Title: Optimistic On AI, Calm About Yields – But Own Land – Thomas Peterffy Show: The Master Investor Podcast with Wilfred Frost Guest: Thomas Peterffy (founder & chairman, Interactive Brokers) Date: 2026-09-16 URL: https://youtu.be/gXseRP1x55Q Length: 47:18 Note: YouTube auto-transcript (pasted); recorded the day before the September FOMC. Fillers (um/uh/you know) and stutters removed; [music] tags dropped; obvious ASR fixes (Pedy=Peterffy, Walsh=Warsh, KI/Koshi/Khi/car/the college/couches=Kalshi, Poly Market=Polymarket, straight of horses=Strait of Hormuz, Lseg/Else=LSEG, BMY=BNY, mandamis=Mamdanis, perom=per annum, alos=algos, Ben charter=bank charter, ETS=ETFs, God=gold, earning=owning); wording otherwise verbatim. Interactive Brokers is one of the podcast's four sponsors (with LSEG, the World Gold Council and BNY Investments); sponsor reads are the host's.
00:00 I think if you think about how you want to invest your assets for your heirs to have something down the road if these things happen that I'm worried about then I think land is the logical asset. I think the Fed will probably raise rates although I'm not, as I said, I would not be in favor of that but they will have to do it just to demonstrate that they are independent. Slowing down, it is a very difficult thing because China is not going to slow down so this
00:42 this is basically a competition between the two hemispheres and no, I am not in favor of slowing down. I would like us to win. Welcome to the Master Investor podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders, and politicians in the world, giving you, our listeners, an edge.
01:10 The Master Investor podcast is sponsored by LSEG, Interactive Brokers, the World Gold Council, and BNY Investments. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice, or a personal recommendation.
01:34 More on that in the show notes. My guest today is a titan of markets, a digital trading pioneer who founded Interactive Brokers in 1978 and built it to sit at a market cap of $160 billion today. The performance in recent years in particular has been astonishing. Shares have risen over 40% per annum for the last 5 years.
02:01 Thomas still owns 75% of the company and therefore is worth over a hundred billion dollars himself. IBKR Interactive Brokers is one of the four sponsors of this podcast. I'm proud to say I am delighted to welcome back the chairman of Interactive Brokers, Thomas Peterffy. Thomas, great to see you. >> Thank you, Bill. Great to see you, too.
02:23 And I should point people because I was tempted because it's been a year, year and a half since you last joined the podcast to recap your life story because it is so fascinating. But rather than doing a repeat episode, I would point people back to our first conversation just over a year ago for that.
02:45 And Thomas, I wanted to just start on a theme that has continued since then, and that is the amazing share price performance, which comes from an amazing underlying earnings performance, 40% per year earnings growth from 2022. What's driven that? >> Well, it's basically what IBKR is all about.
03:14 So when we started the brokerage business some 33 years ago, we did that with the idea of providing a platform to floor traders on the various equities and options and commodities exchanges to continue their business as the floors go electronic. Now we were clearly way too early because the trading floors did not go electronic for another 10 years.
03:49 Conversions happened between the year 2000 and 2010 and that was the time when we began onboarding our first target customers. So these were people with capital from half a million to $5 million and they conducted a regular daily trading business. So our platform had to be very different than any other brokerage platform at the time which were basically giving their customers order tickets to fill out.
04:26 We had to provide a system for our customers to manage several limit orders at the same time on different products. We had to enable them to do arbitrage and pair trading and shorting and algos that professional traders regularly used to do. We had to obviously provide the best possible execution prices, low financing rates, high rates of interest on temporarily available cash, interest on short proceeds and all the features that these traders needed to make a regular income on a daily basis.
05:16 As this business started to take off, we made our platform available to everybody else who could find us on the internet. And that included larger professional investors and hedge funds with substantially greater levels of capital and retail clients with much less capital. But the focus remained on the professional trader.
05:46 And that is still our target client today, and they are the ones whose evolving needs we try to satisfy as we serve them in more and more countries around the world. So that is the reason we can say that the more investors know about the ins and outs of the mechanics of investing, the more people realize that in order to maximize their returns it is not enough to pick the right investment strategy but they also must pick the right platform to implement it. Mhm.
