I have read the book Am I Being Too Subtle? very by chance. Via my LinkedIn network, I have known and read My Notes on Sam Zell’s Book “Am I Being Too Subtle” – Fabulous Life Lessons of a Value Investor and Entrepreneur by Jose Vargas. Quite impressed with the book review and the first time to know Sam Zell, a real person as billionaire value investor & businessman, I picked it and now I want to share my own lessons/notes by this post.
Zam is a funny, smart, warm, kind man to me. Those words are in my eyes for what he has shared during his business career, philosophy and philanthropy. I wrote about Vincom Retail (HoSE: VRE) (Link) and known Warburg Pincus, one of large US private equity (PE) fund has invested into VRE and harvested fruitful seasons: “In 2013, Warburg Pincus injected capital into Vincom Retail with the amount of 200 million USD, then poured additional 100 million USD in 2015. At present, the fund is earning 2x return as IRR of ~19% for 4 years of investing into Vincom Retail.” (Link)
I found it very coincident with what Sam has shared in his book regard the same case study:
“A great example of this type of partnership, as well as of the consolidation opportunities in emerging markets, is BR Malls in Brazil. In the early 2000s, new malls were sprouting up all over São Paulo and Rio, and industry ownership, as I’ve mentioned, was highly fragmented. We partnered with a local public equity firm to create BR Malls as a growth platform in 2006, investing $86 million. Roughly a year later, we led BR Malls in an IPO on Brazil’s Bovespa at an equity valuation of roughly R$2.1 billion. The capital enabled BR Malls to lead the industry in acquisitions. Five years later, the company had nearly fifty malls. Total returns for public shareholders were over 26 percent, and BR Malls had an equity market cap of R$10.7 billion. By the time we fully exited the investment in 2010, BR Malls was the largest mall company in Brazil, and we had achieved a 4.2x multiple, or 48.6 percent IRR.”
How can Sam, his firm or Warburg Pincus has achieved successful investing results like those mentioned? Like many successful investors like Warren Buffett, Charlie Munger, Sam is a generous to share what he has achieved. He shows his way for me to learn and I believe you also learn from his method, his shape of view and execution. I believe reading this sharing has helped my eyes opening and made shortcuts in mindset and creative ways for doing any businesses or investing (This is why I love reading books from both sides of success and failure for thinking and learning more quicker and effectively. It comes at both way: curiousity & thirst for learning):
..”.affiliations often take us further than any foreigner could go on the upside while preventing us from falling too far on the downside. Take our investment in Venezuela early in the Chavez regime. It was in a company that owned one of the largest first-class office building portfolios in Latin America. It had a great multinational tenant roster, from Exxon to Citigroup, and was poised for growth throughout the region. In early 2004, as Chavez’s rhetoric about the government’s reach increased, our local partner said, “Don’t worry about what he says; worry about what he does.” Then, later that year, our partner called us and said, “Chavez is starting to take action. Now it’s time to worry.” It was a mad rush to the exit, and we weren’t the only ones scrambling. But because we had a great partner on the ground, we were able to sell our position soon after. It was at a loss, but a much better outcome than if we hadn’t had his local expertise and influence. So we focus on finding great partners—local developers and operators—and we help them create institutional-quality operating platforms to develop, own, and lease large portfolios of commercial real estate. We look for businesses with the potential for growth so that ultimately we can create value from more than just bricks and mortar. We infuse our portfolio companies with capital and guide them in deploying it, and we help them become institutional grade by teaching them strong fiscal discipline and corporate governance, lending our expertise in sophisticated investing and business strategies, sharing our knowledge of public markets, and introducing them to our network of banking and other relationships. Together we form that 1 + 1 = 3 equation.”
Sam has came to America I believe is not by chance but by its destiny and all efforts, perseverance and Amercian dreams chasing has made Sam become the man with his characteristics and success today. Along the lessons learned, mostly I quoted from excerpts of the book, it is so useful to me and takes a moutain of respect and gratitude to Sam and I think you feel the same as I do if you read Am I Being Too Subtle?
1. Toward risks and evaluation – Margin of Safety (Golden Rule)
I realized that the basics of business are straightforward. It’s largely about risk. If you’ve got a big downside and a small upside, run the other way. If you’ve got a big upside and a small downside, do the deal. Always make sure you’re getting paid for the risk you take, and never risk what you cannot afford to lose. Keep it simple. A scenario that takes four steps instead of one means there are three additional opportunities to fail.
I often went back—and still do—to what was written up there on the blackboard when I first walked into Econ 101: Supply and Demand. In fact, much of my career has been about understanding and acting on this basic tenet—whether it’s in real estate, oil and gas, manufacturing, or whatever. Opportunity is very often embedded in the imbalance between supply and demand. It could be rising demand against flat or diminishing supply, or flat demand against shrinking supply.
When there’s an imbalance, I look at where the two lines will intersect and then determine whether it is cheaper to buy or to build. Usually the answer is in acquisition, which eliminates a lot of the risk inherent in development. I like to invest below replacement cost, thereby creating a competitive advantage.
2. Focus on a big pictures – Doing the Right Thing First before jumping into details with lack of sights
You have to be able to effectively assess the initial picture and see where the greatest risk is most likely to be, or you’ll spend your life doing numbers just to find out if a deal will work. And all that time lost is time you could have been looking at other opportunities.
I constantly challenge my people to “take me on.” I want them to challenge me just like I’m challenging them. We should both be able to succinctly defend our positions on any deal. It just makes us all smarter. I’m getting the most out of them, and they’re getting the most out of me. Win-win.
