Listen, business is easy

Investing and Business Lessons from Sam Zell

 Sam Zell is an American businessman and the founder and chairman of Equity Group Investments which started in the real estate business but now owns a range of businesses. 

The reality is that I need to be challenged and interested, as long as the risk and reward is in line. -Sam Zell

Sam Zell said if you follow the crowd you can’t never beat the market. “Listen, business is easy “When everyone is going right, look left.” “I‘ve spent my whole life listening to people explain to me that I just don‘t understand, but it didn‘t change my view. Many times, however, having a totally independent view of conventional wisdom is a very lonely game.” Sam Zell is expressing the same view as investors like Howard Marks who recognize that it is mathematically provable that without being a contrarian in some instances (and being right about that contrarian view in those instances) it is not possible to outperform a market. You simply can’t follow the crowd and beat the crowd. Being contrarian for its own sake is, of course, unwise. Sam Zell is saying that you should “look” left, which does not necessarily mean you should “go” left. But sometimes that look left will give you enough confidence to place contrarian bets since you will see that the odds are substantially in your favor.
 We always think business is very difficult and complex. Sam Zell explain this point “Listen, business is easy. If you’ve got a low downside and a big upside, you go do it. If you’ve got a big downside and a small upside, you run away. The only time you have any work to do is when you have a big downside and a big upside.” This statement is all about the value of seeking positive optionality. Every once in a while, if you are looking hard for opportunities, you will find a mispriced bet within your circle of competence with a relatively capped downside and a huge potential upside. It is wise to bet aggressively in these cases since it allows you to harvest positive optionality.  Betting when the optionality of the situation is negative is a fool’s errand. Situations with a big up side and a big downside are by contrast problematic.  This situation is likely to result in the most work and for that reason alone it may be wise to put decisions within it in the “too hard” pile.
 Charlie Munger once said If you try to predict the future of everything, you attempt to much.-Charlie Munger

Finally, information monitoring and reporting have to be built into the decision to provide continuous testing, against actual events, of the expectations that underlie the decisions. “Listen, business is easy decisions are made by people. People are fallible; at best, their works do not last long. Even the best decision has a high probability of being wrong. Even the most effective one eventually becomes obsolete.

“I pound on my people: taking risk is great. You’ve got to be paid to take the risk. The risk/return ratio is probably the most significant determinant of success as an investor.” “Measuring and gauging the risk reward ratio is the biggest [margin of] safety issue every investor has.” “Listen, business is easy Getting paid for any risk you take is a key part of risk control. In my post on Jeffrey Gundlach I wrote: “Taking in risk for its own sake is a sucker’s bet. More risk does not necessarily mean more investment return.” Sam Zell is talking about the same principle here. What you want to find is mispriced risk or uncertainty so you get paid for taking that risk or uncertainty since as Howard Marks has pointed out: “If riskier investments necessarily delivered higher returns they wouldn’t be risky.”

Risk is always a downside and you have to focus on what is the downside.

“The problem with leverage is that you need to pay it back. The biggest measure of success or failure is how entrepreneurs address and deal with leverage. If you are in the real estate business without leverage, that’s like being a boxer in the ring without a glove.” Some people are more comfortable with debt than others. Some people sleep well knowing that they or businesses they control owe other people billions of dollars. Others can’t seep while owning anyone much of anything.  Learning how to manage debt and you reaction to being in debt is a valuable skill.  Sam Zell is saying that leverage in his business is a not avoidable so he has learned to be really good at managing leverage. 


Your workforce is your most valuable asset. The knowledge and skills they have represent the fuel that drives the engine of business, and you can leverage that knowledge. — Harvey Mackay

Attempting to succeed without embracing the tools immediately available for your success is no less absurd than trying to row a boat by drawing only your hands through the water or trying to unscrew a screw using nothing more than your fingernail. — Richie Norton

“Business schools are beginning to change, but particularly in the ‘80s the business schools focused on if you could just turn the page there’s the formula that tells you how to do it. And the answer is there are no formulas and – and success and failure are – are a combination of judgment and an external event. But it starts and ends with a simple idea.”  “Don’t get confused by education: Simpler solutions are most often better solution!” Sam Zell is talking about a point made by Ben Horowitz in his book The Hard Things About Hard 
  The real world of business cannot be navigated successfully simply by applying simple formulas or following a recipe for success. There is no substitute for things like learning from experience, good judgment and hard work in life.


“Nothing is bought and everything is sold.”
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