SHLDQ - Sears Holdings Corp

[opihiman2]

That's a really interesting observation.  I wonder if we took all the most discussed ideas on CBOF, looked at the trading prices from the first month (averaged) till today, what the performance would be like.  I often wonder whether online investing forums are worth visiting anymore.  Might be easier just to do passive investing, ala Bogleheads, for the average folk than all of this "analysis" junk.

[Picasso]

That's a really interesting observation.  I wonder if we took all the most discussed ideas on CBOF, looked at the trading prices from the first month (averaged) till today, what the performance would be like.  I often wonder whether online investing forums are worth visiting anymore.  Might be easier just to do passive investing, ala Bogleheads, for the average folk than all of this "analysis" junk.

 

Looking at the trading prices on the first day someone submits an idea (or discussion of some stock) isn't that great of a way to measure whether an idea was decent or not.  I think the problem is that investors think of "good ideas" as ones that never/rarely go through cycles and keep compounding over time.  Those would obviously be amazing ideas, but if you look at how often the S&P or whatever index replaces components (again these are usually the largest and most dominant businesses in the world, kind of interesting to see them thrown out all the time), it's really hard to take a snapshot of a bunch of ideas and then come back in five years and say "wow, they blew up" or "man what great stock selection."  Between when an idea is posted a lot of things can and will happen.  So it's more about adjusting to a constant change of information that can affect intrinsic value and you have to compare these things to what's happening to the market price.  I'm sure there are a lot of people who made a lot of money on BAC when it went down to $5 or back down to $11 in 2016.  Was the first post on BAC not that great in terms of timing?  Sure, probably not.  But first posts aren't met to start a clock on some definitive outcome. 

 

I saw someone else post about how Kerrisdale's stock picks in a 2013 article did terrible.  One in particular was JGW.  It lost pretty much all its value.  But he did post his thoughts on VIC during the middle of 2015.

 

JGW is a frustrating situation, because, on the one hand, endur is likely right: the company has a lot of earnings power relative to its current valuation. It remains the dominant player in its market, and its margins have held up fairly well. However, we came to believe that other parts of our initial thesis were wrong or at least less certain than we thought: volume growth has been approximately zero (as opposed to modest but consistently positive), management has not been able to deploy excess cash via cheap M&A in its core business, and judicial and regulatory pressures increased (although we still don't expect any material negative outcomes). Moreover, while expansion into mortgage origination could certainly turn out to be a smart move, we think it's quite risky: origination is a ruthlessly competitive, low-margin business with many regulatory and capital-markets complexities, and JGW's senior management has no experience in this area. It's hard not to worry that these expansion efforts are meant to guard against the risk that structured-settlement volumes will ultimately shrink (as opposed to just not growing). Finally, management changes over the past year have brought uncertainty that to us added an extra element of risk.

 

So we thought we had a cheap stock and a company with decent organic and inorganic growth prospects in a market it knew better than anyone else. Now we're concerned that we just have a cheap stock. Buying cheap stocks tends to work well on average, but given our general preference for less messy longs as well as faster growing companies, we moved on. If we end up regretting exiting the position, it wouldn't be terribly surprising.

 

When you deal with crappy stocks like these, you have to adapt much more frequently than you would with anything in a Berkshire 13F.  That's a tough skill to have.

 

Just from my viewpoint, I think most of the more popular stocks on CoBF have a lot of volatility around intrinsic value, not just the market price.  Whether it's AAPL or BAC or SHLD.  But there are times when BAC might be at $10 but intrinsic value is $20.  Or SHLD is at $15 but intrinsic value is $50.  And so on.  Usually those moments happen in the middle of a thread, which is actually great because if you follow the changes in value there are times where you can take a relatively large position, take less risk, and get better overall returns for your portfolio.

 

The other side to this is wanting the first poster to say "I have 50% of my portfolio in this one stock, it's going up 5x and here's why."  That's obviously not a great way to scan for ideas and try to tag along.  It's probably a lot better to start with cheap stocks and wait for times when they get super cheap so you'll have a better sense of what you're getting yourself into.  There are a lot of ideas on the board like this (same goes for VIC and whatever other blogging site). 

