Sam Zell about Simplicity and Risk, and importance of high standard education
”Guts and instinct are all simplicity. I went to Harvard Business School in 1988 and I spoke to three hundred of them and I just beat the s—t out of them... it’s all about what’s simple. What’s the shortest distance between two points.” – Sam Zell, Bloomberg 2014
Sam get to comment on Tom Perkins letter to (Wall Street Journal) regarding attention to the parallels of Nazi Germany to its war on its "one percent," namely its Jews, to the progressive war on the American one percent, namely the "rich."
3.00 ”I get the feeling that he’s right. The quote 1 % are being pummeled because it’s politically convenient to do so. The problem is that the world and this country should not talk about envy of the 1 %. It should talk about emulating the 1 percent. The 1 percent work harder. The one percent are much bigger factors in all forms of our society.” – Sam Zell, Bloomberg 2014
”The politics of envy, the politics of class warfare are what has separated America from many part of the rest of the world. And we have benefited dramatically from not having class warfare, from not having envy.” – Sam Zell, Bloomberg 2014
5.00 ”I think that is a function of policies. And I think that overall that we passed for the last 50 years, whether it be unfunded social security or other issues, have all contributed to this disparity. And we need to fix our government. We don't need 17 000 new pages of federal regulations in the last five years. So I think all those things contribute to this disparity. And the more complicated our government makes our world, the more the one percent can afford to hire somebody to figure it out and the other guy can't. But if you simplify government neither one of them is required and therefore the disparity slows down.” – Sam Zell, Bloomberg 2014
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51.00
”When I took Econ 101 at the University of Michigan I walked into the first classroom and written on the blackboard was Supply and Demand. And I have to be honest with you, I am not sure that there was ever anything else in Econ 101 that I learned that was relevant. And if you understand and are focused on how supply and demand affects pricing, how it affects decision making, how it affects risk. It’s the governing principles of everything. But it’s also simple.” – Sam Zell, (#407 Tim Ferriss Show, 2020)
”At that time there were a lot of quote on quote income producing assets that were available. I’ve always believed that there’s a lot of quote on quote execution risk that has to be fit into your thought process, when you’re making a decision. In that particular time, again keeping it very simple, if I could establish a definition of cash flow. In effect I would literally,, I remember going to a developers and saying, >>It’s real simple. Take the bottom line multiply by 6 and that’s what I’ll pay<<. Now I didn't know that that was a very high price. That I was creating a price structure that was very attractive to me. I just thought gee I wouldn't do this unless I got a 16 percent return, so 6 times cashflow made perfect sense. And that’s the way I thought about it. That’s the way I thought about how do I raise money. In the same manner. What was attractive enough to get somebody to entrust their money to me.” – Sam Zell, (#407 Tim Ferriss Show, 2020)
53.20 ”I thought about the fact that somebody had to cut the lawn. And I knew that if I grew the size of the business it wouldn't be me who had to cut the lawn. And not being the one cutting the lawn or cleaning the hallways or whatever what certainly as much of an objective as making money.” – – Sam Zell, (#407 Tim Ferriss Show, 2020)
//Developer, construction risk, he later met with Jay Pritzker And hit it off //
54.10 ”I did that in the late 60’s when I built my first apartment project in Lexington Kentucky and where I also built the project that ultimately led to my relationship with the Pritzkers which was this project in Lake Tahoe. In both cases they were development projects and they were from the ground up. And in both cases I was very disappointed at how difficult it was. And I kept looking and thinking this doesn't make any sense; you are taking on all this risk. You starting to build something when you don't know what the markets are gonna be like when you finish it. Either you’re putting it up for rent or you putting it up for sale depends on what the condition are when you finish. Your subject to very incessant cost, I mean there’s no greater lesson of inflation than designing a project and finding out that it cost 20 percent more than you thought it was going to cost because the cost have gone up in the meantime. So all the variables, and the weather and all the things that happen and contractors making mistakes. And when they made a mistake there was nobody else to blame it on. And the fact that they made a mistake was to bad but I was the guy who had to live with that mistake and live through it. So I kept looking at all the variables and saying ”I don't understand why would anyone be a builder when you’re taking on all these variables and the best that could happen is that at the end you produce the same thing you got when you bought an existing stream of cashflow”.” – Sam Zell, (#407 Tim Ferriss Show, 2020)
55.30 ”I had a friend of mine who was a national broker of real estates,” [. . .]”He called me one morning. I was in ?Etlama? yesterday with Jay. And I said, Jay who? And he said Jay Pritzker. And I said >>Oh yeah, I’ve heard of them, they are very wealthy people in Chicago<<. He said >>Jay is really extraordinary, and Jay is looking for somebody who can come work for him who is under 30, a lawyer and a successful real estate entrepreneur<<. And I said to this guy >>If somebody actually met those criteria, why would they wanna work for Jay? Or frankly work for anybody else?<<. He said >>you’re being too glib, this is an extraordinary guy, you really need to meet him<<.” – Sam Zell, (#407 Tim Ferriss Show, 2020)
Next morning he went over to Jay and they ”just hit it off”. - Sam Zell
56.30 ”I sat at his desk from 9 a clock to 4.30.” – Sam Zell, (#407 Tim Ferriss Show, 2020)
They then did a lot of deals together.
