$72.21
-1.40 (-1.90%)
Sears Holdings Corp (SHLD)
CAPS Rating:
The Company is a broadline retailer. It currently conducts its operations in three business segments: Kmart, Sears Domestic and Sears Canada.
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Lampert, Margin-of-safety, real estate, brand liquidation, investment vehicle, mini-berkshire, early buffett
Buffet invests in VIABLE businesses. Nothing about this glued-together kludge of poorly-run retailers says viable, even in a good economy.
Kristm, What stands out to you as the biggest reason SHLD will is not, and will not be, viable?
While I was mostly just making notes for myself, I will respond to you. When I said early Buffett I meant that Lampert investing in sears looks a lot like Buffett buying up Berkshire early in his career. Look past short term retailer and more towards long term investment vehicle. Either way real estate and brand liquidation provide large enough margin of safety.
Also it is important to note what Buffett believes his worst investment to be. Can you guess?? He says that originally purchasing Berkshire Hathaway was his worst investment. Now that turned out pretty well for everyone involved. I am not saying for sure that SHLD will be the berkshire of the future (other possibilities include: MKL, LUK, GLRE, and some even say GOOG) I think that the Margin of Safety is so great that you are a fool to not invest. Every person who is choosing this to underperform on caps only says that Lampert can not turn this struggling retailer around. For the most part I agree with all of this. But what these commentators fail to realize is the capital allocation abilites of Mr. Lampert. Lest you forget he has compounded capital at 30pct per year for 20+ years. At current prices you are getting paid (and then some) for his RIDICULOUS record of superior capital allocation. I will not pretend to know FOR SURE if Eddie will be the next Buffett. But what I do know is when Mr. Market offers you an opportunity to buy into a business with a master allocator at the helm for NO COST you should take advantage. For I am sure this will only come along a few times in our lives (Ironically, you can pick up a few businesses right now with this characteristic). I, like all intelligent investors, believe that the three most important words when looking at an investment are MARGIN OF SAFETY. Particularly, significant levels of margin of safety (I generally prefer something >50pct). When looking at Sears this margin of safety is HUGE (Without even taking into account E.L's skills). Real Estate (even in this depressed enviornment, which surely will not last forever---Also think 80/20 rule, where 80 pct of value is in 20pct of the real estate--I am looking at you sears auto parts locations scattered in HIGH VALUE SOCAL) and brand liquidation (including landsend, craftsman, etc) provide AMPLE downside protection and thus margin of safety. Investors at these price levels will REAP ENORMOUS GAINS. Some have compared the opportunity as a CHEAP way to get into a hedge fund. Not any hedge fund. Lampert has run one of the premier investment partnerships of all time, ESL Investments. As music and hollywood industry mogul David Geffen has been widely quoted as saying, "Eddie has made me infinately more money than any hollywood deal has ever produced." (Geffen provided Lampert will 200 mill seed money very early in his career. While hedge funds have gotten a bad name is the past year I urge the caps community to dig deeper. Lampert is a value investor and is the closest thing to Buffett his generation will likely see.While Sears is indeed a POOR retailer, I urge all of you to look past this. Indeed early berkshire was a POOR textile business. Intelligent investors see that E.L. is simply running sears as a retailer until their is significant harm in the yearly cash flows. Also, while Lampert is a capitalist, he still feels that he has a responsibility to current employees to run the business until all prospects are negative. Until then, Lampert will continue to buy back shares at undervalued prices, thus increasing current shareholders ownership interest. This is a cash cow for lampert and he will milk it until it can no longer be milked. When Lampert decides to shut down the doors look for cash to be deployed to hugely profitable investments in other independent businesses. I would not be suprised if he bought up some kind of well run insurance company to help provide him with a costless float to invest in more profitable opportunities. All of this will help to increase SHLD's intrinsic value per share year in and year out, therefore shareholders will get rich for the right reasons: Because their investment is DIRECTLY tied to the future success of the business. With Lampert at the helm I am confident in the above outcomes.As a side note, I urge everyone to go read Eddie's latest letter to shareholders. In it, he provides a tremendous meditation on the current financial and economic crisis. He includes reasons why we got there and how companies should move forward. Make no mistake, he knows what he is doing. After reading this letter, I have 110pct confidence in Lampert's ability to compound my wealth for the indefinite future.
