SHLD?

[Partner24]

Henry Singleton?

 

I second that.

 

As for one of the best long term stock investor of our times, I would say Shelby C. Davis.

 

As for one of the best conglomerate builder of our times, I would say Brian Joffe.

 

[rogermunibond]

I guess everyone just skips over the obvious choice --  Carlos Slim Helu.  Not many know his story, I guess, being south of the border.

[rmitz]

Henry Singleton?

 

I second that.

 

As for one of the best long term stock investor of our times, I would say Shelby C. Davis.

 

As for one of the best conglomerate builder of our times, I would say Brian Joffe.

 

The one thing that really surprised me about Shelby Davis was that he really used a ton of leverage.  If there had been a downturn towards the beginning of his investing career it could have been a very different story.

[twacowfca]

Henry Singleton?

 

I second that.

 

As for one of the best long term stock investor of our times, I would say Shelby C. Davis.

 

As for one of the best conglomerate builder of our times, I would say Brian Joffe.

 

The one thing that really surprised me about Shelby Davis was that he really used a ton of leverage.  If there had been a downturn towards the beginning of his investing career it could have been a very different story.

 

 

 

Yes, but he was not always subject to inflexible margin calls because he became a broker/dealer and NYSE seat holder fairly early in his career.    :)

[Liberty]

http://www.google.com/url?sa=t&source=web&cd=1&ved=0CBIQFjAA&url=http%3A%2F%2Fwww.amazon.com%2FDistant-Force-Teledyne-Corporation-Created%2Fdp%2F097913630X&ei=yWZcTcjpAY6ctweCtLmCDA&usg=AFQjCNHzc_fqgmhH-pMYWG_zYxAj7PvWXQ&sig2=uoXkb_mKTG3Em1C8OA9CGA

 

Amazon.com: Distant Force: A Memoir of the Teledyne Corporation

Biglari has read the book and references it interestingly enough.

 

How would you rate that book? Worth reading? Well written? Good story?

 

The man's life definitely seems interesting, but that doesn't mean that a book about it will be, so I'd love your feedback (and if anyone else has read it, I'd love to hear your thoughts)...

[Myth465]

Well I read half of it 6 months ago and havent found my way back to it. I think its a must read as an investor but would prefer an audio book. The best investing book hands down is Roger Lowenstiens the making of an american capitalist. I couldnt put that thing down.

[Guest Bronco]

Myth, I agree on lowenstein.  Great read.

 

Not really a Jim Cramer fan but his first book was very good (street addict) and written with humility.  Gives much credit to his wife.

 

Also thought Rigged was good, maybe a little Grisham.

[rogermunibond]

http://www.google.com/url?sa=t&source=web&cd=1&ved=0CBIQFjAA&url=http%3A%2F%2Fwww.amazon.com%2FDistant-Force-Teledyne-Corporation-Created%2Fdp%2F097913630X&ei=yWZcTcjpAY6ctweCtLmCDA&usg=AFQjCNHzc_fqgmhH-pMYWG_zYxAj7PvWXQ&sig2=uoXkb_mKTG3Em1C8OA9CGA

 

Amazon.com: Distant Force: A Memoir of the Teledyne Corporation

Biglari has read the book and references it interestingly enough.

 

How would you rate that book? Worth reading? Well written? Good story?

 

The man's life definitely seems interesting, but that doesn't mean that a book about it will be, so I'd love your feedback (and if anyone else has read it, I'd love to hear your thoughts)...

 

The book is basically a play by play of what Singleton did at Teledyne.  It's recounted by one of his colleagues at the company.  Not a great story, not particularly well written, but accurate details.  So good for understanding what he did.  Plus, there's a CD with the financials included.  At least the copy that I bought had it.

[Myth465]

I would highly recommend a manual of ideas interview and summary of Singleton as a nice alternative. I am sure you can find it if you search the web.

[Liberty]

Thanks for the feedback. What I'm really trying to get my hands on is Andrew Kilpatrick's Permanent Value 2010, but amazon is out. Is it a sign that the 2011 edition is coming soon? Does he release one every year in April?

 

I emailed him, but never heard back.

[mevsemt]

With the recent out-of-left-field CEO appointment I thought it might be a good time to revive the SHLD discussion - I'd love to hear what this board thinks.

 

Also, I just wrote a post on my blog discussing SHLD's high short interest, check it out here if you're interested (and feel free to poke holes!).  http://mevsemt.blogspot.com/2011/03/short-analysis.html

[Guest Bronco]

FY2011 was bad for FCF.

 

I wouldn't pay more than $60 for this company.

 

I think the magic of Eddie Lampert is dead until he does something special.  I don't see how FCF will be any better for FY12 (next 10 months or so). 

[zarley]

Yeah, 2011 was a little ugly.  Declining FCF resulted mostly from higher pension costs and increasing working capital.  They've noted that the pension cost in the next year or two will be as much or worse than FY 2011.  But, I think the changes in working capital should return to a more neutral level.  Even if you added some of that back in to the results the FCF would be well below the results of the past few years.  So, at the end of the day, the results from operations need to improve for cash flow to get back where it needs to be to support the current valuation.

