SHLDQ - Sears Holdings Corp

[Picasso]

^^ i disagree wholeheartedly

 

After i looked at chesapeake, a value trap, i put 50% of my net worth in an energy stock, that went up 4X from its low in early 2016.  There is no way i would have invested in that co if i didn't look at chesapeake.  Chesapeake essentially taught me what to look for and what to avoid. 

 

So much of what you said was wrong:

- Looking at value traps teaches you how to be a value investor

- Risk is not lower, gain is not higher with great business, that claim is beyond ludicrous.  Risk reward is based on price you pay vs the IV of the stock.

- I learn very little from growth/growth is lazy.  I learn more when companies are on the verge of bankruptcy, bc you have to look at all the angles while remaining focussed on what matters. 

 

Also you don't get 1 year multi baggers with growth.

 

Warren Buffett buys "great businesses" bc he has 1 trillion dollars and can't find multi baggers.  If Buffett only had a million today he would be balls deep in small multi baggers.  But he never preaches this bc he knows most people can't do this, and he doesn't want value pretenders copying him.

 

You guys stick to growth, and enjoy your 10% CAGR.  Lol at 10%.

 

+1, especially when you're making me imagine Buffett balls deep.

 

It's been tiring to listen to most investors focus on high quality businesses.  The "ROIC" epiphany is all the rage of late.  It's like if Buffett or Munger had a quote "the sky is blue," investors would suddenly build "mental models" around the sky being blue.  Munger made the comment that the best business in the world can keep reinvesting at high rates of return.  Isn't that common sense?  Instead we have a bunch of investors searching for high ROIC stocks trading for 40-50x earnings because they'll earn the ROIC over the long-term.  I think what's worse is that good quality businesses are tiny in number compared to the entire public security universe.  So you just end up filtering out tons and tons of interesting situations that can just as easily double or triple within a couple years. All in the name of not getting your hands dirty.

 

Plus Buffett has to talk to the lowest common denominator.  He made one "balls deep" comment when he said he knew he could compound 50% with a million.  There are a bunch of threads on here with people losing their minds on how he can't possibly mean that.  Or another where he jokes about buying GM at $33 and people are thinking he's buying out GM.  So yeah I think Buffett should keep talking to the lowest common denominator because useful tips aren't useful to the 1% of investors who can figure it out on their own and they can be potentially damaging tips to the other 99% that go balls deep in the wrong situations at the wrong time.

[enoch01]

^^ i disagree wholeheartedly

 

After i looked at chesapeake, a value trap, i put 50% of my net worth in an energy stock, that went up 4X from its low in early 2016.  There is no way i would have invested in that co if i didn't look at chesapeake.  Chesapeake essentially taught me what to look for and what to avoid. 

 

So much of what you said was wrong:

- Looking at value traps teaches you how to be a value investor

- Risk is not lower, gain is not higher with great business, that claim is beyond ludicrous.  Risk reward is based on price you pay vs the IV of the stock.

- I learn very little from growth/growth is lazy.  I learn more when companies are on the verge of bankruptcy, bc you have to look at all the angles while remaining focussed on what matters. 

 

Also you don't get 1 year multi baggers with growth.

 

Warren Buffett buys "great businesses" bc he has 1 trillion dollars and can't find multi baggers.  If Buffett only had a million today he would be balls deep in small multi baggers.  But he never preaches this bc he knows most people can't do this, and he doesn't want value pretenders copying him.

 

You guys stick to growth, and enjoy your 10% CAGR.  Lol at 10%.

 

+1, especially when you're making me imagine Buffett balls deep.

 

It's been tiring to listen to most investors focus on high quality businesses.  The "ROIC" epiphany is all the rage of late.  It's like if Buffett or Munger had a quote "the sky is blue," investors would suddenly build "mental models" around the sky being blue.  Munger made the comment that the best business in the world can keep reinvesting at high rates of return.  Isn't that common sense?  Instead we have a bunch of investors searching for high ROIC stocks trading for 40-50x earnings because they'll earn the ROIC over the long-term.  I think what's worse is that good quality businesses are tiny in number compared to the entire public security universe.  So you just end up filtering out tons and tons of interesting situations that can just as easily double or triple within a couple years. All in the name of not getting your hands dirty.

 

Plus Buffett has to talk to the lowest common denominator.  He made one "balls deep" comment when he said he knew he could compound 50% with a million.  There are a bunch of threads on here with people losing their minds on how he can't possibly mean that.  Or another where he jokes about buying GM at $33 and people are thinking he's buying out GM.  So yeah I think Buffett should keep talking to the lowest common denominator because useful tips aren't useful to the 1% of investors who can figure it out on their own and they can be potentially damaging tips to the other 99% that go balls deep in the wrong situations at the wrong time.

 

A lot of times it's hard to find a truly exceptional business, since they are so rare.  I'm talking about projecting high ROIC for a long time.  Probably easy to get fooled on those, mistakenly thinking you've found the next See's Candies.  Maybe we can call this type of situation a "quality trap".  I tend to think I'm too dumb to find the truly exceptional business (I'm certainly no Warren Buffett), therefore I keep my options open.  Otherwise I might get caught in a quality trap.

