Don’t Just Look At The Financials
Zell says investors should always study a company’s key assets, not just its financial statements. As a private equity investor, Zell has the opportunity to take a hands-on role in a company’s management and operations. But every shareholder should dig deeper into a company before investing. It’s not enough to know sales and profit margins. Always ask: Who are the managers, and what is their motivation? Who are the competitors? Who are the customers? What are the regulatory and/or political hurdles facing the industry?
Invest In Companies With Staying Power
Zell requires that companies he invests in have “staying power”–in other words, that there will be continuous future demand for their product. He particularly likes situations where he does not have to spend any money on marketing because consumers already have a need for what is being offered. “The demand for my product should be facilitated by other people’s consumption.”
Management Should Always Be Aligned With Shareholders
Zell demands that management be aligned with shareholder interest. At its most basic, this means that management should own large positions in the company’s stock. Still, Zell cautions, “Management that is obsessed with stock price is worrisome. I want them to obsess about the business,” he says. Zell also recommends avoiding companies that have anti-takeover devices. “As someone responsible for a public company, I’m responsible for the public’s capital. If someone comes along and wants to buy it at the right price, why not?”
Think Long Term
If you are going to invest in a company, you should always be in it for the long haul. “When you own a company and the company is doing well, then keep going. You don’t make exponential profits by going short.”