Holy heck, what's with the Lampert worship? Every green-thumb comment on SHLD reads like a middler school kid writing about a girl they want to go out with.. Lampert has owned Sears for, what, almost five years now? And ran K-Mart for a while before that...The company loses money year in and year out, they keep closing down stores, the real estate isn't selling, and the whole thing just reeks of desperation. Land End is doing OK but that chain won't save the whole.The stores have few customers, they're stuck in the past with imaging and product lineup, K-Mart stores are usually filthy and cluttered... This entire company is a joke.Lambert isn't Buffet, and SHLD isn't BRK. He's lost billions upon billions in the last two years, a lot of his record earnings from the nineties have been "reversed" due to some accounting shenanigans, and he was voted worst CEO in 2007 by Morningstar. Come drool over Eddie Lampert when he accomplishes something besides moving around deck chairs on the Titanic.
"Holy heck, what's with the Lampert worship? Every green-thumb comment on SHLD reads like a middler school kid writing about a girl they want to go out with.. Lampert has owned Sears for, what, almost five years now? And ran K-Mart for a while before that..."Every thumbs down comment on caps simply says that the retail side of Sears can not be turned around. What you people are not seeming to grasp is that our thesis does not rest on Lampert turning Sears around. Hell, I have long been a proponent of Lampert allocating operating cash flow towards more profitable investments outside of the retail industry. And with the depressed enviornment we are expieriencing now in the equities market, I would not be suprised if we see Lampert allocating some capital into some attractive undervalued opportunities this year. You want to know why you see all of the Lampert worshipping in the caps community? It is because he is one of the most successful capital allocators of all time. His long-term record beats that of Buffett and Graham. The man has compounded capital at 30pct for almost three decades! You better believe we worship him. And it gets us that much more excited that people like you have such a short term bias when looking at this company. Thank you for allowing us to buy into this business at cheaper prices.(2) "The company loses money year in and year out, they keep closing down stores, the real estate isn't selling, and the whole thing just reeks of desperation. Land End is doing OK but that chain won't save the whole.The stores have few customers, they're stuck in the past with imaging and product lineup, K-Mart stores are usually filthy and cluttered... This entire company is a joke."Again, you need to re-look at my thesis. Right now SHLD is trading at a discount to book value. Also, I don't know where you got that SHLD is loosing money year in and year out. Look at the financial statements. While profits are certainly decreasing significantly, look at the current economic enviornment! Every company in the world is getting squeezed.Basically I think that the liquidation value of the company provides significant margin of safety. Also, throw in Lampert's allocation skills at no costs and you have a no brainer. Look, I know this is one of the most hotly debated stocks over the last few years. But all you have said is that Sears sucks as a retailer. My thesis has nothing to do with this. I urge you to study up on lampert, stop listening to the noise on the street, and start thinking for yourself.(3) "Lambert isn't Buffet, and SHLD isn't BRK. He's lost billions upon billions in the last two years, a lot of his record earnings from the nineties have been "reversed" due to some accounting shenanigans, and he was voted worst CEO in 2007 by Morningstar. Come drool over Eddie Lampert when he accomplishes something besides moving around deck chairs on the Titanic."You're right Lampert isn't Buffett and SHLD is no early berkshire. Lampert has a superior record to buffett and SHLD produces way more operating cashflow then berkshire did as a textile business. You did not even address anything I talked about, which makes me think you did not read it. Buffett ran the textile business for 15 years at an operating loss. Come on man, accounting shenanigans? You should not talk about finance if you don't understand what you are talking about. Let me help to educate you---Lampert made billions from 2004-2006 because he invested in good businesses at cheap prices. These billions came from the 20pct cut he takes when he outperforms the market. And, like any good business man who understands the power of compounding and putting your money where your mouth is, he simply put his 20pct back into the fund. This is called "carried interest." No doubt his portfolio has gotten crushed this year and those earnings have been semi "reversed" as you say. However, it is important to remember that Lampert only believes he can beat the market over the long term. Over one and two year periods anything can happen. And financial armegedon did indeed happen. His long term performance has not significantly suffered, but his net worth has. Sadly he is now only worth 1 Billion.
LRM - I agree with everything you've said. Fortunately others don't understand, which keeps the stock price cheaper for us - though, I do think we may see a drawn out short squeeze as SHLD buys back stock.