What risks should we avoid and which should we snap up?
Probably no one in American business has answered that question better than Sam Zell who amassed millions by looking at the same data everyone else has, and seeing what others don't. He has invested in everything from radio stations to sports franchises to newspapers to cruise ships. His practice of bypassing the blue chips for undervalued opportunities--often times businesses on their backs, even in bankruptcy--explains why he is known as "the grave dancer."
Zell co-founded, with Bob Lurie, Equity Group Investments in 1968. Now, the Chicago-based firm controls a multi-billion dollar mix of private, public, domestic, and foreign businesses. They made their names by viewing risk differently than their competition did. Contrary to their public image, they were not riverboat gamblers throwing their money around with reckless abandon. Rather, they invested in companies and industries that merely seemed excessively risky because others simply didn't recognize the underlying situation.
"One thing I know for sure: The assessment of opportunity is an art. There have been many examples in my career where the information was available to everybody. But why was I able to see that opportunity--and the rest of the world didn't--I don't know. And by the way, the rest of the world didn't see it until long after we were up and running."
Example: Barges
In 1979, the federal government passed an investment tax relief to encourage the construction of barges with a 25-year lifespan. "Well, as you might expect," Zell explains, "this resulted in too many 25-year barges being built, glutting the market. So for the next 25 years the business was just horrible. But we figured that 1979 plus 25 was 2004, when that huge glut of barges was going to be taken out of commission. So if you could get control of that industry before the original supply finally shrank, you'd do pretty well. So we got into the business when everyone else was getting out, and when 2004 came around, we were looking pretty good."
Source: LSAmagazine, University of Michigan, Fall 2007