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We have argued recently that since almost nobody is worried about inflation, there are wonderful opportunities for investments which would benefit from the crowd being wrong. One of the all-time great investors in these inflation-oriented assets is Chicago’s Sam Zell. Sam is affectionately called “The Grave Digger” because he has amassed a multi-billion-dollar fortune buying hard assets from distressed buyers.
Here is what he said on November 14, 2019 on Bloomberg TV comparing buying real estate assets in the disarray of the bank/savings and loan crisis of the early 1990s to buying today’s oil properties:
“Where (in real estate) you had empty buildings all over the place and few investors had cash to play. These oil properties look like that now.”
Most investors consider what Sam Zell does as very risky. He provides ownership capital to projects in distress. Warren Buffett describes this by saying, “What the wise man does at the beginning, the fool does at the end.” Zell attempts to get in somewhere around the bottom when it appears that meritorious income-producing property is being left for dead. Hence the nickname, “The Grave Digger.”
Sam’s latest investment arena is buying the income streams of oil properties in Colorado, California and Texas. He said oil companies are preempting downside risk by obtaining capital from him and giving him incredibly attractive terms. He points out how big the void in capital is available to the energy industry, specifically oil. We have argued this shows up in the percentage of the S&P 500 Index which is invested in energy (see chart below):