 

Sometimes the stocks of crappy companies can go up a lot.  The money is just as green.

[dyow]

^^ i disagree wholeheartedly

 

After i looked at chesapeake, a value trap, i put 50% of my net worth in an energy stock, that went up 4X from its low in early 2016.  There is no way i would have invested in that co if i didn't look at chesapeake.  Chesapeake essentially taught me what to look for and what to avoid. 

 

So much of what you said was wrong:

- Looking at value traps teaches you how to be a value investor

- Risk is not lower, gain is not higher with great business, that claim is beyond ludicrous.  Risk reward is based on price you pay vs the IV of the stock.

- I learn very little from growth/growth is lazy.  I learn more when companies are on the verge of bankruptcy, bc you have to look at all the angles while remaining focussed on what matters. 

 

Also you don't get 1 year multi baggers with growth.

 

Warren Buffett buys "great businesses" bc he has 1 trillion dollars and can't find multi baggers.  If Buffett only had a million today he would be balls deep in small multi baggers.  But he never preaches this bc he knows most people can't do this, and he doesn't want value pretenders copying him.

 

You guys stick to growth, and enjoy your 10% CAGR.  Lol at 10%.

 

+1, especially when you're making me imagine Buffett balls deep.

 

It's been tiring to listen to most investors focus on high quality businesses.  The "ROIC" epiphany is all the rage of late.  It's like if Buffett or Munger had a quote "the sky is blue," investors would suddenly build "mental models" around the sky being blue.  Munger made the comment that the best business in the world can keep reinvesting at high rates of return.  Isn't that common sense?  Instead we have a bunch of investors searching for high ROIC stocks trading for 40-50x earnings because they'll earn the ROIC over the long-term.  I think what's worse is that good quality businesses are tiny in number compared to the entire public security universe.  So you just end up filtering out tons and tons of interesting situations that can just as easily double or triple within a couple years. All in the name of not getting your hands dirty.

 

Plus Buffett has to talk to the lowest common denominator.  He made one "balls deep" comment when he said he knew he could compound 50% with a million.  There are a bunch of threads on here with people losing their minds on how he can't possibly mean that.  Or another where he jokes about buying GM at $33 and people are thinking he's buying out GM.  So yeah I think Buffett should keep talking to the lowest common denominator because useful tips aren't useful to the 1% of investors who can figure it out on their own and they can be potentially damaging tips to the other 99% that go balls deep in the wrong situations at the wrong time.

 

Back in this thread. 

 

100% on both those points bc of the logic. 

 

[ScottHall]

^^ i disagree wholeheartedly

 

After i looked at chesapeake, a value trap, i put 50% of my net worth in an energy stock, that went up 4X from its low in early 2016.  There is no way i would have invested in that co if i didn't look at chesapeake.  Chesapeake essentially taught me what to look for and what to avoid. 

 

So much of what you said was wrong:

- Looking at value traps teaches you how to be a value investor

- Risk is not lower, gain is not higher with great business, that claim is beyond ludicrous.  Risk reward is based on price you pay vs the IV of the stock.

- I learn very little from growth/growth is lazy.  I learn more when companies are on the verge of bankruptcy, bc you have to look at all the angles while remaining focussed on what matters. 

 

Also you don't get 1 year multi baggers with growth.

 

Warren Buffett buys "great businesses" bc he has 1 trillion dollars and can't find multi baggers.  If Buffett only had a million today he would be balls deep in small multi baggers.  But he never preaches this bc he knows most people can't do this, and he doesn't want value pretenders copying him.

 

You guys stick to growth, and enjoy your 10% CAGR.  Lol at 10%.

 

+1, especially when you're making me imagine Buffett balls deep.

 

It's been tiring to listen to most investors focus on high quality businesses.  The "ROIC" epiphany is all the rage of late.  It's like if Buffett or Munger had a quote "the sky is blue," investors would suddenly build "mental models" around the sky being blue.  Munger made the comment that the best business in the world can keep reinvesting at high rates of return.  Isn't that common sense?  Instead we have a bunch of investors searching for high ROIC stocks trading for 40-50x earnings because they'll earn the ROIC over the long-term.  I think what's worse is that good quality businesses are tiny in number compared to the entire public security universe.  So you just end up filtering out tons and tons of interesting situations that can just as easily double or triple within a couple years. All in the name of not getting your hands dirty.

 

Plus Buffett has to talk to the lowest common denominator.  He made one "balls deep" comment when he said he knew he could compound 50% with a million.  There are a bunch of threads on here with people losing their minds on how he can't possibly mean that.  Or another where he jokes about buying GM at $33 and people are thinking he's buying out GM.  So yeah I think Buffett should keep talking to the lowest common denominator because useful tips aren't useful to the 1% of investors who can figure it out on their own and they can be potentially damaging tips to the other 99% that go balls deep in the wrong situations at the wrong time.

 

Back in this thread. 

 

100% on both those points bc of the logic. 

 

 

I don't think either style is without merit. I'm probably as close to a hybrid style investor as you'll find on this forum. I own AMZN, GOOG and FB, but I also own OTC microcaps and community bank stocks that were very cheap when I bought them.

