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Newsletter - May 20th, 2023

Updated: May 21, 2023

Dear Reader,

Attached is our latest list of stocks generated from basic value screens (low p/e, ev/ebitda, debt/equity, etc.), which don’t meet our investment criteria - and our reasoning.

This may help you avoid a few ‘value traps’ or stocks that aren’t sufficiently attractive compared to the opportunities available today.

For reports of stock ideas that pass our quantitative and qualitative standards, join at the link below:


We were watching Sam Zell interviews last week when news flashed that he passed away two days ago. This edition is a compilation of notes from some of his interviews. Some of his points may be repetitive but they're important:


Sam Zell

Notes at timestamps below:

25:00 Best Deal

Zell's best deal was in Toledo, Ohio - the "armpit" of the nation. There wasn't an insurance company willing to underwrite a loan there - no competition, so margins were favorable.

Opportunities usually arise where everyone's avoiding a situation.

"What you're looking for in investments is stability, barriers to entry, and a rate of return."

43:30 Market Timing

"Every time you're a seller, you're also a buyer" (even if it's treasuries).

"Stepping out of the arc" is dangerous and the opportunity cost could be significant.


21:30 Be Opportunistic

"You can have a bad deal in a hot market and a good deal in a cold market."

"Some of the best deals I've made was during stress."

23:00 Focus on the downside

How bad can it get? If you protect your downside, the rest will take care of itself.

29:00 Everything you do should be understandable

Surprising to hear Zell didn't invest in real estate in the last eight years.

Only do deals where the value and pricing makes sense to you.

32:15 Don't get too statistical

Basic valuation is enough. Courage to act is more important.

36:30 Staying Power

Is critical to give investments the time to work out.

39:00 Farmland Yield

Is barely 1.5%-2.0%, not worthwhile.


54:30 Downside analysis

Liquidation value for downside analysis - quantify the risk before you invest.


1:03:30 Simplest Execution

Always choose the path of simplest execution - underestimated risk.


3:45 Understand where the fulcrum of risk is

Zero in on where the risk of losing money is, and minimize it. Rigorously test the sensitivity of your assumptions there.

18:30 Simplify everything

Distill the investment idea in a few sentences.

20:45 Freedom

Never give it up.

23:00 Never reach your goals

Always stretch. Echoing Buffett, paint a painting that'll never be finished - fruitful attitude to life.


14:00 Simplify everything

Respect the risk of execution. Minimize the number of moving parts for an investment to work.

15:30 Control the downside

Control the risk.

23:15 Ideal Negotiation

Is where both parties are indifferent to taking the other side of the deal

Zell gave an extra 0.25% to Merill Lynch bond investors to build goodwill for future financing.

Keep your counterparties happy, build long-term relationships.

28:45 Contrarian riches

Most fortunes were made thinking unconventionally.

And high profit margins are rare.

40:45 "Buy a Ticket"

You can't win if you don't play.


14:30 Statistics may not reveal oversupply

Insightful anecdote where Zell saw the oversupply in the commercial real estate market before the pandemic.

Wework was overbooking office space in anticipation of demand years down the line - but Zell saw through it. Oversupply was eaten by Wework rather than the market (end-user demand). Statistics are a lagging indicator.

Practically speaking, assess the situation after oversupply is priced into securities.

29:15 Buying below replacement cost

Zell's strategy was to buy real estate well below replacement cost - locking in his competitive edge.

38:00 Go where the competition is non-existent

Toledo, Ohio example again - when there's nobody to compete with you, margins are attractive.

Go beyond the obvious reasons that others know - second-order evaluation of asset pricing is required.

42:00 Save Taxes

Impact of taxes on realized gains is significant - best to minimize as much as possible.

46:30 Equity Office Deal Breakup Fee

Interesting to hear Zell's thinking on minimizing breakup fees to encourage other bidders when he auctioned his properties (something Buffett would never participate in). And later obtaining higher prices for higher breakup fees.

Incidentally Blackstone's strategy in this deal is interesting - they locked up sales of two-thirds of the portfolio at the time of the deal and came out fine - not the ultimate buyers though (buying at the peak of the real estate market late in 2006).

59:45 Freedom

Nothing more important.


16:45 Simpler the better

Quality of the decision is usually directly related to the simplicity of the decision.

32:15 Risk/Reward

On considering a short idea, thesis may be correct but if the risk/reward ratio isn't skewed in your favor, it isn't worthwhile.

57:30 Oil

Zell was an investor in the oil bear market of 2015 - he believes demand for fossil fuels will persist despite climate activism.

1:01:15 Liquidity = Value

Even if you're a billionaire, lack of liquidity can end the game.

1:04:45 Don't get too micro

Don't get lost in the details; and the macro can kill you.

1:05:30 Partners

Best definition of a partner: Somebody who shares the same risks with you.


17:00 Competition

Go where the competition is weak.

22:00 Discounts to Replacement Cost

Buy at material discounts to replacement cost; margin of safety is the barrier to entry in investing.

Zell was buying railcars in the 80s selling at 20-30 cents on the $ when loadings were flat. If the demand is permanent, at some point demand and supply will return to equilibrium - and investors can make a lot of money. (Incidentally Icahn also invested in railcars at the time - ACF Industries in 1984.)


18:30 Oversupply

Zell making the case for oversupply back in 2018.

28:00 90% LTV

Non-bank credit was booming at the time - offering loans up to 90% of market value (because banks were restricted by regulation). Looser lending standards - another sign of a bubble.

40:00 Micro

Even with bad macros (Japan), it was possible to make good investments based on local economic fundamentals.

46:45 Buying under NAV

REITs trading well below NAV are worth a look.

54:15 Technology

Parking apps have dramatically reducing rental cash flows - interesting.


9:45 Necessity of REITs

REITs were the only source of financing in the 90s after the real estate crash in the late 80s - born of necessity rather than a bull market.

13:30 Changing the odds at auction

Zell sent a non-refundable check with no conditions to win the auction.

18:45 The Godfather Offer

Zell entertained the sale of his real estate assets when he received a $48 bid from Blackstone when the NAV was $41 - he eventually sold for $55.

24:45 Think independently

Without reference to what others say, do, or think.

29:45 Optionality

Always prize optionality in life choices.

33:00 HP 12 Calculators

Didn't know DCF calculators increased competition in the real estate industry.

35:00 Transferability of Real Estate Skills

The experience of doing deals was valuable in Zell's other business pursuits.

40:15 Staying Power

Quantify the downside; "staying power is the whole thing".

43:00 Industry Consolidation

Elimination of supply is key in certain industries. Instead of getting misled by "synergies", eliminating redundancies resulted in large profits.

49:30 Knowing the numbers

Be grounded in your investing decisions.

51:45 Dealbreakers

Understand the dealbreakers for both parties in a negotiation, and give a little extra to build goodwill in a long-term relationship.

53:00 Keep it Simple

If you can break down and simplify a situation, you can better understand it, and mitigate risk accordingly.


10:00 Liquidity

Gives you great power - especially in a downturn.

14:45 Patience, Discipline, Caution

Essential traits in investing.

17:00 Zeckendorf

Autobiography of William Zeckendorf - apparently developed a significant portion of New York's urban landscape - on the reading list.


Until next time, Cheers!


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