SHLDQ - Sears Holdings Corp

[jeffmori7]

I think at the very minimum, sears could be shrunken down so that they only sell the profitable items.  They wouldn't go well together but an appliance section and a clothing section could probably both be profitable.  There are probably some other sections that will do well but I don't have the data to know what they are.

 

Appliances: I bought my dishwasher from sears so I am just reflecting my own experience.  Sears was the cheapest/best warranty option where I had access to a decent quality showroom (this eliminated home depot and amazon).  There were a few local furniture shops which came close or matched the price but if they aren't beating the sears price I thought I was better off with a larger player. 

 

Clothing: I don't personally shop at sears but the 10-q states that clothing & apparel had 7 consecutive quarters of positive comps. 

 

The point is that if they do this sort of refocusing on profitable areas couldn't they turn it around?  All they need to do is get the retail to cash flow neutral.  You go after leasing and the other ventures for the remainder.

 

Leasing might add (and this is a very rough estimate) $12 (70% of average strip mall per sq ft ) for the kmarts and $26 (70% of average enclosed mall per sq ft ) for the sears.  Assume that they reduce to the point where they are leasing 30% of their current space, split 2:1 kmart : sears.  That's 48M for the kmart or $576M per year.  There's 24M for the sears, or $624M per year.  Or an extra $1.2B revenue per year.  There would be proportionate building maintenance costs and possibly additional taxes but do your own math on what that might contribute.  Even if you just clear 30% that's an extra $360M per year profit on a $4B stock.  So Eddie can buy back 9-10% of the stock per year if nothing else.  This alone would support the stock and probably cause it to move up.

 

If you get any kind of return on the retail side that's just gravy.  Other retailers make 3-7% net typically.  If you reduce to $25B (from $40B today) in sales and clear 2% even, there's another $500M.  The stock would have to at least double at that point.

 

There are also the ventures:

 

Parent Sears Holdings Corp. has formed a subsidiary, Ubiquity Critical Environments LLC, tasked with converting some of the more than 2,500 Sears and Kmart properties to data storage facilities with servers, chillers and backup generators. It also plans to top all of its buildings with telecommunications towers that would serve a wide range of needs, including, ironically, those of the e-commerce rivals that Sears is struggling to match.

..

Converting a 100,000-square-foot store to a data center could make available about 5 megawatts of electricity dedicated to servers, industry experts say. Development costs can run $50 million to $60 million. Once operating, though, a 5-megawatt data center could produce $7 million to $10 million per year in rent. 

..

Meanwhile, Ubiquity seeks deals with cellphone carriers such as Verizon Communications Inc. and AT&T Inc. to affix antennas to roofs of Sears and Kmart buildings

http://www.chicagobusiness.com/article/20130511/ISSUE01/305119976/why-sears-sees-salvation-in-servers

 

Especially if when they shrink and close stores the cost of carrying those closed (but not yet sold and not yet sub-leased) stores is a minimal cost.  It would be interesting to know the average cost of on a monthly or quarterly basis of how much it costs SHLD to have empty stores.

 

 

I think the better is when they can replace a large Sears store they just closed (or lease, or reused) while SHOS opens a smaller store in the same area, so they can keep the core customers by selling the more profitable products with this smaller footprint. Is it really happening though? Someone has any data on this?

[Luke 532]

SHLD Short Interest in the last 12 months

 