[BargainValueHunter]

The only problem I have with this is: How did this escalate into 874 pages on this board? Oh well, that may just be me <pressing the unnotify button now>

 

Well, COBF did it again! Almost all of the most frequented names under Investment ideas have been mediocre to plain duds. You can sort the Investment Ideas section by # replies and see that. I even posted the lack lustre to poor stock price performance for the most popular names from post #1 to post #xxxxx here in 2015. http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/what-happened-to-this-board/msg223221/#msg223221

 

Stay away from the most discussed stocks on COBF!

 

I don't know...Fortress Paper had a GREAT 2016! ;)

[Paarslaars]

But an absolutely terrible 2011/2012/2013/2014, when it was most actively discussed on the board. :)

[KJP]

But an absolutely terrible 2011/2012/2013/2014, when it was most actively discussed on the board. :)

 

I think Fortress Paper is exactly the kind of company Picasso is talking about.  It's a deeply cyclical, capital-intensive business, so not likely to be a "hold forever" kind of investment, regardless of what you think of management's capital allocation skills.  But if you enter at the right time, after the company's been nearly left for dead, you can do quite well.  This isn't the place for an extended discussion of Fortress Paper, but I think there's a good argument that one of those times is right now, though I'm sure there have been people saying that for years.

 

As Picasso also mentioned, there are many ideas like that on VIC and this board.  If you went back two or three years and read six months of VIC writeups from that time, I suspect you'd find a few ideas that didn't "work" in the timeframe suggested and have been abandoned, but are good investments now. 

[Cardboard]

Most stocks are like this and if you look at small caps and micro caps where one decision by management or a single change in the business can easily change the value of the business by 50% you get huge swings in price.

 

Most of the posts about an idea are a good starting point to uncover value or similar to using a stock screener. They may or may not work right away depending mostly if the business is about to see an upswing or downswing. Then you have a myriad of factors that may make the idea much better or much worse than envisioned. It is tough to call the future but, you have to at least have an idea as to what can go right or wrong.

 

The ideas that receive the most posts seem to be: complicated/controversial stories, stocks known to everyone. I would not dismiss them right away simply because they are discussed a lot.

 

However, I would say to avoid businesses in a secular decline or companies that have not grown yearly sales organically for many years. If we could determine how many of these have been discussed on the board over time and how many have seen a rising stock price, I think that we would find a very low percentage.

 

I think that is the main issue with Sears and it does not appear that it will turn around anytime soon, if ever. I am not sure why an insider such as Lampert and who had experience with other retailers such as Autozone could not see that. A lot of the real estate and brands value has been cannibalized by this apparent incessant desire to turn this around. Pulling the plug in 2010 or 2011 when real estate values had gone back to a reasonable level, the economy was better while their operations still indicated forward declines and losses would have been the right thing to do.

 

Cardboard

[scorpioncapital]

Sears is operating a bit like the Fed or any run of the mill Ponzi Scheme - or any company in trouble if confidence disappears. Some have criticized Lampert for saying he is working on a turnaround and that his actions to maintain Sears turnaround are delusional. But I think those who say this are naive to believe the literal word. Not because Sears won't go belly up but because they misunderstand the psychology. He *must* say these confidence building statements even if he doesn't believe them and believes the exact opposite. This is because he is in a time-sensitive game of keeping Sears going as long as possible , probably to some degree so that he can redevelop the real estate. He is forced to reach this conclusion, perhaps against his will. But his act of trying to maintain confidence in Sears is in my view 100% rational. Of course the more times you call Wolf the less you are believed, but you certainly have to keep saying it.

[Cardboard]

Makes zero sense. If you know and realize that the company is heading downhill, you don't make statements for years and years. You act. And that means shutting down all stores, all at once if there is no way to make a business plan that only retains those that are profitable.

 

The guy appears in denial and the article points as such. The longer he waits, the worst it gets and with the rapid growth of online retail, it is getting worst overtime to realize the value on the real estate.

 

OR maybe that he got it and realized that he waited too long to do the above. Now the only solution is to keep repeating this lie to delay the death spiral and to screw other stakeholders by doing various spinoffs and offering secured debt.

 

Cardboard

[Guest longinvestor]

When a guy with a reputation meets a poor business....

[John Hjorth]

Somehow a funny post, scorpioncapital,

 

I don't think Mr. Lampert can "tell a fairytale" to any fellow board member on here. Personally, I think the SHLD longs on this board do their own homework on this.

 

This is to me a turnaround - one out of many -, that has actually never turned.