 

$60 is about where adding to shares looks attractive to me as well.  My average cost is below that, but over the last couple years I've bought a little near $60 and sold a little over $100.  In between, I just hold and wait. 

 

As for Lampert's "magic" I'm not sure what that's supposed to mean.  I think any thoughts of SHLD turning into a significant investment vehicle for Lampert are pretty much dead.  I think the plan is still to try and turn SHLD into a profitable $30-$40 billion retailer instead of a money losing $50 billion retailer.  He's not done pruning, and the result isn't certain, but magic isn't required.

[Guest Bronco]

Zarley - I 100% agree.

 

Nothing but a retailer trying to generate FCF.  By magic, I didn't mean I was annointing him as a world class magician.  However, for a long time there was some "aura" that he was creating a real estate empire or an investment vehicle as you suggested or something else.

 

It is a retailer, a not very pleasant one, but maybe a decent investment at the right price.

[biaggio]

Sears Canada pushes deeper into digital age

 

http://www.theglobeandmail.com/globe-investor/sears-canada-pushes-deeper-into-digital-age/article1994458/

 

"introducing a new web tool in stores to allow shoppers to try on fashions and model them for friends or family on wide in-store screens.

 

The department-store retailer is rolling out other online capabilities, such as allowing customers to design their own custom furniture on the Web. And it’s looking into allowing shoppers to use their smart phones at the checkout and to compare products and prices with those at rivals."

 

At least now they seem to be tryin.

[EdWatchesBoxing]

Sears Canada pushes deeper into digital age

 

http://www.theglobeandmail.com/globe-investor/sears-canada-pushes-deeper-into-digital-age/article1994458/

 

"introducing a new web tool in stores to allow shoppers to try on fashions and model them for friends or family on wide in-store screens.

 

The department-store retailer is rolling out other online capabilities, such as allowing customers to design their own custom furniture on the Web. And it’s looking into allowing shoppers to use their smart phones at the checkout and to compare products and prices with those at rivals."

 

At least now they seem to be tryin.

 

Interesting, but Sears Canada isn't the problem at Sears holdings. Like others have said, just continue cleaning out the waste in the US and the numbers will reflect the clean up.

[schin]

Interesting, but Sears Canada isn't the problem at Sears holdings. Like others have said, just continue cleaning out the waste in the US and the numbers will reflect the clean up.

 

What about Sears Canada makes it a better run company? Is the competitive landscape that much different in Canada? Competitors weaker?

 

Considering Sears Canada is a better run retailer, is it being used as a proof of concept for Sears US?

 

Also, who runs the pension funds for Sears Holding? Does Eddie run it in one shape or form? If so, with his returns and a good market, it could becoming overfunded in the near future.

 

Thoughts?

[turar]

I think the competitive landscape in Canada is significantly weaker.

[EdWatchesBoxing]

I don't know if it's better run, but the results are definitely better with Sears Canada. Maybe their offerings are different enough that HBC is their

main competitor and Wal-mart doesn't affect them as much. So like Turar said, it's easier for Sears in Canada to make money.

 

I've heard that some Sears stores in the US are in really bad condition, but I think it's different up here. I don't mind shopping at Sears stores in the Toronto area.

[schin]

I think the competitive landscape in Canada is significantly weaker.

 

Hmm.. maybe, Eddie Lampert should go to the least competitive landscapes and pummel the competition.  Having said that, do you think it's only a matter of time, where the "game" is stepped up by Walmart/Target and other competitors?

 

The comment above say the business model is still flawed, but it's like in the land of the blind, the one-eye man is king. It's only a matter of time before great competition comes to Canada, right?

[ragnarisapirate]

I think the competitive landscape in Canada is significantly weaker.

 

Hmm.. maybe, Eddie Lampert should go to the least competitive landscapes and pummel the competition.  Having said that, do you think it's only a matter of time, where the "game" is stepped up by Walmart/Target and other competitors?

 

The comment above say the business model is still flawed, but it's like in the land of the blind, the one-eye man is king. It's only a matter of time before great competition comes to Canada, right?

 

Don't Warren and Charlie have something to say about this? Something to the effect of upgrading plants or making a product line more efficient doesn't do much for a competitive advantage in the long run, since competitors can come in and do the same thing?

 

Don't get me wrong, I'm not writing sears off, just saying that they will probably never be wmt or tgt; if purchased at the right price, every company can be a good deal.

[schin]

I think the competitive landscape in Canada is significantly weaker.

 

Hmm.. maybe, Eddie Lampert should go to the least competitive landscapes and pummel the competition.  Having said that, do you think it's only a matter of time, where the "game" is stepped up by Walmart/Target and other competitors?