 

I sort of have the core holdings - MKL, GOOG, AMZN, FB for instance. Those have done pretty well for me in aggregate. Better than the market. But then I'll try to supercharge my returns with the more quantitatively cheap stuff as well.

 

It's worked pretty well since I've moved to this style. Last year I earned >25% and when I calculated a few weeks ago I was up about 11% for the year with a massive amount of cash drag. I don't double or triple my money like I used to in my teen years where I'd go all in on one or two value stocks (GGP, SSN), but I also don't suffer 70% drawdowns either.

 

I'm pretty happy with this style. I think a lot of value guys don't appreciate just how quickly some of these companies can grow, for how long. Some companies with sky high multiples are actually (and have historically been) very cheap. The economy is different than it was in the 1950s. Many of these businesses have effectively no capacity constraints on growth other than adoption within the broader population. FB doesn't have to spend years building new distribution centers to reach a greater chunk of the United States, for instance...

 

Obviously in theory there are capacity constraints to everything, but for some of these businesses, there just aren't from a practical perspective. This is a kind of unique phenomenon that's only really been going on for a couple of decades; historical valuation frameworks probably don't fully give credit to what these companies can do. At least in the hands of most.

 

That doesn't mean they're useless. There are lots of companies they do still fully apply to, and they're useful when looking at those businesses. But this is no longer a world - if it ever was - where one size fits all. I think learning new investing styles is only beneficial for most investors; take what makes sense and leave what doesn't.

[dyow]

You need to liquidate your FANG stocks, buy sears, and troll more.

[walt373]

I think deep value stocks often fail to live up to already-low expectations because the management of these companies cannot face the fact that their business is dying, and instead act like cornered animals. They try some value-destructive hail marys, like massively overpriced acquisitions (ex: HPQ) or throwing money at long shots to turn the business around (ex: brick and mortar retailers building new online biz to compete w/ Amazon). The static worst-case valuations done by deep value investors would work a lot more often if not for management rolling the dice with the company's earnings and equity. Most of these dying businesses should accept their fate, pay out all earnings as dividends, and promptly liquidate when losses start. Retail turnarounds were difficult back in the day and that was before Amazon showed up. And unlike your typical near-bankrupt energy stock, these guys aren't selling a commodity that could rally 50% in a year and bail out the worst operators.

[Parsad]

This whole situation is interesting on so many levels.  Lampert was the next Buffett about 10 yrs ago when SHLD stock was riding high.  The businesses of SHLD did poorly and have gotten worse.  Lots of bulls who bet on Lampert have lost their shirt. 

 

The overriding consideration is that Sears and Kmart have higher prices for goods than competitors with no easy way to fix their cost structure.  I don't think Sam Walton could do it.

 

Here is my take on Lampert.  I think he has a big ego, is arrogant and delusional and he doesn't know anything about running businesses for the long term.  Don't focus on someone's words where they say are rational a value investor etc - look at their actions they take in their business.  The stuff I have observed regarding SHLD has been poor operating decisions generally.  That has only likely accelerated the decline. 

 

A mansion and a megayacht named Fountainhead are also interesting tidbits.

 

LTM FCF about -$1.7b at SHLD.  That is some serious change.

 

And Lampert keeps putting up money in this thing.

 

I think SHLD will be blackened toast with rotten sardines on it.  Such is the taste of reality at times.

 

P.S.  I hate it when people use the term financial engineering.  Increasing profits with short term moves or taking on more debt that increases risk to the business is as far from engineering as can be.  An insult to engineering which is a noble profession.

 

+1!  Cheers!

[DooDiligence]

This whole situation is interesting on so many levels.  Lampert was the next Buffett about 10 yrs ago when SHLD stock was riding high.  The businesses of SHLD did poorly and have gotten worse.  Lots of bulls who bet on Lampert have lost their shirt. 

 

The overriding consideration is that Sears and Kmart have higher prices for goods than competitors with no easy way to fix their cost structure.  I don't think Sam Walton could do it.

 

Here is my take on Lampert.  I think he has a big ego, is arrogant and delusional and he doesn't know anything about running businesses for the long term.  Don't focus on someone's words where they say are rational a value investor etc - look at their actions they take in their business.  The stuff I have observed regarding SHLD has been poor operating decisions generally.  That has only likely accelerated the decline. 

 

A mansion and a megayacht named Fountainhead are also interesting tidbits.

 

LTM FCF about -$1.7b at SHLD.  That is some serious change.

 

And Lampert keeps putting up money in this thing.

 

I think SHLD will be blackened toast with rotten sardines on it.  Such is the taste of reality at times.

 

P.S.  I hate it when people use the term financial engineering.  Increasing profits with short term moves or taking on more debt that increases risk to the business is as far from engineering as can be.  An insult to engineering which is a noble profession.

 

+1!  Cheers!

 

I was in a Sears today to get a set of jumper cables & there was NOONE in the store but me & the employees (it reminded me of a K-Mart from 10 years ago but with higher ceilings...)

