market folly

We're posting up notes from the Invest For Kids 2016 investment conference.  Next up is Sam Zell of Equity Group Investments.  He had a fireside chat to talk real estate.


Sam Zell's Presentation at Invest For Kids Chicago 2016

•    70% of what we do is in assets other than real estate

•    We prefer a monopoly, but we’ll settled for an oligopoly; we look at costs to entry and barriers to entry and replacement cost

•    We’ve done a lot of roll-ups over the years, and each begins with the idea that we don’t necessarily believe in synergies

•    Domestic versus international investments: going outside of the U.S. means sacrificing the rule of law; trading growth for rule of law; tricky to weigh those considerations, but emerging markets are where the growth is; fertility and economic growth create demand; biggest challenge we have today is where the demand will come from:

o    International investments also bring the risk of currency volatility, which requires extra patience
o    Prefer inflation-sensitive asses when currency is an issue
o    Mexico, Brazil, Colombia, India are biggest markets for us; very optimistic about Latin America
o    We like investing in a country when it is on the cusp of reaching investment grade
o    Doesn’t always work; we’ve been fortunate to move in and out at good times; Brazil recently was like handing the car keys to a teenager…sometimes they wreck it
o    European demographics are horrible, and only Japan might be worse; hard to see growing demand

•    Why does negativity abound among the investing class? We’re only wealthier in the past few years in terms of a fiat currency – are we moving from a responsible developed world to one dominated by competitive devaluations? And where is the demand? Our compliance costs have gone up 5x over the past eight years. So productivity is at an all-time low while regulation is at all-time high – unlikely to make historical rates of return in such an environment.

•    Look at the stock market. One could say that given the level of investment and growth it is overpriced. Real estate assets are at an all-time high. Inflation is at all-time lows. The result is not likely to be long-term positive results. More likely to have a recession, a cleansing, a market clearing before U.S. can grow. We can’t pretend and extend our way to growth.

•    On being pessimistic compared to Jon Gray or Barry Sternlicht: “I’m not as optimistic, but then I use my own money.”

o    Not finding ways to deploy capital in CRE today. Happy to sell to Jon and Barry.

•    On the traits of a good leader: it starts with 11th commandment, which is thou shalt not take oneself too seriously. Smile, make fun of yourself. Lead by example, not pontification.

•    The definition of a schmuck is someone who has reached his goals.


Be sure to check out the rest of the presentations from Invest For Kids 2016.