 

The comment above say the business model is still flawed, but it's like in the land of the blind, the one-eye man is king. It's only a matter of time before great competition comes to Canada, right?

 

Don't Warren and Charlie have something to say about this? Something to the effect of upgrading plants or making a product line more efficient doesn't do much for a competitive advantage in the long run, since competitors can come in and do the same thing?

 

Don't get me wrong, I'm not writing sears off, just saying that they will probably never be wmt or tgt; if purchased at the right price, every company can be a good deal.

 

Yes, I remember that comment too. I believe it was said in terms of Berkshire Hathaway and new looms and plant equipment. Essentially, that investment pays for a little bit, but then competitors build similar plants and at times, get newer equipment at lower prices.

 

It's not a sustainable model to keep investing in equipment. That's why he likes See's candies, which has relatively low capital investments and product is not commoditizes since you wouldn't spend 50 cents less for a box of Valentines day candies for your sweetie.

 

What is interesting is WalMart's model has been known for 40 years, yet it continues to survive. I believe it's the culture of being the low cost provider and thought leadership. If you have to re-invest to keep up with the Jones, your business model has to be top dog to eck out every ounce of profit. Examples being Intel and Walmart. Their cost structure keeps competition alive, yet at bay.

 

Regarding Sears, it's not the best in class, yet is the business model relevant to survive as a #2, #3, or #4.  Eddie just needs it to be cash flow positive and not herromage money (a la Berkshire Hathaway in the early days)  From the outside, I think it can self sustain and "buy time" for a redeployment into other businesses.

 

Please note Eddie bought Sears at like 20 cents on the dollar... If he gets a return of 2 cents per year -- based upon his original cost basis, he's getting 10%.

 

At 80 cents, you're not feeling so good.

[Guest Bronco]

The difference between SHLD and early BRK is that WEB took profits from the textile business and reinvested in other businesses.

 

Do you feel ESL will do the same?  There is really no indication of that.  Do you think it is wise to starve the business to simply buy back shares? 

 

I don't know the answers to all these questions.  I just wonder if they starve the stores, which I am fine with, is the next best investment of capital the shares whereby the the underlying assets include the shitty stores?

[turar]

Hmm.. maybe, Eddie Lampert should go to the least competitive landscapes and pummel the competition.  Having said that, do you think it's only a matter of time, where the "game" is stepped up by Walmart/Target and other competitors?

 

The comment above say the business model is still flawed, but it's like in the land of the blind, the one-eye man is king. It's only a matter of time before great competition comes to Canada, right?

 

There's no Target in Canada. It just recently bought Zellers chain from HBC and now plans to enter Canada soon, and there was a lot of hoopla about it and how it's going to affect Canadian retail environment. In Canada, prices are generally higher, and selection poorer across the board, so yes, it's easier to make money for Canadian retailers. When you enter today's Zeller's or HBC stores, they're really not that much different or better than Sears stores.

[schin]

The difference between SHLD and early BRK is that WEB took profits from the textile business and reinvested in other businesses.

 

Do you feel ESL will do the same?  There is really no indication of that.  Do you think it is wise to starve the business to simply buy back shares? 

 

I don't know the answers to all these questions.  I just wonder if they starve the stores, which I am fine with, is the next best investment of capital the shares whereby the the underlying assets include the shitty stores?

 

I have 2 friends that worked at Sears and been in meetings with Eddie. One, in terms of starving, what investment do you think Eddie should make at Sears? I've been to the stores lately and they're clean, well-lit, and personally, a bit overstaffed.  Am I enamored by the product mix? No. Do I fear for my life when I walk in? No. Are there people in there? Yes. How can Eddie draw in more people without giving away stuff? No clue. Even if this "subpar" shopping experience, does it make money and have people buying items. Suprisingly, yes.

 

I don't know of any capital/store investment that he needs to make. There's no fat pitch right now that says.... If Eddie invested 200 million, it would make the customer experience so much better and return 30% on capital. He's just treading water until something in the R&D data shows up.

 

From my colleagues, they mentioned he's investing in a lot of small R&D projects in data warehouses, myGofer, Customer Loyality program, also piloting stores-within-stores. (i.e. Forever 21)  Have any of them been earth-shattering -- no. But, it does not mortage the house.  And if they show promise, I'm assured he'll double down big.

 

For those stores that don't return their ROIC, I appreciate him closing them to conserve capital. Although, it reduces footprint, it's wasted footprint. Why be big for sake of being big. He is not building new stores. He's reducing footprint to his core -- which is the proper strategy to employ.

 

As for buying shares, Eddie probably knows the intrinsic value of the core stores -- if he needs to circle the wagons and go with his top stores and the amount of CF they will provide. I still think it'll be profitable. Right now, we're debating about what he's doing with his extra cash flow. There's a lot of company, which would kill for positive CF.

 

His stock purchases show the shares are discounted over what he considers to be his best investment options available to him. I would pay off his debt, but he did a lot of that already and his discount rate is so late... the shares are probably better investments.