[randomep]

I think deep value stocks often fail to live up to already-low expectations because the management of these companies cannot face the fact that their business is dying, and instead act like cornered animals. They try some value-destructive hail marys, like massively overpriced acquisitions (ex: HPQ) or throwing money at long shots to turn the business around (ex: brick and mortar retailers building new online biz to compete w/ Amazon). The static worst-case valuations done by deep value investors would work a lot more often if not for management rolling the dice with the company's earnings and equity. Most of these dying businesses should accept their fate, pay out all earnings as dividends, and promptly liquidate when losses start. Retail turnarounds were difficult back in the day and that was before Amazon showed up. And unlike your typical near-bankrupt energy stock, these guys aren't selling a commodity that could rally 50% in a year and bail out the worst operators.

 

holy crap I just had a epiphany!  Lampert's Sears+Kmart is like Buffett's Berkshire Hathaway. Both men got their test, and seems like Lampert failed while Buffett escaped from it alive.  Both companies may turn out the same, dead in a few years. But Buffett never put the kind of dough like Lampert did.  Buffett used the Berkshire cash flow, but Lampert is using  Kmart/Sears as a money pit for his cash.  We shall see......

 

Forgive me if someone has drawn the same conclusion.......

[HalfMeasure]

I think deep value stocks often fail to live up to already-low expectations because the management of these companies cannot face the fact that their business is dying, and instead act like cornered animals. They try some value-destructive hail marys, like massively overpriced acquisitions (ex: HPQ) or throwing money at long shots to turn the business around (ex: brick and mortar retailers building new online biz to compete w/ Amazon). The static worst-case valuations done by deep value investors would work a lot more often if not for management rolling the dice with the company's earnings and equity. Most of these dying businesses should accept their fate, pay out all earnings as dividends, and promptly liquidate when losses start. Retail turnarounds were difficult back in the day and that was before Amazon showed up. And unlike your typical near-bankrupt energy stock, these guys aren't selling a commodity that could rally 50% in a year and bail out the worst operators.

 

holy crap I just had a epiphany!  Lampert's Sears+Kmart is like Buffett's Berkshire Hathaway. Both men got their test, and seems like Lampert failed while Buffett escaped from it alive.  Both companies may turn out the same, dead in a few years. But Buffett never put the kind of dough like Lampert did.  Buffett used the Berkshire cash flow, but Lampert is using  Kmart/Sears as a money pit for his cash.  We shall see......

 

Forgive me if someone has drawn the same conclusion.......

 

I've thought about the analogy between the scenarios quite a bit. Lampert is obviously well read and very aware of Buffett's philosophy - for some look-through, read some of his Sears Chairman's letters. There's still a chance for Lampert to come out alive, but I don't think SHLD will end up being his investment vehicle. Perhaps he originally planned to use Sears cash flows to invest in other ventures, but that has been tough slugging the past ~5 years, he likely underestimated how bad it would get and how fast it would get bad.

[giofranchi]

^^ i disagree wholeheartedly

 

After i looked at chesapeake, a value trap, i put 50% of my net worth in an energy stock, that went up 4X from its low in early 2016.  There is no way i would have invested in that co if i didn't look at chesapeake.  Chesapeake essentially taught me what to look for and what to avoid. 

 

So much of what you said was wrong:

- Looking at value traps teaches you how to be a value investor

- Risk is not lower, gain is not higher with great business, that claim is beyond ludicrous.  Risk reward is based on price you pay vs the IV of the stock.

- I learn very little from growth/growth is lazy.  I learn more when companies are on the verge of bankruptcy, bc you have to look at all the angles while remaining focussed on what matters. 

 

Also you don't get 1 year multi baggers with growth.

 

Warren Buffett buys "great businesses" bc he has 1 trillion dollars and can't find multi baggers.  If Buffett only had a million today he would be balls deep in small multi baggers.  But he never preaches this bc he knows most people can't do this, and he doesn't want value pretenders copying him.

 

You guys stick to growth, and enjoy your 10% CAGR.  Lol at 10%.

 

+1, especially when you're making me imagine Buffett balls deep.

 

It's been tiring to listen to most investors focus on high quality businesses.  The "ROIC" epiphany is all the rage of late.  It's like if Buffett or Munger had a quote "the sky is blue," investors would suddenly build "mental models" around the sky being blue.  Munger made the comment that the best business in the world can keep reinvesting at high rates of return.  Isn't that common sense?  Instead we have a bunch of investors searching for high ROIC stocks trading for 40-50x earnings because they'll earn the ROIC over the long-term.  I think what's worse is that good quality businesses are tiny in number compared to the entire public security universe.  So you just end up filtering out tons and tons of interesting situations that can just as easily double or triple within a couple years. All in the name of not getting your hands dirty.

 

Plus Buffett has to talk to the lowest common denominator.  He made one "balls deep" comment when he said he knew he could compound 50% with a million.  There are a bunch of threads on here with people losing their minds on how he can't possibly mean that.  Or another where he jokes about buying GM at $33 and people are thinking he's buying out GM.  So yeah I think Buffett should keep talking to the lowest common denominator because useful tips aren't useful to the 1% of investors who can figure it out on their own and they can be potentially damaging tips to the other 99% that go balls deep in the wrong situations at the wrong time.

 

Picasso,

Of course you are right 100%.