http://www.nasdaq.com/symbol/shld/short-interest

---------------------------------------------------------------

Settlement Date Short Interest Avg Daily Share Volume Days To Cover

4/30/2013 7,812,207 598,541 13.052083

4/15/2013 7,972,027 550,968 14.469129

3/28/2013 8,221,058 514,640 15.974386

3/15/2013 8,661,270 1,140,858 7.591891

2/28/2013 8,821,897 856,174 10.303860

2/15/2013 8,247,443 561,645 14.684441

1/31/2013 8,552,896 1,066,898 8.016601

1/15/2013 8,822,105 1,625,737 5.426527

12/31/2012 9,161,095 1,307,993 7.003933

12/14/2012 9,438,097 1,509,885 6.250871

11/30/2012 9,235,064 1,757,287 5.255296

11/15/2012 7,899,358 710,507 11.117917

10/31/2012 7,488,718 810,911 9.234944

10/15/2012 7,038,236 709,926 9.914042

9/28/2012 7,806,220 896,169 8.710656

9/14/2012 7,579,838 2,361,483 3.209779

8/31/2012 8,934,831 1,112,094 8.034241

8/15/2012 9,055,782 731,276 12.383535

7/31/2012 9,327,597 539,245 17.297512

7/13/2012 9,443,657 566,007 16.684700

6/29/2012 9,660,609 749,130 12.895771

6/15/2012 9,566,876 835,722 11.447438

5/31/2012 9,900,527 1,381,674 7.165603

5/15/2012 9,631,115 1,480,732 6.504293

 

Short interest as of 7/30/13 is over 14,000,000.  It's amazing how much short interest has jumped in the last 3 months.

 

This:

Looks like Bruce Berkowitz picked up another 1.3 million shares of SHLD during Q1

 

Now owns 19.5 million shares.

 

Lampert, Tisch, & Berkowitz own over 82 million shares or just over 77% of SHLD

 

Plus This:

Share count is now 106.39 million (short % is 30.94%).

 

Equals:

What the heck is going to happen to the shorts if Sears reports a surprise to the upside next quarter???

 

We're about to find out in a couple days if that upside surprise is coming (I would guess 'no' but then again, that's why it would be a surprise). 

 

We know the share count of Lampert, Berkowitz, and Tisch is now 83M+ (might be more if we add Chou at 683K shares and others, but let's just keep it at 83M).  106M outstanding - 83M = 23M.  14M short = 61%.  And Lampert sold a ton of stock in ESL recently (except SHLD), Berkowitz opening up his fund to new money... curious if they'll ever add some more of if they'll just all of a sudden quit getting more concentrated in SHLD as they have been.  ;)

[no_free_lunch]

jeffmori,

 

As 1 example, there is an experiment with forever 21:

 

Sears Holdings Corp., saddled with extra space in its cavernous Sears department stores, is joining with hot fashion chain Forever 21 to expand the store-within-a-store concept.

 

The move is among the most aggressive merchandising steps Sears has taken since hedge fund manager Edward Lampert took over the retailer five years ago.

 

Under the initiative, Forever 21 will take about 15% of the space in a Sears store in Costa Mesa, Calif., with the opening expected this spring. Sears declined to disclose the terms of the lease agreement.

 

http://online.wsj.com/article/SB10001424052748703399404575506182345478118.html

 

Have no doubt, this process is in it's infancy but at least you can see the direction that they are headed.

[Luke 532]

jeffmori,

 

As 1 example, there is an experiment with forever 21:

 

Sears Holdings Corp., saddled with extra space in its cavernous Sears department stores, is joining with hot fashion chain Forever 21 to expand the store-within-a-store concept.

 

The move is among the most aggressive merchandising steps Sears has taken since hedge fund manager Edward Lampert took over the retailer five years ago.

 

Under the initiative, Forever 21 will take about 15% of the space in a Sears store in Costa Mesa, Calif., with the opening expected this spring. Sears declined to disclose the terms of the lease agreement.

 

http://online.wsj.com/article/SB10001424052748703399404575506182345478118.html

 

Have no doubt, this process is in it's infancy but at least you can see the direction that they are headed.

 

Not that temporary stock price fluctuations matter, but SHLD jumped 5% on news of the 40,000 square foot deal with Forever 21.  And that is a pittance when compared to the amount of real estate SHLD owns/leases.

 

Sears partners with Forever 21 and has Forever 21 in their stores 40,000 sq ft.

Lampert: “If the strategy is effective the company (SHLD) will start using it in its other locations.”