06:32 >> That is what drives our growth. >> I wanted to talk Thomas about two big themes, interest rates and AI over the next section of the conversation. First on interest rates because clearly a big reason why your earnings have been so strong in the last four or five years is because your net interest income has risen as interest rates came off the floor for the first time in a decade.
07:01 And clearly the market's grappling now with the prospect of whether rates are going to go higher still, possibly tomorrow, with Kevin Warsh hosting a Fed meeting. >> So for us it's not so much about how high interest rates go because we basically lend money half over prime and we pay, not prime, I mean fed funds, and we pay interest half under fed funds.
07:33 So we don't care if fed funds are 5% or 10% or 20% or 1%. But whether the Fed should raise interest rates tomorrow is a difficult question and it's because in my mind inflation is driven by oil prices and high oil prices are caused by the war. So stifling Iran's ability to attack the Strait of Hormuz is much more important to reduce inflation than to raise interest rates.
08:21 And the bond market's call for raising the rates, but I'm unsure how important that is. It may be better to run a hotter economy while we are still fighting the war so that we can easier cope with unfavorable economic fallouts. And when the war is over, we can see if lower oil prices immediately result in lower inflation or if we must raise rates at that time. Right.
08:56 Clearly the longer end of the bond market at the moment is really flashing red. 5% on the 10-year just crossed, higher still for the 30 year, and it's a global issue. How concerned are you about that? And does that trump the economic argument you're making? Does the Fed need to try and calm the bond market with a hike? Well, I think the Fed will probably raise rates, although, as I said, I would not be in favor of that, but they will have to
09:34 do it just to demonstrate that they are independent. >> Are you worried about the bond market at the moment, the pace of increasing yields? >> No, I'm not really. Increasing, it's fine. Rates, they can go anywhere. It's okay from my point of view. >> And you don't think it's going to, I guess, increase the chance of either a recession in the underlying economy or a big correction in the stock market? >> Well, if they rise very sharply suddenly, then that could cause all
10:15 kinds of problems. But as long as it's gradually going up as it is currently, it's okay with me. >> And the last few weeks since, say, August, you think it is still gradual, the increase in yields? >> That's what I think. Yeah. >> This episode is sponsored by the World Gold Council, the global experts on gold.
10:45 They champion gold as a trusted strategic asset, provide market-leading research to help investors understand gold's role, and modernize how gold is owned, traded, and used, developing industry standards and market infrastructure. Learn more at goldhub.com. In terms of the other big exposure of course to your very strong earnings growth the last four or five years, I think it's fair to say it's been a strong equity market, which is obviously something that boosts the overall momentum of your business. Do you fear
11:20 the scale to which a single theme behind the equity markets, AI, is going to be hard to continue for the next 5 years in the same way as it has the last 5 years? >> So I wouldn't worry about that either because even though valuations are very high from a historical perspective, if you look at the rates at which earnings are growing, they are not high; as a matter of fact they may be even too low.
12:01 So if you look at a company like Nvidia, 27 times earnings, and they stated expectations of increasing earnings by 70%, that is a relatively low valuation, and a similar situation to a lesser extent is what we can expect everywhere else as AI permeates the economy. So it's not necessarily a focus on AI only.
12:38 It's the use of AI with all other companies that will really drastically increase productivity and earnings. And even if the frontier models would stop progressing at this moment, there are so many open-source models all over the place and adopting them by all the other companies will result in huge increases in earnings and productivity.
13:09 So I'm basically very optimistic. >> And what about the big AI directly related companies, the hyperscalers and the like, and the scale of investment they made in recent years? Thomas, you're quite famous in the business, which Wall Street has always celebrated, for not wanting to waste money, for being very careful with the money you invest and making sure the return on capital is attractive.
13:36 Do you think they've been foolhardy with some of their investments? >> Well, it's an interesting situation because their idea is that there'll be only one or two of them who will basically prevail, right? But in order to be among the one or two winners, they basically have to buy all the compute capacity they can.