But don't forget that not everybody in this forum is a stock picker. Instead, there are some business owners, me included, whose goal is to keep increasing the free cash their businesses generate year in year out, and simply look for intelligent ways to invest it. We devote the great majority of our working life to running our businesses the best way we can, and simply don't have the time to find stocks so much undervalued that could be 3x or 4x investments in 1 year. Like you and dyow are doing.

My goal is to find businesses that have performed very well in the past and which I have come to judge might go on performing quite well in the future. So that I have the conviction to keep investing in them the FC my businesses generate.

You might say I should invest in a low cost ETF that aims at replicating the S&P500... and I actually invest in some ETFs... but I also like to invest in single companies, because it teaches me a lot about how business in general is evolving, which trends are important, how good leaders are behaving and which are the decisions they are making. Furthermore, if those businesses with long track records of performing better than the general market might sustain their outperformarce for the next 5 years, well that would be the frost on the cake!

They will never be multibaggers in one year, but that doesn't mean a discussion about DIS, NKE, or SBUX is completely useless and unjustified. It might not interest you and dyow, but it could interest people like me and others on this board.

 

Cheers,

 

Gio

[DooDiligence]

^^ i disagree wholeheartedly

 

After i looked at chesapeake, a value trap, i put 50% of my net worth in an energy stock, that went up 4X from its low in early 2016.  There is no way i would have invested in that co if i didn't look at chesapeake.  Chesapeake essentially taught me what to look for and what to avoid. 

 

So much of what you said was wrong:

- Looking at value traps teaches you how to be a value investor

- Risk is not lower, gain is not higher with great business, that claim is beyond ludicrous.  Risk reward is based on price you pay vs the IV of the stock.

- I learn very little from growth/growth is lazy.  I learn more when companies are on the verge of bankruptcy, bc you have to look at all the angles while remaining focussed on what matters. 

 

Also you don't get 1 year multi baggers with growth.

 

Warren Buffett buys "great businesses" bc he has 1 trillion dollars and can't find multi baggers.  If Buffett only had a million today he would be balls deep in small multi baggers.  But he never preaches this bc he knows most people can't do this, and he doesn't want value pretenders copying him.

 

You guys stick to growth, and enjoy your 10% CAGR.  Lol at 10%.

 

+1, especially when you're making me imagine Buffett balls deep.

 

It's been tiring to listen to most investors focus on high quality businesses.  The "ROIC" epiphany is all the rage of late.  It's like if Buffett or Munger had a quote "the sky is blue," investors would suddenly build "mental models" around the sky being blue.  Munger made the comment that the best business in the world can keep reinvesting at high rates of return.  Isn't that common sense?  Instead we have a bunch of investors searching for high ROIC stocks trading for 40-50x earnings because they'll earn the ROIC over the long-term.  I think what's worse is that good quality businesses are tiny in number compared to the entire public security universe.  So you just end up filtering out tons and tons of interesting situations that can just as easily double or triple within a couple years. All in the name of not getting your hands dirty.

 

Plus Buffett has to talk to the lowest common denominator.  He made one "balls deep" comment when he said he knew he could compound 50% with a million.  There are a bunch of threads on here with people losing their minds on how he can't possibly mean that.  Or another where he jokes about buying GM at $33 and people are thinking he's buying out GM.  So yeah I think Buffett should keep talking to the lowest common denominator because useful tips aren't useful to the 1% of investors who can figure it out on their own and they can be potentially damaging tips to the other 99% that go balls deep in the wrong situations at the wrong time.

 

Picasso,

Of course you are right 100%.

But don't forget that not everybody in this forum is a stock picker. Instead, there are some business owners, me included, whose goal is to keep increasing the free cash their businesses generate year in year out, and simply look for intelligent ways to invest it. We devote the great majority of our working life to running our businesses the best way we can, and simply don't have the time to find stocks so much undervalued that could be 3x or 4x investments in 1 year. Like you and dyow are doing.

My goal is to find businesses that have performed very well in the past and which I have come to judge might go on performing quite well in the future. So that I have the conviction to keep investing in them the FC my businesses generate.

You might say I should invest in a low cost ETF that aims at replicating the S&P500... and I actually invest in some ETFs... but I also like to invest in single companies, because it teaches me a lot about how business in general is evolving, which trends are important, how good leaders are behaving and which are the decisions they are making. Furthermore, if those businesses with long track records of performing better than the general market might sustain their outperformarce for the next 5 years, well that would be the frost on the cake!

They will never be multibaggers in one year, but that doesn't mean a discussion about DIS, NKE, or SBUX is completely useless and unjustified. It might not interest you and dyow, but it could interest people like me and others on this board.

 

Cheers,

 

Gio

 

++

[Picasso]

gio, if you're happy with your approach and results (financial and otherwise) then it's all good.  I happen to think life is very short, we're just trading pieces of paper back and forth between each other (a luxury most people on this planet can't afford) so you might as well look at investing in the most interesting and rewarding pieces of paper.  If I spent most of my lifetime in quality stocks having beat the market by a percent, I'd be on my death bed wishing I had spent more time with my wife and kids.  I also think it's important for your brain to look at lots of good and bad businesses because it stretches your capacity to understand different and sometimes complicated situations.  I enjoy playing video games but I make it a point to play better and better players because I'd like to improve.  It sucks because it's not enjoyable at first (those teenagers have wicked quick fingers) but I wouldn't want to play a game I didn't keep improving at.  Stocks/bonds are a game and Buffett gave us a nice training course but at some point we have to take off the training wheels and beat our own path. 

