Grave Dancer
The Investor's Podcast Network
The Investor’s Podcast Network is a business podcast network. Our main show “We Study Billionaires” has 150M+ downloads.
By Matthew Gutierrez, Weronika Pycek, and Shawn O'Malley · May 23, 2023
*LinkedIn newsletter is posted at a one-day delay.
???The debt ceiling deadline is looming.
What even does the debt ceiling mean? The debt ceiling or debt “limit” is a cap on how much debt the federal government is allowed to accumulate.
And in short, the U.S. government is close to being unable to make payments on the country’s debt due to this debt issuance limit. Treasury Secretary Janet Yellen?reaffirmed?June 1 as the hard deadline for the U.S. to raise the debt ceiling or risk defaulting.
— Matthew
?Here's the rundown:
How often do you read to the end of this newsletter?
Today, we'll discuss two items in the news:
All this, and more, in just?5 minutes to read.
POP QUIZ
How many times has Congress increased or suspended the debt limit since 1960?
BROUGHT TO YOU BY
Are you still leaving alpha on the table?
Gaining access to the right financial intelligence platform can make or break your quarter.
Sign up for a trial today to beat FOMO and move faster than the market.
IN THE NEWS
???PacWest Surges after Loan Portfolio Sale (CNBC)
Banking crisis update: Determined not to go under like its regional bank peers,?First Republic,?Silicon Valley Bank, and?Signature,?PacWest?has, against the odds, clung to life (so far).
The troubled lender had lost some?75%?of its market value earlier this year. Investors worried it would be the next victim of?depositor flight, aka?bank runs,?following the?Federal Reserve’s rate hiking campaign, generating?substantial?paper losses?on banks’ bond investments.
Why it matters:
The news comes less than two weeks after PacWest’s stock plunged?23%?following a report that its customer deposits, banks’ key funding source, had dropped?9.5%?($1.5 billion) in the first week of May.
To fund its shortfall on deposits, PacWest has secured cash via loans from the Fed against?$5.1 billion?worth of assets, in addition to a borrowing arrangement, or financing facility in Wall Street parlance, worth?$1.4 billion?with Atlas SP Partners.
??Heineken Shakes Up U.S. Light Beer Scene?(Reuters)
While investors evaluate the implications of the?Bud Light backlash?on the global brewing giant?Anheuser-Busch, its Dutch competitor?Heineken?is making strategic moves by investing?$100 million?in marketing, introducing a new light beer targeted at the American market.
Notably, the established "light" beer brands in the U.S. market noted a decline over the past six years. According to Euromonitor International, the drop in sales volumes has been caused by the rise of craft beers and hard seltzers.
But light beers, including?Miller Lite?and?Coors Light, hold a significant share, comprising almost half of the?$118 billion?U.S. beer market in 2022.
Why it matters:
Although Anheuser-Busch (BUD) retains dominance in the “light beer” category, led by Bud Light, it marked a?20%?sales drop and a?10%?stock decline since the backlash began.
Heineken, the world's second-largest brewer, aims to transcend its fourth-place position in the U.S. market through a strategic marketing campaign of?Heineken Silver, introduced in late March.
MORE HEADLINES
???Nearly 20 million homes are?behind?on their utility bills.
????Netflix password sharing?crackdown?rolls out in the U.S.
领英推荐
????Virgin Orbit’s launch business, once valued at $3.7 billion,?sold?for parts.
LESSONS FROM REAL ESTATE LEGEND SAM ZELL
The Grave Dancer
Sam Zell, the real estate investor who died last week at 81, was an entrepreneur by age 12. In his Chicago hometown, he found Hugh Hefner’s new Playboy magazine on newsstands, bought copies for $0.50, and peddled them to neighborhood kids for $3 each.
He majored in political science at the University of Michigan, graduating in 1963. In Ann Arbor, he managed a 15-unit apartment building in exchange for free room and board.