 

Mr. Lampert has had his shot at this. The content of some the last posts in this topic to me actually indicates, that Mr. Lampert is actually deluting him self.

 

I have had many clients over the years where management and owners  actually considered yearly closings as some kind of exams [not only with regard to financial performance, but also with regard to a follow up compared to set plans] How many attempts to pass has Mr. Lampert now granted him self?

 

With reference to cardboards latest post in this topic: It's never too late to just pull the plug [and thereby admit you were wrong] - and move on.

[BargainValueHunter]

This thread is long...

 

...but it could be longer.  ::)

 

So in that spirit, imagine Lampert calls you up and says, "I've seen that long discussion about me and Sears on CoB&F so I ask you big fella...what would you do with Sears Holdings if I handed the keys over to you?"

 

[DooDiligence]

This thread is long...

 

...but it could be longer.  ::)

 

So in that spirit, imagine Lampert calls you up and says, "I've seen that long discussion about me and Sears on CoB&F so I ask you big fella...what would you do with Sears Holdings if I handed the keys over to you?"

 

 

Refuse the job...

[Mephistopheles]

Makes zero sense. If you know and realize that the company is heading downhill, you don't make statements for years and years. You act. And that means shutting down all stores, all at once if there is no way to make a business plan that only retains those that are profitable.

 

The guy appears in denial and the article points as such. The longer he waits, the worst it gets and with the rapid growth of online retail, it is getting worst overtime to realize the value on the real estate.

 

OR maybe that he got it and realized that he waited too long to do the above. Now the only solution is to keep repeating this lie to delay the death spiral and to screw other stakeholders by doing various spinoffs and offering secured debt.

 

Cardboard

 

+1

 

The argument that it's better to keep stores running at losses rather than shut down as fast as possible never made sense to me. Then they say, well some of them are profitable; well keep them running then! But so far after hundreds of store closures SHLD continues to burn money. People don't seem to be thinking dynamically, that those stores are only profitable now because of the scale, but they wouldn't be stand alone.. so just shut the god damn thing down, all of them.

 

Probably the same people who defended Eddie for keeping the stores open since it's "emotionally difficult to lay off all those people". Yea, meanwhile he screws over his own shareholders and makes shady financing deals on top of that. There is no excuse. He's not delusional; imo he personally (and ESL) will end up just fine. It makes me concerned as a SRG holder to be honest given the recently announced financing there, but it makes me feel a bit better that Buffett is an owner.

[Gregmal]

Makes zero sense. If you know and realize that the company is heading downhill, you don't make statements for years and years. You act. And that means shutting down all stores, all at once if there is no way to make a business plan that only retains those that are profitable.

 

The guy appears in denial and the article points as such. The longer he waits, the worst it gets and with the rapid growth of online retail, it is getting worst overtime to realize the value on the real estate.

 

OR maybe that he got it and realized that he waited too long to do the above. Now the only solution is to keep repeating this lie to delay the death spiral and to screw other stakeholders by doing various spinoffs and offering secured debt.

 

Cardboard

 

+1

 

The argument that it's better to keep stores running at losses rather than shut down as fast as possible never made sense to me. Then they say, well some of them are profitable; well keep them running then! But so far after hundreds of store closures SHLD continues to burn money. People don't seem to be thinking dynamically, that those stores are only profitable now because of the scale, but they wouldn't be stand alone.. so just shut the god damn thing down, all of them.

 

Probably the same people who defended Eddie for keeping the stores open since it's "emotionally difficult to lay off all those people". Yea, meanwhile he screws over his own shareholders and makes shady financing deals on top of that. There is no excuse. He's not delusional; imo he personally (and ESL) will end up just fine. It makes me concerned as a SRG holder to be honest given the recently announced financing there, but it makes me feel a bit better that Buffett is an owner.

 

I've never really been a sympathizer of Eddy's but is there not merit to the idea that shuttering all the stores at once could just as easily harm the value of the real estate in terms of sheer volume coming to market all around the same time?

 

Otherwise, I always think its funny to look at this as follows. Say you come here from another planet. You have no context. You read the timeland/transcript of the SHLD story. There isn't a way in the world where you walk away thinking anything but "this Lampert guy is a moron". Meanwhile many of us, capable and intelligent folks, keep rationalizing everything he's doing simply because "he's Eddy Lampert".

[lschmidt]

It's a difficult thing to lay off 300,000 employees (at the peak) who rely on you for sustenance. There is an emotional obligation and an inevitable psychological conflict involved.