 

But I also know people who have done very, very well in high quality stocks.  It's super hard because you need a higher hit rate since multi-baggers are less frequent (say AMZN).  If you don't size your winners and losers right it will mean average performance (over 10+ year time frames) even though you own AMZN or V.  I think most of the good investors in that space dig much further into what makes the business great, well beyond what you can read online or in 10-K's.  And sometimes it takes some bold bets on the future optionality to get those killer returns.  Or what Scott is saying with FB or GOOG having a nearly limitless runway.  If he's right he's going to make a lot of money and he probably spent a lot of time thinking through that potential outcome. 

 

But the first question I'd ask anyone in high quality stocks (or a high quality strategy) is what is your turnover?  More often than not it's extremely high which defeats the whole purpose of the strategy imo.  Factor in taxes/fees and you'll underperform (or match) the market over long time frames.

[abyli]

gio, if you're happy with your approach and results (financial and otherwise) then it's all good.  I happen to think life is very short, we're just trading pieces of paper back and forth between each other (a luxury most people on this planet can't afford) so you might as well look at investing in the most interesting and rewarding pieces of paper.  If I spent most of my lifetime in quality stocks having beat the market by a percent, I'd be on my death bed wishing I had spent more time with my wife and kids.  I also think it's important for your brain to look at lots of good and bad businesses because it stretches your capacity to understand different and sometimes complicated situations.  I enjoy playing video games but I make it a point to play better and better players because I'd like to improve.  It sucks because it's not enjoyable at first (those teenagers have wicked quick fingers) but I wouldn't want to play a game I didn't keep improving at.  Stocks/bonds are a game and Buffett gave us a nice training course but at some point we have to take off the training wheels and beat our own path. 

 

But I also know people who have done very, very well in high quality stocks.  It's super hard because you need a higher hit rate since multi-baggers are less frequent (say AMZN).  If you don't size your winners and losers right it will mean average performance (over 10+ year time frames) even though you own AMZN or V.  I think most of the good investors in that space dig much further into what makes the business great, well beyond what you can read online or in 10-K's.  And sometimes it takes some bold bets on the future optionality to get those killer returns.  Or what Scott is saying with FB or GOOG having a nearly limitless runway.  If he's right he's going to make a lot of money and he probably spent a lot of time thinking through that potential outcome. 

 

But the first question I'd ask anyone in high quality stocks (or a high quality strategy) is what is your turnover?  More often than not it's extremely high which defeats the whole purpose of the strategy imo.  Factor in taxes/fees and you'll underperform (or match) the market over long time frames.

 

Why turnover is higher with high quality?

[Uccmal]

I have said this before on this thread and prior.  Lampert had his Peter Principle moment.  He may be/have been a great investor, but he was incapable of running a business.  He took a company, Sears Canada, that was making hundreds of million a year, was well respected, and literally ran it into non-existence.

 

There is a temptation to blame this demise on something else, but it is entirely Lamperts fault.  Instead of investing in the stores he cut staffing, destroyed employee moral, and had the shelves stocked with poor quality garbage.  Sears had stores at every significant indoor mega mall where I live.  To blame it on the internet, amazon, or Walmart is grossly inaccurate.  The Sears outlets have been replaced by Saks, Nordstrom etc. who are doing quite well. 

 

Sears Canada never needed turning around.  What it needed was no Lampert.  He screwed it so badly he destroyed it.  I can only surmise he did the same in the US. 

 

The man should very simply not be running a business.  Berkowtiz is the same.  These guys are not/ were not business men.  Its a complete farce that they think they can run an actual operating business.  The greater farce is the 860 pages of mental energy spent trying to guess how Lampert was going to pull this off when he was clearly incompetent as early as 2007.  Every move he has made along the way has been value and cash destroying.  For traders, there may be something left in the carcass, but thats about it.  Remember, this idiot was buying back shares at 180.  Financial Engineering indeed.  I actually owned shares for a time in 2005 and 2006 when I realized it was going nowhere. 

 

[enoch01]

I have said this before on this thread and prior.  Lampert had his Peter Principle moment.  He may be/have been a great investor, but he was incapable of running a business.  He took a company, Sears Canada, that was making hundreds of million a year, was well respected, and literally ran it into non-existence.

 

There is a temptation to blame this demise on something else, but it is entirely Lamperts fault.  Instead of investing in the stores he cut staffing, destroyed employee moral, and had the shelves stocked with poor quality garbage.  Sears had stores at every significant indoor mega mall where I live.  To blame it on the internet, amazon, or Walmart is grossly inaccurate.  The Sears outlets have been replaced by Saks, Nordstrom etc. who are doing quite well. 

 

Sears Canada never needed turning around.  What it needed was no Lampert.  He screwed it so badly he destroyed it.  I can only surmise he did the same in the US. 