 

[FCharlie]

 

 

We know the share count of Lampert, Berkowitz, and Tisch is now 83M+ (might be more if we add Chou at 683K shares and others, but let's just keep it at 83M).  106M outstanding - 83M = 23M.  14M short = 61%.  And Lampert sold a ton of stock in ESL recently (except SHLD), Berkowitz opening up his fund to new money... curious if they'll ever add some more of if they'll just all of a sudden quit getting more concentrated in SHLD as they have been.  ;)

 

This is why I say that waiting for the great short squeeze is sort of like waiting for the great pumpkin to arrive.

 

The math has been like this for many years. You could ask yourself a simple question. If there are 106 million shares, and 83 are owned by people who aren't selling, then there are only 23 million remaining. Out of that, there are 14 million short.  Why then doesn't someone simply manufacture the short squeeze? Why not buy 9 million shares and corner the  market? Why not do it through options? You could create a synthetic position for a net credit and capture enormous gains at less than zero cost.

 

Why then doesn't it happen?

 

 

[Luke 532]

 

 

We know the share count of Lampert, Berkowitz, and Tisch is now 83M+ (might be more if we add Chou at 683K shares and others, but let's just keep it at 83M).  106M outstanding - 83M = 23M.  14M short = 61%.  And Lampert sold a ton of stock in ESL recently (except SHLD), Berkowitz opening up his fund to new money... curious if they'll ever add some more of if they'll just all of a sudden quit getting more concentrated in SHLD as they have been.  ;)

 

This is why I say that waiting for the great short squeeze is sort of like waiting for the great pumpkin to arrive.

 

The math has been like this for many years. You could ask yourself a simple question. If there are 106 million shares, and 83 are owned by people who aren't selling, then there are only 23 million remaining. Out of that, there are 14 million short.  Why then doesn't someone simply manufacture the short squeeze? Why not buy 9 million shares and corner the  market? Why not do it through options? You could create a synthetic position for a net credit and capture enormous gains at less than zero cost.

 

Why then doesn't it happen?

 

Just because it hasn't happened yet doesn't mean it won't.  Do we know of two investors who either liquidated large positions recently or are allowing investors to send more money with them to do as they see fit?

 

"I don't predict, I price."  When Berkowitz says this with all his investments he is saying he doesn't know when his investments will bear fruit, but he does the math to see if it is a good deal.  Orchestrating a short squeeze?  I don't know, that's too much of a stretch, but the math is inching closer to a major squeeze happening.  When?  I have no clue, and I don't really care if/when.  It's just a bonus on top of what I view as a great investment with tons of upside and minimal downside (if any).

 

And Berkowitz/Lampert are likely going to be investors for a very long time.  Is that speculation?  Yes.  But if they have been willing to stick it out for 10 years with negative returns, they might just hold the stock for a long time once the company turns.  Having a small float doesn't just impact a one-time short squeeze event, it makes the supply very limited for any demand that builds over the years.

[OracleofCarolina]

Speaking of Forever 21...it's seems like I blinked and they have taken over. I have seen massive stores all over the place...Tokyo..NYC...even Tucson had a huge one, come to think of it,it was in a space that looked like an old Sears.

[meiroy]

Bought a 3% otm call (jan 2015 strike 60) position today. It's more speculation than anything else really. Sitting on some gains and think it's an interesting position to have without risking too much.

 

Tom, could you elaborate on your strategy for these options?  If there's a sudden and massive short squeeze and the options become deep in the money for a short while, will there actually be a reasonable market for them to profit from?

 

Thanks.

[meiroy]

 

 

We know the share count of Lampert, Berkowitz, and Tisch is now 83M+ (might be more if we add Chou at 683K shares and others, but let's just keep it at 83M).  106M outstanding - 83M = 23M.  14M short = 61%.  And Lampert sold a ton of stock in ESL recently (except SHLD), Berkowitz opening up his fund to new money... curious if they'll ever add some more of if they'll just all of a sudden quit getting more concentrated in SHLD as they have been.  ;)

 

This is why I say that waiting for the great short squeeze is sort of like waiting for the great pumpkin to arrive.