Mr. Zell stayed in town for law school, though his classes were an afterthought to his real estate business.
In 1965, he bought a three-unit apartment for $19,500, putting down $1,500 that he had made from managing other apartments.
“I repainted the interior, replaced all the furniture, and doubled the rents,” he wrote in his?memoir. “A couple of months later, I bought another building nearly next door, and then I bought the house in between.”
For years, he and a friend bought cheap homes, fixed them, then rented them to fellow students. He was always looking for a bargain and how to buy an asset and then sell it for more than he paid.
That experience in college led to what made him a billionaire: Buying financially distressed apartment buildings, office towers, and other properties, then raising rents after fixing them up.
“Some might see buying and creating value from others’ mistakes as a form of exploitation, but I see it as giving neglected or devalued assets, in any industry, new life,” says Zell. “I’m not claiming to be altruistic — just optimistic and confident that I can turn those assets around.”
He later called himself “the grave dancer,” a reference to his philosophy of finding opportunities where others saw only stress.
In honor of the late investor, here are a few more stories and lessons from his career in real estate.
Play hard, be kind
Zell was known to shock others with expletives, insults, and lace speeches with profanities.
But then he’d send hundreds of music boxes as gifts to acquaintances during the holidays.
Sales
Sales departments are often distinct business entities, but Zell believed everyone is in sales.
Said Zell: “Arthur Miller did a huge disservice to entrepreneurship by writing Death of a Salesman. Salesmen are not scummy and dirty – people you would not want to ring your doorbell. In fact, all successful entrepreneurs are salesmen. Selling is a highly underrated skill in life.”
Simplicity
Many successful leaders, entrepreneurs, and investors aren’t known for complicated strategies or formulas. They kept it simple, stuck to relationships, and kept learning as much as possible. Over time, the rewards compounded.
Zell believed business schools emphasized the wrong things, namely formulas and single answers to questions.
“It starts and ends with a simple idea,” he once said. “Don’t get confused by education: Simpler solutions are often better.”
Risk
Zell knew risk management was critical, but you must take on some risk to perform well. It's virtually impossible to outperform without being a contrarian sometimes, without taking risks.
“The risk/return ratio is probably the most significant determinant of success as an investor,” he said. “Measuring and gauging the risk-reward ratio is the biggest (margin of) safety issue every investor has.”
Mistakes
One of Zell’s biggest mistakes was his $8.2 billion purchase of the Tribune Company, which owned the Chicago Tribune and Los Angeles Times, in 2007. The company filed for bankruptcy during the Global Financial Crisis in late 2008.
The company, already reeling like other newspapers from internet disruption, was saddled with a big problem: a staggering amount of debt.
Supply & demand
Said Zell: “I would tell you whatever business I’ve been in — real estate, barges, rail cars — it’s all about supply and demand. When there is no supply, real estate performs very well. Almost without regard, within reason to the economic conditions. When there is oversupply, it doesn’t matter what’s going on, real estate is going to suffer.”
Dive deeper
Here’s Zell’s 2017 memoir,?Am I Being Too Subtle?
TRIVIA ANSWER
Congress has increased or suspended the debt limit?78 times since 1960, according to the Treasury Department.
SEE YOU NEXT TIME!
That's it for today on?We Study Markets!?
Enjoy reading this newsletter??Forward it to a friend.
All the best,?
P.S The Investor's Podcast Network is excited to launch a?subreddit?devoted to our fans in discussing financial markets, stock picks, questions for our hosts, and much more! Join our subreddit?r/TheInvestorsPodcast?today!
? The Investor's Podcast Network content is for educational purposes only. The calculators, videos, recommendations, and general investment ideas are not to be actioned with real money. Contact a professional and certified financial advisor before making any financial decisions. No one at The Investor's Podcast Network are professional money managers or financial advisors. The Investor’s Podcast Network and parent companies that own The Investor’s Podcast Network are not responsible for financial decisions made from using the materials provided in this email or on the website.