14:06 So at this point, none of them are willing to give up on being number one, right? So they have to keep buying compute and that eventually will contract the price of compute. So it basically is going to benefit tremendously everybody else and these companies of course will have to write down much of the compute that they bought. >> And when you see the actions of the last week or so and the CEOs of these companies coming out to call for regulation, what's your assessment of that as
14:47 someone that's built and sits atop a big business? Is it understandable to you to say we want to slow down? We want to welcome regulation. Do you think that's a kind of >> Regulation is one thing, but slowing down? This is a very difficult thing because China is not going to slow down.
15:10 So this is basically a competition between the two hemispheres and no, I am not in favor of slowing down. I would like us to win. >> And similarly what about the risk of a sort of Hindenburg moment as some people are referring to it, if there was something worse than the Hugging Face hack that appeared? >> I don't really believe in that.
15:42 Hacks, they've been hacking systems for a very long time and it hasn't really caused substantial problems. >> And you're a very tech-forward business. Obviously, you've been massively ahead of the curve on all forms of trading. Do you worry, I presume not at your business, but about a hacker in the financial system somewhere, or do you in fact think that companies like yourself are investing heavily in this area and well prepared for those
16:17 threats? >> Of course, we're continuously worrying about it and try to take all the steps that we must take to make sure that we are not going to be hacked. But you can never be 100% sure that that's not going to happen. You have to make sure that even if you do get hacked, it's not going to cause too much damage before you discover it.
16:50 >> This episode is brought to you by LSEG, the leading global financial markets infrastructure, data, and analytics provider. To learn more about how LSEG connects businesses, investors, and markets worldwide, visit lseg.com. Let's talk about prediction markets, Thomas.
17:15 This is something that I know you've been passionate about, but I have to say I'd underpriced the scale of how long and how passionate you've been about it. You launched your prediction markets product, ForecastTrader, in 2024. You significantly increased the offering in 2025. But as I said, this was something you thought about over a decade ago and actually built a phantom prediction markets product
17:43 10 years ago. >> That's right. We did that and then we were warned, at that time we were working on applying for a banking license, and the consultants we used learned about our prediction market efforts and they warned us that if we go forward with it, we will never get a banking license.
18:22 So we actually came out with it, but we came out with it with phantom money. So it wasn't real, but it was real enough for the guys at Kalshi and Polymarket to see it. And they said, "That's a great idea," and they came out with it for real money and so that's what happened, and so now they are way ahead of us of course. >> And when Kalshi came out you tried to buy them. >> That's right, because they went to the CFTC and they got licensed and I said what a stupid thing
19:11 it is I didn't think about doing that. And so I thought that to get licensed by the CFTC would take about two and a half or 3 years. So I thought I'd rather buy them than do it myself. And I tried to buy them but they wouldn't entertain an offer. So we went to apply for our own license and we got it.
19:40 But most of the volume that they do, they are doing it in sports, >> and we were never interested in sports; that wasn't our idea about prediction markets. Prediction markets to us was all about how it should interdigitate with equity and commodities trading and >> and so you're focused, as you're alluding to, on financial markets and where prediction markets can fill a gap for professional investors.
20:24 >> You're right. So in our view the economy is the major determining factor for the stock market, right? And so the stock market and the commodity markets are only concerned with prices and that doesn't answer all the questions about the future. Prices by themselves are a very limited niche.
20:59 So you have to understand, everybody understands that individual companies and individual commodities exist within a larger economy and regional economies exist within the country economy and country economies exist within the global economy and the global economy is functioning within a social and climate environment and all those things are basically determining how individual companies can and do progress.
21:46 So these questions I think are very important from the point of view of an investor. So when you are looking at a stock and trying to figure out where that company is going, I think you have to look at the entire environment and have an idea as to what that environment is going to look like in the future for that company in order to evaluate where that company can possibly go.
22:22 >> How far away do you think we are, Thomas, from prediction markets being deep enough and liquid enough to genuinely represent overall consensus? I presume for a market like will there be a rate hike tomorrow, that's already the genuine consensus. It represents the genuine consensus. But what about questions, I know you offer markets on weather, for example, because it's relevant to commodities traders.