 

The math has been like this for many years. You could ask yourself a simple question. If there are 106 million shares, and 83 are owned by people who aren't selling, then there are only 23 million remaining. Out of that, there are 14 million short.  Why then doesn't someone simply manufacture the short squeeze? Why not buy 9 million shares and corner the  market? Why not do it through options? You could create a synthetic position for a net credit and capture enormous gains at less than zero cost.

 

Why then doesn't it happen?

 

A wise poster on this board has said that intentionally causing the squeeze for the purpose of creating the squeeze would be illegal, even if they are not planning to profit from it.

 

It didn't happen yet as there was no fundamental turn-around point.

 

I have to say that personally I've been reading about this for years and only recently got interested including starting a position so there is surely something in the air -- it is definitely speculative/trade position, though, as I cant see any turning point or even that management is REALLY doing its thing to change.

 

 

 

[muscleman]

Speaking of Forever 21...it's seems like I blinked and they have taken over. I have seen massive stores all over the place...Tokyo..NYC...even Tucson had a huge one, come to think of it,it was in a space that looked like an old Sears.

 

http://retail.blog.ocregister.com/2011/02/02/opening-date-for-forever-21-inside-o-c-sears/43544/

 

I have only found one news related to this. Perhaps Eddie is trying this as an experiment also, and it didn't go too well, so he didn't try more.

 

Regarding Sears retail, I really don't think there is too much to worry on the Sears side. It is Kmart that worries me much more.

[OracleofCarolina]

http://tucsoncitizen.com/morgue/2009/03/16/112220-forever-21-takes-over-tucson-mall-mervyn-s-space/

Yea, it was actually an old Mervyns, dept store, 80,000 sq ft that Forever 21 took over. Oh, and apparently Mervyns went Chapter 7

 

 

Speaking of Forever 21...it's seems like I blinked and they have taken over. I have seen massive stores all over the place...Tokyo..NYC...even Tucson had a huge one, come to think of it,it was in a space that looked like an old Sears.

 

http://retail.blog.ocregister.com/2011/02/02/opening-date-for-forever-21-inside-o-c-sears/43544/

 

I have only found one news related to this. Perhaps Eddie is trying this as an experiment also, and it didn't go too well, so he didn't try more.

 

Regarding Sears retail, I really don't think there is too much to worry on the Sears side. It is Kmart that worries me much more.

[Guest hellsten]

I did some googling on Sears short squeezes to learn why people short the stock.

 

February 2012:

http://seekingalpha.com/article/339741-why-the-spike-for-sears-today

 

Granted, anything can start a short squeeze in today's market, given how hot it is.

 

In this case, Bruce Berkowitz simply restated his confidence in Sears and Eddie Lampert

 

Bruce Berkowitz:

Sears remains a large position in all of our funds, notwithstanding announcements in late December of falling sales and margins, rising expenses, and write-downs. Investors fled with this New Year's greeting before Chairman Lampert purchased over $150 million of common for his personal account. For many reasons, including management, we continue to believe the assets of this iconic brand to be a multiple of values implied by its current stock market price and continue to see the beginning of a new Berkshire Hathaway.

 

The comments after the article give some insight into how the shorts (and longs) think:

With same store sales always going down (as they have for what, 18 quarters in a row?), stores that were once profitable, become unprofitable quite fast.

 

Sears is so complex that it's easy to find arguments for both longs and shorts… Maybe Eddie removed unprofitable items from inventory and that's why store sales are down. It's impossible to know the answer.

 

The market has been warning them with repeated squeezes yet they still keep their short positions on.

 

One rumor I haven't heard about:

Anyone else hear that Simon Properties may be buying the remaining float available on Sears.

 

Even Cramer commented on the Sears short squeeze in 2012:

http://www.bing.com/videos/watch/video/cramers-mad-dash-sears-short-squeeze/3x5oj2fp?cpkey=f09aa5e4-3477-47ae-bcb2-9077af852937%257c%257c%257c%257c

 

More rumors and a comment from Tilson ;D

There may be lots of reasons – among them, the massive buying spree by largest shareholder, Edward S. Lampert. That’s driven rumors that he could take the company private, reason enough to send the shares higher.

