How A Playboy-Selling Teenager Became A Billionaire By Going Against The Grain: Sam Zell's Smart Investment Strategies

From hawking Playboy magazines to building a billion-dollar investment portfolio, Samuel Zell is the epitome of the American dream. The real estate mogul, who founded Equity Group Investments in 1968, has come a long way since his early days of selling adult magazines. Today, his firm, now Equity International, holds a diverse range of investments around the globe, proving that success can come in many different shapes and sizes.

Early life: Zell's early entrepreneurial spirit is well-known among those familiar with the American real estate tycoon. Born in 1941 to Jewish parents who had recently migrated to the United States, Zell demonstrated a keen interest in the business world from an early age. At age 12, he was buying bulk quantities of Playboy magazines for 50 cents each and reselling them for anywhere from $1.50 to $3 apiece. As Zell himself put it at a 2013 Urban Land Institute meeting, this experience served as his "first lesson in supply and demand."

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Dabbling in real estate: Zell's entrepreneurial streak didn't stop there. During his college years at the University of Michigan, he and his friend Robert Lurie managed student apartment units for landlords. This soon evolved into purchasing and improving distressed properties, with the goal of either flipping them or renting them to fellow students. With such early successes, it's no wonder Zell went on to create Equity Group Investments, a billion-dollar investment firm with interests across multiple continents and industries.

Fresh out of law school, Zell joined a law firm but quit after a week to pursue real estate investing. In 1968, he founded Equity Group Investments and teamed up with Lurie the following year. When the market crashed in 1973, they saw an opportunity to buy undervalued properties, holding onto them for years and earning rental income rather than flipping them. This approach was unconventional for the time, but it paid off in the long run.

Beyond real estate: In the 1980s, Zell extended his investment reach beyond real estate and began acquiring companies, maintaining his investment strategy of going against the crowd. In an interview with LEADERS magazine, he said, "I made my fortune by turning right when everyone else was going left." Zell continued to seek undervalued assets, including struggling businesses, and aimed to revitalize them. Equity Group's portfolio now spans a range of industries, from rail and container leasing to passenger cruises and agricultural chemicals.

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Approach to investing: Zell's investment strategy is not for the faint of heart. The real estate billionaire believes in "dancing on the skeletons of other people's mistakes" and taking calculated risks in the face of adversity. Where some see only failure, Zell sees opportunity. As he says, "If you're not making mistakes, you're not taking enough risks."

But Zell isn't reckless. He has a deep respect for the risks involved. He often quotes investor and presidential adviser Bernard Baruch's famous line, "Nobody ever went broke taking a profit" to remind investors that they should focus on both the upside and downside potential of an investment. According to Zell, "No risk, no reward."

During an interview on the Capital Allocator’s Podcast, Zell revealed one of his most successful deals was one in which he lost $50 million. Zell explained that before making the investment, he performed a risk analysis and concluded that the worst-case scenario was losing $50 million. In the end, that's exactly what happened.

Despite the apparent loss, Zell considered the deal successful because he had identified the risk and was prepared for it. He had done his due diligence and calculated that even if the investment didn't pan out, he could handle the loss.

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Zell emphasized that every investment decision must consider the downside risk and the investor's ability to handle it. Taking a risk that exceeds one's capacity is playing cowboy and is not a wise investment strategy, he said.

Zell's investment style may not be for everyone, but there's no denying the billionaire real estate mogul's ability to turn risks into rewards. His willingness to go against the grain and take calculated risks along with his entrepreneurial spirit has been the key to his success. And while not every investment will be a winner, Zell's approach to identifying and managing risk can serve as a valuable lesson for investors. If you're feeling bold and ready to dance on the skeletons of other people's mistakes, taking a page from Zell's playbook may be the way to go.

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