22:48 Do you feel like they're deep enough and liquid enough to represent genuine consensus yet? >> Not as of yet, but I think in the coming years it is going to become more and more liquid. There are more and more economic interests that are dependent on these questions and who are exposed to these questions and who would do better if they could hedge, and therefore they will pay more and more attention to these markets in the coming years and they will participate, and these markets
23:31 are going to become huge in my view. >> Will it mean experts become kind of irrelevant? >> No, they will not be irrelevant, because I think instead of selling their expertise to whoever they are selling it today, they will just participate in the prediction markets and express their opinion that way because it's much more efficient. >> Yeah.
24:05 >> Right. They should take their own positions based on what they think and the prediction markets will tell the world what the experts think. >> It's really interesting. I guess we'll see who the accurate experts are. They'll put their money where their mouth is, perhaps.
24:24 I'm interested in how you run this part of the business if it's not yet deep and liquid. Does that mean you are more exposed at the moment to the positions that people are taking because you can't actively offset your positions? >> Yes. Well, to the extent that we have to make a market, yes,
24:49 we are more exposed and it's not a very attractive business at the moment, but I think it will take off. >> And do you think that also applies to the Kalshis of this world, or given that the higher volume for them is in areas like sports, are they deep enough and liquid enough that they are >> just simply making >> They are so focused on the sports, and they make a huge amount of money on the sports bets, but the question is of course, as you know, the states are up in arms against them and
25:36 so it is going to be up to the Supreme Court, which I think will be decided in the late spring of the coming year, as to whether these are swaps, whether the sports bets are swaps as Kalshi claims, or they are just bets that should be licensed by the state to conduct these events.
26:09 >> I guess with all of that you might be pleased that you didn't buy Kalshi, even though it took longer to build. >> If we had bought Kalshi, they wouldn't be doing sports. So, >> Fair enough. I guess the final question on this is how big you think it's going to be? What portion of your earnings and revenue is this at the moment, and in 10 years, even though you'll stay focused on the core markets that are relevant to professional traders and investors, how big can it be?
26:41 >> I think, well, I don't know exactly 10 years, but in the fullness of time the majority of our earnings will be derived from prediction markets. >> Wow. Really interesting. I wanted to ask you on one prediction market that's live at the moment because we touched on it last time we discussed, and just to get your take as I know you're very plugged into the political situation.
27:09 When we last spoke, you thought people were underpricing the chance of the Republicans holding both houses of Congress. Where do you sit on that at the moment? >> Well, the odds don't look good for people who are Republicans and it certainly doesn't look good.
27:41 >> And do you think that market is deep enough yet to represent genuine consensus? >> Yes, the political markets are certainly deep enough to reflect the concern. I think they are more accurate than the polls. >> And they're pointing to both houses flipping now? >> Well, no, they are pointing to the House of Representatives becoming Democratic and the Senate remaining Republican.
28:16 >> We shall see what happens. I guess it's drawing closer every day. This episode is sponsored by BNY Investments. BNY Investments is part of BNY, a global financial services company supporting investors and institutions around the world. This sponsorship does not constitute investment advice. Let's talk more broadly about your business. I heard this in another conversation that you gave to a Bloomberg podcast: what the single biggest risk to your business is, that keeps you up at night, that you
29:00 think about every day, that you have to focus on, and you said that that was leverage. How often are you thinking about that leverage and the risk it poses to your business? >> Well, it's not as much leverage at Interactive Brokers. We are very automated and our systems are continuously evaluating all the leverage of our customers and we immediately liquidate whenever there is any margin violation.
29:41 But it's generally the leverage in the entire system that worries me because the fact is that when other entities begin to have problems it permeates through the markets and then everybody ends up with a problem. >> And where's your level of concern towards leverage in the system as a whole at the moment? >> The margin loans that are out there are very large.
30:19 But the fact of the matter is that we don't even know. Part of the problem is that we don't know what's out there, right? Because there is not really a central place where it all comes together. And the problem is that many of the banks are largely exposed to over-the-counter products, and we don't do over the counter.