…

Whitney Tilson, an investor who recently looked into buying shares of Sears, saw Mr. Lampert’s stock purchase as a bullish gesture.

 

“I think he genuinely believes that the stock is insanely cheap,” said Mr. Tilson, adding that he couldn’t “get comfortable” with Sears as an investment.

http://blogs.wsj.com/marketbeat/2012/01/20/a-deeper-dive-into-the-whopping-surge-behind-sears-stock-surge/

 

August 2008:

 

Apparently buoyed by strong back-to-school sales, shares of Sears Holdings have been on a tear. From an intra-day low of $67.36 on July 15 to its August 12 close of $92.75, the stock (symbol SHLD) soared 38%.

 

It should be noted that "apparently" is pundit-speak for "I haven't got a clue," and the back-to-school explanation is the best I could come up with on my own.

…

 

The rise, Berkowitz says, is the result of a short squeeze. Here's how that works: People who want to bet on the stock's price falling sell it short. To do so, they first borrow shares and then sell them. If they're right and the stock price falls, they can buy the shares back later at a lower price and return them to the lender. But if too many people are selling the stock short -- and, Berkowitz says, a "tremendous" number of Sears shares have been sold shorts -- the potential exists for a short squeeze. The rush of short sellers trying to buy back the shares at the same time can drive the stock price much higher.

 

Because a short squeeze is merely a trading phenomenon, its effect on a stock's price is usually temporary. But Berkowitz, whose Fairholme fund has a terrific record and is a member of the Kiplinger 25, expresses confidence in Sears's long-term prospects. "I just don't understand why everyone is shorting it," he says.

 

Another speculation that hopefully won't happen:

Of course, this all could be part of Lampert's secret plan: Let Sears struggle and continue to buy back shares as the stock falls. Then, when the stock gets low enough, take Sears private and really turn it around. Then go public again for the financial coup of the century.

 

Bronte Capital on Sears:

http://brontecapital.blogspot.com/2011/12/sears-holdings-liquidation-sale.html

 

I was short Sears at my old firm when the Eddie Lambert controlled K-Mart took them out for considerably more than they were worth. It was not the only time that happened to me - but multiple stabs don't dull the pain.

…

My view: owning Sears as a property play is a demonstration of the arrogance and breathtaking naivete of much that passes on Wall Street. Sears Holdings has over 300 thousand employees. I don't know how you successfully liquidate a business integrated with that many lives.

…

You know what that means. It means that you should not expect to earn that profit in the future. It is the admission from the Eddie Lambert controlled Sears that the fantasy is over.

…

The take-over of the old Sears by the Eddie Lambert controlled K-Mart was the second worst day of my career.

 

I would be very surprised if Eddie Lampert didn't know all this when he bought Sears/Kmart. I think this thread has shown that "owning Sears as a property play" is only one of many reasons to own Sears.

 

Bronte Capital's letter from November 2011 is also worth a read:

http://brontecapital.com/peformance/2011/Client%20Letter%20201111b.pdf

Below we illustrate by example. This is a genuine portfolio from a big-name fund manager with a

fantastic reputation whom politeness (and bad karma) prevents us from naming.

American International Group 23.20%

AIA Group Ltd 9.70%

Sears Holdings Corp. 7.90%

…

This correlation is extremely strong through the balance sheet of the above-mentioned fund. They own 16.2 million Sears shares – and average trading volume is only about 650 thousand. If the

reflation bets continues to fail then there is at least one huge forced seller of Sears stock. It would be

very hard to liquidate a position so large. So our guess is that in that adverse scenario Sears stock would be hit very hard. So we shorted a little Sears (now about 1 percent of the portfolio).

If the American reflation bet succeeds we will lose money on the Sears position – but we do not

think we lose a lot because the retailer is truly dreadful.

