Each day, the United States edges closer to potential financial disaster: the fiscal cliff. If the U.S. falls off in January, the result would be a dramatic increase in taxes and drastic cuts in federal programs.
“I think that the fiscal cliff is something we all need to worry about,” Sam Zell told students and alumni at a Nov. 13 discussion. “And I think we need to worry about it because we might go over it, and we need to worry about it because we might not go over it.”
Zell—the founder of Equity Group Investments and the benefactor of Wharton’s Samuel Zell and Robert Laurie Real Estate Center—argued that Congress shouldn’t just “kick the can down the road again.” He argued that there is only one solution.
“You can’t cut expenses enough, and you can’t raise taxes enough. The only thing you can do is grow, and in order to grow, you must have confidence,” Zell stated.
As an investor, Zell has found the potential for growth in emerging markets, including the BRICS nations—Brazil, Russia, India, China and South Africa.
“I think these countries have the population growth [and] demographic power to be serious players in the future,” explained Zell, who also cautioned that local infrastructure, including financial exchanges in addition to roads and bridges, may be lacking.
For this reason, Zell argues, any investor should do his or her research on the country in question and become aware of the risks they take on by investing there. Zell and his team researched Brazil for five years before investing. He also advocates that investors find a local partner to help navigate the new environment.
“When you enter the emerging markets, you are making a very definitive decision of trading growth for the rule of law,” Zell said.
Zell’s investments throughout his career have always been dictated by facts.
“We suffer from knowing the numbers,” he said. “We can never join everybody else when everyone else gets excited and revved up because we know too much.”
After more than four decades in the industry, the “reformed” lawyer now spends his days looking at higher-level strategy.
“I’m a unique character because I’m the chairman of everything, and CEO of nothing. I literally, day to day, operate nothing. All I do is spend my day responding to my investment professionals,” he said.
And, of course, speaking to Wharton students and faculty. Zell explained his motivation for coming to campus: “I figured that the students were so inundated with academics that they need some reality.”