, which could lead to higher inflation and lower growth. He also highlights geopolitical risks, such as China’s internal issues and its potential interest in Taiwan, as well as the rise of nationalism and the end of globalization. Additionally, he warns about the fragility of the financial system and the possibility of a fiscal crisis in the U.S.
Why does Bill Priest believe AI is unstoppable and not just another bubble?
Bill Priest believes AI is unstoppable because it represents a structural change in productivity and margins. He argues that AI will continue to evolve and substitute technology for labor and physical assets, driving efficiency and growth. While he acknowledges that euphoria can lead to disillusionment, he views AI as a long-term trend that will fundamentally transform industries and create significant value.
Why is Bill Priest cautious about investing in China?
Bill Priest is cautious about investing in China due to its lack of rule of law, unsustainable economic model, and internal issues such as youth unemployment and a collapsing real estate market. He also worries about the potential for the Chinese government to use geopolitical actions, like pursuing Taiwan, to distract from domestic problems. These factors make China a high-risk environment for investors.
What advice does Bill Priest give to investors to protect themselves in an uncertain world?
Bill Priest advises investors to diversify their portfolios broadly, as the future is unknowable. He emphasizes the importance of starting to save early, maintaining a balanced portfolio (e.g., 60-40 stocks to bonds), and having a strong balance sheet to weather financial crises. He also recommends investing in companies that can substitute technology for labor, as these firms are likely to see productivity gains and higher returns.
How does Bill Priest approach leadership and building a successful investment firm?
Bill Priest believes that successful leadership requires empathy, the ability to make tactical decisions, and the capacity to inspire others. He emphasizes the importance of creating a culture where people feel respected and valued, and where knowledge is freely exchanged. He also advocates for avoiding arrogance and fostering open-mindedness, as these traits are critical for long-term success in an investment firm.
- Early interest in investing sparked by a book.
- Worked various jobs from a young age.
- Studied accounting and political science at Duke, passed CPA exam.
- Wrote thesis on the drug industry at Wharton.
Shownotes Transcript