Am I Being Too Subtle? | Sam Zell


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Published in: 2017

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Sam Zell is the founder, owner, and chairman of Equity International, an investment company that focuses on real estate, primarily in emerging markets. Zell’s story starts in Poland just before WWII broke out, when his parents fled the country for the United States. Zell was born in 1941 and raised in Seattle, Chicago and Illinois. As a youth, in parallel with his law studies, he worked within property management. After his studies, he worked with small-scale property development and over time built up a broad portfolio of office properties. Later in his career, he started out investing in other sectors, most often in businesses in asset-intensive industries. Zell has an estimated net worth of $5.6bn and is ranked 529th on the Forbes list [2021].

THE GRAVE DANCER. Zell is a contrarian at heart and has been nicknamed “the grave dancer” because he appears after bubbles have burst. However, it is important to be careful, says Zell, if you dance near the grave there is a risk that you fall in. Zell’s analysis always starts with the downside. If he can understand it, and be comfortable with that outcome, he goes on to the upside. What kind of industry a company is within is irrelevant – the price is what determines if something is interesting.

“Sentimentality about an asset leads to a lack of discipline”

BUSINESS 101. Supply and demand, barriers to entry, margin of safety, limited competition, and good corporate governance – these are Zell’s cornerstones. By studying supply and demand, he times the market. He focuses mainly on demand and then moves to the supply side. He act very cautiously when he see that it is a record year in volume in any industry. He wants to either see an increasing demand combined with a stable supply or a stable demand combined with a decreasing supply. Zell only participates in auctions that he holds himself – if the interest is great, the price will be high.

”Frankly, there’s no substitute for limited competition. You can be a genius, but if there’s a lot of competition, it won’t matter. I’ve spent my career trying to avoid its destructive consequences”

BUY BELOW REPLACEMENT VALUE. The replacement value is what determines future competition. If you can set the rent based on a purchase price of $10k/apartment, new entrants are priced out if the replacement value is $20k/apartment.

THERE SHOULD BE TWO WINNERS IN A DEAL. Zell believes in leaving crumbs on the table. If a transaction does not have two winners, it is a bad deal. If you come out as the sole winner, no more business awaits in the future. If both parties are winners instead, everyone continues to play the game. This goes hand in hand with Zell’s view that a person’s reputation is his or her most valuable asset.

“Reputation is your most important asset. Everything you do, everything you say, is part of the permanent record. Your name reflects your character”

SIMPLICITY. Zell says that if you cannot formulate what you want to do with two sentences, you have not yet understood it. He has broken down his own work role as “the chairman of everything and the CEO of nothing”. He also believes that a simple solution is usually better than an advanced one. Everything complex can be broken down into something simple. It’s really just about organizing your thoughts.

POPULATION GROWTH LEADS TO HIGHER DEMAND. Zell believes that investing globally primary is about population growth. Europe is shrinking, there he is not investing: “you know cheese, castles and wine – it’s all terrific! But nobody works there!”. Emerging markets’ underlying population growth means that demand is high and is expected to rise in line with higher living standards. In addition, he likes when a country is close to reaching “investment grade” – then they behave as best they can. When it is obtained, the foreign interest increases, which both drives valuations and strengthens the local currency.

RELAX BUT DO NOT HOLD BACK. Zell believes that one should not take oneself too seriously. If you are really good at what you do, you have the freedom to be who you are. Zell wore jeans during the 1960s where everyone in the business world wore a suit and tie. On the other hand, he believes that it is one’s duty to maximize the opportunities one has been given. A successful entrepreneur must be indifferent to adversity and instead focus on problem solving. Zell is a voracious reader (one book a week and five newspapers a day) and an avid world tourist, which broadens his skill set and brings a steady stream of investment ideas.

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