Below is an anecdote why Sam gives us advice that we should focus on big picture in thinking:
There’s a baseline IQ level needed to work at my firm, but I don’t need rocket scientists. After that, what best predicts your success in my world is drive, energy, attitude, judgment, conviction, and passion. And an ability to cut to the center of an issue. I’d trade another twenty IQ points for those qualities any day. I’ve had a number of brilliant people working for me who didn’t make it because they couldn’t grasp how to think about a deal. I remember walking into the office one night around 8:00 p.m. to find a guy working on a ten-year projection for a real estate project we were considering buying. I looked at what he was doing and I realized how many hours he’d spent laboring over his calculations. His approach was ass-backward. I said, “You’ve got to be able to look at the deal and know what it hinges on to know whether it works or not. If you realize that the key component works, then you use the numbers to test it. You don’t do the numbers to find out eight hours later whether it was worth starting.” I’m sure his IQ was higher than mine. But that isn’t how we operate.
3. Being an Entrepreneur – Everyone Is Entrepreneurs if: “___________” (Fill in the Blank)
Being an entrepreneur is not just about what you do, it’s about how you think. It’s about how you perceive the world. Entrepreneurs are the ones who are always looking for opportunities to do things better. They don’t just recognize problems; they see solutions. They’re always coming up with new ideas, and they aren’t afraid to try them. They are the self-starters, the risk-takers, those who take the initiative. They are always thinking, “I can do that better . . . I can fix that.” There is a perennial questioning. In my firm, everyone is expected to be an entrepreneur.
I have always had this mind-set, and I largely credit my immigrant-influenced upbringing for it. The United States was built by entrepreneurs who were largely immigrants. By nature, the immigrants who came here were self-selective. They chose to take the enormous risk of leaving their homelands and everything they knew for the unknown. For an idea. They came here and started businesses and innovated. They were a primary engine behind creating a world power.
Today, the term “entrepreneur” has almost become synonymous with tech start-ups, but that’s a narrow definition in my view. I believe you can find entrepreneurs in every endeavor. It could be a start-up, but it could just as easily be within a conglomerate, in business, in academia, in medicine, in nonprofit, whatever. An entrepreneur is anyone who is independent, creative, inventive, and willing to take risks.
Entrepreneurs are driven. We are constantly putting a stake out in front of ourselves. What’s the motivation? Well, I doubt that many company founders who reach billion-dollar valuations are motivated solely, or even primarily, by money. To be sure, making a lot of money is a carrot. But I would venture that most great entrepreneurs simply love what they do—whether it’s problem-solving, building something from the ground up, or a passion for their product or service.
Those words motivate me alot.
4. Sam’s Cornerstone Philosophy
Most of key points of the book, also the main themes of Sam’s philosophy come from the last chapter – Chapter Twelve: Go for Greatness. You could read it first to get a quick view about Sam and why he has earned tremendous successful and how he has gone so far to become himself today.
I fully support and agree with what Same has shared:
+ Be Ready to Pivot
I see myself as a frontline player, and that means being able to envision where demand is going to be, or where it won’t be—not just in the next five years but in the next twenty or thirty years. It means spotting opportunity early on so you can have first-mover advantage. And it means not sticking to assumptions that limit your opportunity.
+ Keep It Simple
I stay true to the fundamental truths: the laws of supply and demand; liquidity equals value; limited competition; long-term relationships; and the others I’ve covered. They offer a framework through which I view potential opportunity. Understanding the implications of changing legislation led me to maximize the opportunities of NOL vehicles, REITs, and Jacor. My attention to demographics guided shifts in strategy at all of my Equity companies. The mantra “simplify risk” became so ingrained in me that today I can talk to fifty people a day on investment ideas, listen to their list of twenty issues, say “It’s this one; focus on that,” and send them off to keep going.
+ Keep Your Eyes (and Mind) Wide Open
I rely on a macro perspective to identify opportunities and make better decisions, both in my investment activity and in leading my portfolio companies. I am always questioning, always calculating the implications of broader events. How will worldwide depressed currencies affect capital flows and world trade? Does it create opportunity for international expansion among multinational companies? What real estate needs will they have? How can we get a first-mover advantage into new markets? And on and on. Luckily, I don’t need much sleep.
If there’s one consistent theme, it’s that I’m always on the lookout for anomalies or disruptions in an industry, in a market, or in a particular company. Recognizing the psychology of market extremes can lead to attractive points of entry. Any event or pattern out of the ordinary is like a beacon telling me some interesting new opportunity may be emerging.
I’ve said it before and I’ll underscore it here: I am a voracious consumer of information. I have honed my ability to digest a lot of information, sift out what’s potentially relevant, retain it, and then recall it when it’s useful. I read at least five newspapers every day, and five business magazines a week. I remember all of it, or at least everything relevant. I also like to read escapist fiction—mystery novels, spy thrillers—and I go through about one book a week. I usually remember nothing about them. Unless all of a sudden something becomes relevant.
+ Be the Lead Dog
“If you ain’t the lead dog, the scenery never changes.” The origin of this quote was humorist Robert Benchley. I’ve always loved it because it defines my basic approach. In my businesses, I like to be the lead dog, to control the “scenery” in every industry I enter. It means not being less than number two in any industry, and preferably being number one. If you’re not the lead dog, you spend your whole life responding to others.
+ Do the Right Thing
When you’re in it for the distance, you do it right. Ethics are a cornerstone.
+ Shem Tov, Loyalty & Trust – It’s all about personal reputation – Build and Keep It
Everyday is a litte funny day to learn something new. I keep that spirit in my mind. Reading How Real Estate Developers Think some months ago, learning a litte bit more regard real estate development and developers. Now knowing one more real estate billionaire, also as successful value investor like Samuel Zell makes my eyes open more.
I hope you enjoy reading the book like I did :).