31:00 At Interactive Brokers we only do those exchange-traded products that are cleared through clearing houses. So the problem always comes from the over-the-counter products where the bank has one contract with one counterparty and the hedge with another counterparty and then when one of the counterparties becomes shaky, they sort of have trouble figuring out what to do.
31:34 It's a spaghetti: who has credit where. So that's where usually the problem is. >> And again, these problems get triggered when prices adjust very quickly and someone's been caught offside, and not to labor the point, but the rise in yields we've seen, whether it's in the US or Japan or the UK, and the adjustments in some currencies like the yen,
32:04 you don't think those moves have been big enough, enough of a surprise to somebody, that it might catch people offside? >> Well, there's always a little bit of worry, but I don't want to overstate this. I'm not really worried about it at this time. I don't think about it much. >> What about the threat AI poses to your business? Because you guys have always been the leader on the technology side of a brokerage offering, great functionality attracting, as you said, those
32:41 professional traders. Is that going to be easier to replicate by your rivals going forward in the age of AI? Will it also threaten your business? >> I don't think so. Interactive Brokers has made AI available. All the major AI models are available to our customers and they can interface with them and connect it to their portfolios and they can use AI to the best of their abilities via our platform.
33:24 So this is a positive for us rather than a negative. It's a benefit to our customers and it's good for our business. I'm not worried about AI from that point of view. I also do not think that AI in the near future is going to impact securities analysis to a great extent, because even though it's very good at bringing all the facts together and sorting them out, it's not really good at projecting events forward.
34:18 So the problem with the current AI models is that the weights are all frozen. They are determined at the time of training and then they are frozen and they cannot be updated one at a time because the entire vector space, if you start changing something, becomes unstable.
34:52 So they are not enabling new information to come in and change any of the weights. So new information has to be accounted for and it cannot, so basically these systems cannot learn, and that would be in my view absolutely essential for forecasting earnings and how companies will do in the future.
35:34 The current AI systems I don't think are applicable to that, and that of course brings me back to the prediction markets: they are much more important for projecting earnings forward than the AI systems. >> Yeah, but I guess it'll be interesting in years to come if AI can also use what the prediction markets are suggesting GDP growth will be, or recession chances, and factor that into their forecasts.
36:10 I wanted to touch on your client base. We've been speaking throughout about how you tilt towards the professional client and, in terms of the big accounts, towards the hedge fund clients who are doing much more intensive trading and complicated trading. At the same time, you're now pursuing a new bank trust charter, not a full banking license, but a trust charter.
36:35 What's the thinking behind that? Is that to allow you to pursue the less sexy clients, the slightly >> So the bank charter is all about being able to custody mutual funds and ETFs, because you have to be a bank to be able to custody the assets of ETF issuers and mutual fund managers.
37:14 >> And is that going to be, I guess the question I was trying to get to, a slightly more boring part of your business going forward? >> Well, it's not so boring because it has great repercussions for our ability to lend shares to customers who need them, >> right? >> Because much of our interest income comes from people who are shorting stocks, for whatever reason they do that, and that is substantially important for
38:04 our performance. >> And the big custodians of this world, the Northern Trusts, the State Streets, the JP Morgans, what can you offer that they can't offer? What's your pitch to would-be mutual funds or ETFs? >> We offer everything that they offer, and as a matter of fact we do it better, because for example our short inventory is available to see online for our customers, and they can not only see what we have but also our lending rates they can see online. So now many people
38:48 look and then they call the bank and they say, what do you mean it's 3%? I can get it at Interactive Brokers at 2%. And the bank says okay, it's yours at 2%. But many of them then of course give us some business for that. >> Let's talk about your valuation. The share price performance has been fantastic.
39:17 It's been built, as I touched on, on roughly a 40% underlying earnings growth pattern for 5 years. But also 5 years ago the valuation multiple was much lower. It was sort of 12 times PE, to 30 times or so today. Does that ever concern you, that although the underlying fundamentals are looking great, it's unlikely the market will increase your valuation going forward, or is it not really something you focus on? >> Well, to tell you frankly I don't think about the stock much.