 

The man should very simply not be running a business.  Berkowtiz is the same.  These guys are not/ were not business men.  Its a complete farce that they think they can run an actual operating business.  The greater farce is the 860 pages of mental energy spent trying to guess how Lampert was going to pull this off when he was clearly incompetent as early as 2007.  Every move he has made along the way has been value and cash destroying.  For traders, there may be something left in the carcass, but thats about it.  Remember, this idiot was buying back shares at 180.  Financial Engineering indeed.  I actually owned shares for a time in 2005 and 2006 when I realized it was going nowhere.

 

+100

[benhacker]

Very early on in the Sears saga, I made a post over on one of the Fool boards regarding SHLD as a investment opportunity and a very knowledgable poster highlighted a fundamental *potential* problem at Kmart / Sears from an investor standpoint.  This trap I think may have been the trap Lampert fell into, and I see many of us (myself included) fall into from time to time.  It's related to Al's comment above about not being a "businessman".

 

Essentially, we look at businesses in oversimplified terms (often).  Generally, it's not a big deal, but sometimes it is.

 

Simple example, we see a business making "profit" of $X and *poorly* (re)investing $X back into the business, but the business is basically growing only 2-3% or maybe it's flatlined.... we see the $X as "profit" which is sustainable, and the $X investment leading to only 2-3% growth ("how stupid!" we say).

 

We non-operator investors think "oh, if only they would take that misallocated profit, and reinvest in the shares, or pay a dividend, or XYZ.... then this would be a cash cow".

 

The problem, is that when a company invest $X back into the business, you aren't ever sure if the $X is being misspent, or if it's actually really critical investment but the reason profits aren't growing is because the current profits are not sustainable.... without $X investment, maybe next year profits would be down 40%!

 

You see this mistake many times when folks here talk about energy companies - as energy companies can mis-estimate depletion, profits have finite lives, and many other factors make "profit" not necessarily what we think it is. 

 

$X "profit" is only an accounting value judgement of "sustainable" profit that can be extracted from a business at steady state with no more investment.  For some businesses this is simply not correct at all.  I think Lampert (and some of us) thought that more could be extracted from Sears, but most importantly, it wasn't clear what investments being seemingly misspent were actually critical to keep profits at their current level.  That investment was removed, and profits simply were eviscerated far more than any financial model would have predicted (I would argue that the profit drop was more than most bears would have guessed as well, at least from a 2006 vantage point).

 

This poster 10-12 years ago highlighted that it's never really possible to know and define maintenance vs. growth capex, and to some extent even managers don't know.

 

He was dead right.

 

I'm super glad I switched to the debt side of SHLD complex 8-9 years ago and I maintain it was always (not ex-post) a mistake for equity bulls given relative debt pricing.

 

Strangely, I think now the risk reward may favor equity over debt, but the entire situation is quite interesting on many levels.

 

Ben (still long debt)

[Matson125]

I came across a linkedin post from an area Business development manager:

 

Business development and managing corporate strategic partnerships for the Shop Your Way program, where over 50MM members earn and burn points annually. Focused in strategic partnerships with retailers in the following categories: Health & Wellness, Grocery, Gifting, and Card-Linked offers.

 

Shop Your Way is the largest retail loyalty platform and rewards marketplace in the U.S. With more than 50 million active members that earned Shop Your Way points in the past 12 months, Shop Your Way maintains a massive repository of purchase data and behavior insights. Using its data mining and analytic capabilities, its patented rewards engine, and array of digital and marketing channels, Shop Your Way consistently delivers relevant and engaging messaging to members, which guide and drive their continued purchase behavior.

 

Today, Shop Your Way is developing highly integrated partnerships with major brands, where members can continually earn Shop Your Way points within their everyday lives. Shop Your Way points can be redeemed - just like cash - on more than 16 million products at ShopYourWay.com, and in-store and online at select partners. These partnerships cover core consumer categories such as grocery, fuel, dining, retail, travel, entertainment, financial services, and subscription services. In the past 12 months, Shop Your Way has issued more than $800 million in points, which generated over $4.3 billion in redemption sales for its clients.

 

 

This information puts some meat on the bone for a division of the company that Eddie and Co. have been very quiet on. 

[CorpRaider]

gio, if you're happy with your approach and results (financial and otherwise) then it's all good.  I happen to think life is very short, we're just trading pieces of paper back and forth between each other (a luxury most people on this planet can't afford) so you might as well look at investing in the most interesting and rewarding pieces of paper.  If I spent most of my lifetime in quality stocks having beat the market by a percent, I'd be on my death bed wishing I had spent more time with my wife and kids.  I also think it's important for your brain to look at lots of good and bad businesses because it stretches your capacity to understand different and sometimes complicated situations.  I enjoy playing video games but I make it a point to play better and better players because I'd like to improve.  It sucks because it's not enjoyable at first (those teenagers have wicked quick fingers) but I wouldn't want to play a game I didn't keep improving at.  Stocks/bonds are a game and Buffett gave us a nice training course but at some point we have to take off the training wheels and beat our own path. 