[FCharlie]

There have been quotes on this thread that show that Shop Your Way expenses are near $1 billion annually. The pension is draining about $400 million annually last I looked.

 

Those together account for an enormous amount of the cash burn.

 

I think the idea that all stores should close immediately may not be correct. I'd shut Shop Your Way immediately, fund the pension instead, then offer more pension buyouts (with pension assets not SHLD cash)

 

At this point, I'd either sell the remaining real estate to Seritage, or do what Seritage is doing. Speaking of which, what ever happened to the St. Paul MN, Rice Street project? That was announced four years ago and nothing since.

 

 

[gurpaul88]

It's a difficult thing to lay off 300,000 employees (at the peak) who rely on you for sustenance. There is an emotional obligation and an inevitable psychological conflict involved.

 

+1

[Jurgis]

It's a difficult thing to lay off 300,000 employees (at the peak) who rely on you for sustenance. There is an emotional obligation and an inevitable psychological conflict involved.

 

Well, don't shut the stores then. Get a retail person who can try to fix the retail side. Didn't JCP recover even after the near-brush due to questionable decisions? Wouldn't a good retail person have done something better than Sears is now?

[wisdom]

You could choose to hold onto what worked in the past or move forward.

 

Holding onto the past is comfortable and for a while may feel like you were winning. Though, the outcome is a foregone conclusion, if you think longer term.

 

Choosing to move towards what could work in the future may look like you are losing the battle in the short run. But the outcome is uncertain. Chance of failure is lower than 100%. In the meantime, you spin off some assets which ensures you still get some value out of it.

 

Uber chooses to raise funds in markets and is valued at $60 B. SHLD is using the assets it has while trying to preserve as much value as it can.

 

Now you can argue Uber is great and guaranteed success because the market values it at $60 B and SHLD is a $0 because it loses money and it's sales have declined to $25 B. While Uber is growing rapidly and is doing $2 B in sales and is on track to lose about $3 B this year.

 

It comes down to your perspective.

[oddballstocks]

It's a difficult thing to lay off 300,000 employees (at the peak) who rely on you for sustenance. There is an emotional obligation and an inevitable psychological conflict involved.

 

+1

 

This happens all the time when companies suddenly shut their doors and liquidate.  Especially with smaller businesses.  One day employees show up and the doors are locked. 

 

With Sears I understand there would be logistics involved in transporting inventory and selling off real estate.  The real reason ESL hasn't done this is it would create a fire sale condition where he wouldn't be able to realize the highest and best value for his properties.  But at this point he's slowly liquidated himself into the same situation.  If a store was thinking about building space at a mall with a Sears do you think they'd spring for new construction, or just wait out Sears' demise? 

 

There is a LOT of empty retail space in the US.  Sears isn't selling into the best market.  By holding and providing minimal wages and arguably poor working conditions for employees he's done them and himself a disservice. 

[T-bone1]

The short interest is unsurprisingly up about 1.5 million shares (as of December 30th) to 16,593,280...

 

...just doing my part to get this to 900 pages. T-Bone1

[T-bone1]

And it looks like ESL just distributed 1.8 million shares of SHLD to redeeming partners:

 

https://www.sec.gov/Archives/edgar/data/923727/000119312517007901/d280243dsc13da.htm

 

 

[DamienC]

Just read an article on the recent Craftsman deal which put a new light on what Sears really got. Was wondering why nobody wrote about the value embedded in the fact that Sears we'd still be able to sell its own craftsman tools royalty free.

 

They make money when selling the products and on the warranties the sell on them. The guarantor part of the holding will continue to pay the non-guarantor the royalty fees (as will SWK) and the later will also pocket the warranties premiums...

 

When will people finally understand what E.Lampert is really doing...

 

http://seekingalpha.com/article/4038369-sears-sells-craftsman-deal-power

[rogermunibond]

Has anyone compared what ESL has done with total value of SHLD, Orchard Supply, SHOS, SRG, Sears Canada, any thing missing, 5 years ago versus today. Kind of like what LMCA does with Liberty and all its spinoffs and trackers.

[doughishere]

And it looks like ESL just distributed 1.8 million shares of SHLD to redeeming partners:

 

https://www.sec.gov/Archives/edgar/data/923727/000119312517007901/d280243dsc13da.htm

 

95m by management and directors At April of last year.