57.00”That was the first of maybe ten or fifteen deal that we did over the years in various different places and different kinds of structures that led me to spend a lot of time with him. And found him to be one of the most intriguing individuals and frankly the smartest risk guy I ever met.” – Sam Zell, (#407 Tim Ferriss Show, 2020)
57.40 ”You had to be realistic, you had to be able to look at it and say what could go wrong. If I learn anything from him I learn that everything that went too well you could survive. The only time you couldn't survive is if it didn't go so well. So focusing on the upside was interesting but not productive. Focusing on the downside was what risk was all about. And to the extent that you could quantify the downside, to the extent that you understood what the risk it was you were taking, you chances of survival were much better.” – Sam Zell, (#407 Tim Ferriss Show, 2020)
58.40
”And what he taught me more than anything else was look at the deal and figure out where is the vulnerability. Where is the assumption you’ve made that has to be right in order for the deal to work.” – Sam Zell, (#407 Tim Ferriss Show, 2020)
More about the risk and the one-percenters, the politics of envy and subsidizing
”I’m a very wealthy man. I could literally put my money into the bank and play golf every day. God forbid, but I could do that. Instead I’m taking risks every day. Why? Why should I if the game is being stacked against me? So what this country needs is an ”All clear” sign. And the ”All clear” says, ”Let’s get back to business”. That’s what made this country great, that’s what creates jobs. Let’s get back to business. Stop this class warfare crap. Stop this politics of envy and in effect deliver a position to the American people that says” we have to drive the center”, which is what we have done since the beginning of this country and what has led to its success.” – Sam Zell, (Legendary Tirade About Class Warfare)
Sam: ”The whole focus has been on how the quote one-percenters or the ten-percenters, whatever these top earners have moved ahead of everybody.. I wonder if there’s any correlation between while they were moving ahead, the rest of the government was subsidizing more and more people in disincentivizing them. Why is it always assumed that somebody doesn't succeed because he cant as opposed to he doesn't want to or isn't incentivized.” Sam Zell, (Legendary Tirade About Class Warfare)
Talkhost: ”The opportunities is not there and it’s not a fair playing field which I’ve heard for the last two year.”
Sam: ”I’m sorry, I live with the playing field every day. I finance people starting new businesses taking all kinds of risks. Their motivation are the same as everybody's since the beginning of time.” Sam Zell, (Legendary Tirade About Class Warfare)
Sam about the education system
Sam Zell continues:
7.00 ”Instead of saying the standard must be the highest education level in the world. The standard is how do we keep the greatest number of failing teachers in place so we can be //Sam makes a quote sign with his hands// fair. Well that’s not fair. If you’re educating a kid from the hood and he wants to learn and instead of getting a teacher who wants to teach him. He gets a teacher who uses her or his job as a custodian, that’s not fair. That’s what is happening at the educational level of our country, particularly in the have-nots. It’s racist, it’s unfair, it’s everything you could imagine because you’re dooming these children, you’re dooming them.” – Sam Zell, (Legendary Tirade About Class Warfare)
References:
Bloomberg Quicktake: Original [YouTube Channel], (feb. 2014). Sam Zell: The 1% Work Harder and Should Be Emulated. YouTube: https://www.youtube.com/watch?v=I96LY6x3FKw
The Tim Ferriss Show (2020-01-23). #407: Sam Zell — Strategies for High-Stakes Investing, Dealmaking, and Grave Dancing. Website: https://www.podbean.com/site/EpisodeDownload/DIR7D190C5P9RGI
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