39:54 I think about the business. I think about what kind of new things we can come up with and provide to our customers and how can we grow the business, because the stock price, there's nothing I can do about it. [laughter] And the idea is to have a wonderful experience for our customers and to make them as profitable as we possibly can.
40:29 That is our focus. >> Well, one leads to the other. So I think that sounds like a very sensible approach, Thomas. I wanted to talk if I could about the assets you've diversified into. Clearly, as I mentioned at the top, you still own a huge amount of the company, which accounts for the vast majority of your over-hundred-billion-dollar wealth that makes you the top 20 richest people in the world.
40:55 But you've also, and there's been quite a lot of coverage about this, in the assets you have diversified into. You've bought a lot of land, right? Can you talk to us about the rationale for that? >> Yeah, so as you know I have grown up in communist Hungary and my family used to own a lot of land before communism came in and then of course they took it away from us.
41:24 They took everything away. They took obviously all your real estate and your land and your companies and your businesses. But if you look back, what happened was the only thing they could return after 45 years of destroying your property,
41:56 basically, the only thing they couldn't destroy and could return were the lands. Those lands that were not open to building upon and doing things with. So basically agricultural land, land that was out in the country that they couldn't basically ruin. And so that was returned. So I think that the same thing may happen in America and that is the reason [laughter] that I am buying land, so that after the democratic socialists take everything over and they ruin all the stuff, they will eventually find out that it doesn't work and they will have
42:43 to go back to protecting people's private property, return the assets they can return, and the only assets they will be able to return will be their own land. >> Wow. And what chance do you put on the US going down that path where essentially capitalism gets eradicated, at least temporarily? >> Well, we see that happening.
43:13 We see the Mamdanis of the world taking power, right, and it looks like more and more of these kinds of people will come into power this time around, and so I think currently chances I would put them at 20%. >> And if that's the case, land is I guess quite an expensive way to protect against that for most people.
43:44 Would gold be an alternative? >> No, because gold you cannot carry with you and they will immediately say that ownership of gold is illegal and you have to submit it, you have to take it to your local whatever communist party headquarters. >> I'm really struck by this being the rationale for you owning so much land, Thomas, because the reason I wanted to ask about it was actually your outlook, if it implied that your outlook is for a decade or multiple decades of elevated
44:24 inflation going forward. I thought that was going to be the reason, but it's a much more significant factor than that. >> Yeah. No, I think if you think about how you want to invest your assets for your heirs to have something down the road, if these things happen that I'm worried about, then I think land is the logical asset.
45:04 >> Wow. Well, that's a really fascinating note. As we round things up, Thomas, I wanted to end just by asking you for your overriding piece of advice for your listeners. What is it? >> Well, my advice is always to have a plan, and have your plan always open to change when new information comes in.
45:34 But you always have to have a plan and you always have to work on it and you have to know every morning you get up, you have to know what you are supposed to do that day, and you have to consult your plan if you're temporarily confused. And right now I would suggest that people try to learn as much about AI as they possibly can and figure out how to use it to their best benefit, because that's the song of the future.
46:08 >> Thomas, it's been an absolute pleasure once again catching up with you. Thank you so much for joining us here on the Master Investor podcast. >> Thank you very much for your approval. >> Next week we'll be joined by Ed Conway, the data and economics editor at Sky News, my friend and colleague who has a new book out as well, Trade World.
46:26 Lots to discuss with him. Please do hit follow or subscribe to make sure you receive that particular episode. For now, our thanks again to Thomas Peterffy. The Master Investor podcast is sponsored by LSEG, Interactive Brokers, the World Gold Council, and BNY Investments. Please do remember the views expressed in this podcast are for general information purposes only.
46:51 Nothing in the podcast constitutes a financial promotion, investment advice or a personal recommendation. More on that in the show notes. This podcast is produced by Paradine Productions and Master Investor Limited in association with Birdline Media. If you've enjoyed the show, please do subscribe on YouTube or click follow on your podcast platform and you'll be automatically notified each time a new episode drops.