 

But I also know people who have done very, very well in high quality stocks.  It's super hard because you need a higher hit rate since multi-baggers are less frequent (say AMZN).  If you don't size your winners and losers right it will mean average performance (over 10+ year time frames) even though you own AMZN or V.  I think most of the good investors in that space dig much further into what makes the business great, well beyond what you can read online or in 10-K's.  And sometimes it takes some bold bets on the future optionality to get those killer returns.  Or what Scott is saying with FB or GOOG having a nearly limitless runway.  If he's right he's going to make a lot of money and he probably spent a lot of time thinking through that potential outcome. 

 

But the first question I'd ask anyone in high quality stocks (or a high quality strategy) is what is your turnover?  More often than not it's extremely high which defeats the whole purpose of the strategy imo.  Factor in taxes/fees and you'll underperform (or match) the market over long time frames.

 

Battlefield 1?

[dyow]

Gio, we were just responding to the poster who said it was a waste of time to look at this company and we should instead focus on wonderful businesses.   

 

Also you have a business so you look at this differently.  Someone who invests full time will have a different view on things and will have stronger views on the subject, partly bc their livelihood depends on it.  Just like you prob have strong views on your business. 

 

 

[dyow]

I know Berkowitz got mocked for saying "the losses are voluntary" but what if the losses, or at least a portion, are voluntary?

 

Mind blown.

 

still looking at this trap, will update if i can add anything meaningful.

[HalfMeasure]

I know Berkowitz got mocked for saying "the losses are voluntary" but what if the losses, or at least a portion, are voluntary?

 

Mind blown.

 

still looking at this trap, will update if i can add anything meaningful.

 

Maybe Lampert is accumulating NOLs for when he finally decides to endeavor into a profit making venture...  :o

[valcont]

I am more in line with dyow and Picasso's thinking on investing. If I were managing a billion dollars , I would totally shoot for a business with 30% appreciation potential and a 5% position. The problem is that I am only right 40-50% of time and with that strategy, I would be mostly even or maybe 10-15% over in a good year. Its an ok sum but doesn't move my needle.

 

So a 5% holding for a 30% gain makes me throw up at myself. Times 20 and that's a lot of puke on my face. Forget strangers, even my wife would not respect me for that . I would be better off owning a pawn shop a much better risk-reward from loss of prestige and ROI perspective.

 

Warren Buffet has spouted so much of investment wisdom, you can't even have a strategy based on that. He is a Nostradamus of investing, the true believers will credit him for all the investing success while the failures are the wrong interpretation of his prophecies. Glad I didn't use my punch card a decade ago when I was his disciple. I would have had Fannie/Freddie and 2000 pages of posts on this board.

 

So I am happy with turning over my investments at the drop of a hat, look for multi baggers and completely blowing up in the process. At least I'll have an interesting story for my grandkids.

 

[LongTermView]

I don't think either style is without merit. I'm probably as close to a hybrid style investor as you'll find on this forum. I own AMZN, GOOG and FB, but I also own OTC microcaps and community bank stocks that were very cheap when I bought them.

 

I sort of have the core holdings - MKL, GOOG, AMZN, FB for instance. Those have done pretty well for me in aggregate. Better than the market. But then I'll try to supercharge my returns with the more quantitatively cheap stuff as well.

 

It's worked pretty well since I've moved to this style. Last year I earned >25% and when I calculated a few weeks ago I was up about 11% for the year with a massive amount of cash drag. I don't double or triple my money like I used to in my teen years where I'd go all in on one or two value stocks (GGP, SSN), but I also don't suffer 70% drawdowns either.

 

I'm pretty happy with this style. I think a lot of value guys don't appreciate just how quickly some of these companies can grow, for how long. Some companies with sky high multiples are actually (and have historically been) very cheap. The economy is different than it was in the 1950s. Many of these businesses have effectively no capacity constraints on growth other than adoption within the broader population. FB doesn't have to spend years building new distribution centers to reach a greater chunk of the United States, for instance...

 

Obviously in theory there are capacity constraints to everything, but for some of these businesses, there just aren't from a practical perspective. This is a kind of unique phenomenon that's only really been going on for a couple of decades; historical valuation frameworks probably don't fully give credit to what these companies can do. At least in the hands of most.

 

That doesn't mean they're useless. There are lots of companies they do still fully apply to, and they're useful when looking at those businesses. But this is no longer a world - if it ever was - where one size fits all. I think learning new investing styles is only beneficial for most investors; take what makes sense and leave what doesn't.

 

Well said. Some of this reminds me of certain things Charlie Munger said about Benjamin Graham here: http://acquirersmultiple.com/2016/12/that-fireside-chat-with-charlie-munger/

[DooDiligence]

Am I the only one who has heard of Innovel?

 

Seems like they could break all this up into smaller niche retailing operations.

 

Locations with much smaller footprints could focus on appliances (samples only in stores) which get delivered through Innovel.

 

Craftsman stores operating as upscale Harbor Freights with a lawn & garden kicker (cash & carry tools, etc., with bulky sales items going through the Innovel channel.)

 

Scale up ecommerce & home delivery & leverage all that fancy data they collect...

 

Clothing; why bother?