 

I guess the shorts have valid arguments for shorting Sears, if they don't include the talent and actions of Eddie Lampert, Francis Chou and Bruce Berkowitz in their calculations (how do you put that in a spreadsheet). On second thought, all the arguments I've seen for shorting the stock are weak…

 

We shouldn't forget that there are also technical reasons for shorting the stock ::)

http://www.t3live.com/articles/market-analysis/2755-sears-shld-finally-breaks-after-big-6-day-short-squeeze.html

 

Today it was Sears (SHLD) short after a big 6-day run. The stock was squeezed for almost a double and just “felt” ready today. The shorts were exhausted.  It was a tier one short around $53.50 and then an add below $52.50.  It then created a nice topping tail as it went below $51.17.  I did cover most but will trail the rest. The next spot to cover should be $43.50-$45.50.

[CorpRaider]

It is kind of hard to take a money manager seriously when he doesn't even know the last name of the famous billionaire hedge fund manager/CEO of the company he is shorting.

[Luke 532]

It is kind of hard to take a money manager seriously when he doesn't even know the last name of the famous billionaire hedge fund manager/CEO of the company he is shorting.

 

Agreed.  How many shareholder letters could you have possibly read without knowing how to spell Lampert's name?  How much did he study Lampert's track record to see where he's coming from?  I read his thesis awhile back and it just sounds like he didn't study the jockey at all.  Whether or not you win on one specific short or not, that's a risky habit.  How do you predict if a football team is going to do well if you don't even know who the quarterback is?  (well, the QB didn't matter for the Ravens when they won it all many years ago with Trent Dilfer, but you get the idea) :-)

[Myth465]

Personally I think far too much focus is being placed on the jockey.

[texual]

http://www.bloomberg.com/news/2013-08-19/hamptons-scene-clintons-perry-lampert-harris-schmidt.html

 

Scroll down for an amazing photo of the man himself ESL!!!! ROCKIN THE SHADES.

 

Legendary.

[T-bone1]

Personally I think far too much focus is being placed on the jockey.

 

Hi Myth,

 

I would very respectfully disagree.  The long thesis (at least for me) has very little to do with the results of either Sears or K-Mart the retailers.  I am invested solely on the thesis that Eddie is still just as good at restructuring, financial engineering, capital allocation, and generally being rational as he was in 2005 . . . before the market decided he got stupid all of a sudden.

 

I don't think Sears or K-Mart survive as retailers, or at a minimum I am certainly not betting on it.  I believe the value of the real estate along with peripheral assets like brands (including lands end) and a few other tid-bits are likely worth $100+ per share, even today.  In order to believe this, I am 100% making a bet on the jockey to preserve and harvest this value.  I certainly can't do it sitting in the cheap seats with a few shares, and even Berkowitz doesn't seem to know exactly what the plan is.

 

For me, this is not dissimilar to when I (and many others on this board) invested in Fairfax in 2006 (under similarly depressed prices and also under a seemingly binary outcome of bankruptcy or a huge short squeeze).  At that time, it was impossible to make sense of Fairfax's financials.  I spent a lot of time on it, got all of the NAIC books on their subs, looked at the assets and especially the CDS.  At the time it seemed that the CDS had good counter parties and adequately hedged the reinsurance recoverable that the shorts were "concerned" with . . . but there was no way to know for sure.

 

For me, this is similar to the real estate thesis with SHLD.  It certainly seems like this is a good thesis that still holds water, but I have had to rely on the work of others for my due diligence.  I simply can't value it myself.  Not unlike FFH's book value in 2006 . . .

 

Ultimately what made me invest in Fairfax back then was reading about Prem's charity work, the fact that he didn't spend a lot of money personally, had substantially all of his funds invested in his own company, and had a great track record of good decisions and good capital allocation.  This is what gave me comfort in the end . . .

 

With the exception of Eddie having a more expensive house than Prem does, I think all of the above applies.  This is why I'm betting on SHLD . . . I believe in the asset value, but I think an investment in a complicated and opaque enterprise like this must be by necessity a bet on the jockey.

 

Sorry for the very long-winded answer.

 

Best,

 

t-bone1

[JSArbitrage]

Personally I think far too much focus is being placed on the jockey.

 

I completely agree.  Sears is like the investment equivalent of battered wife syndrome.  Every year the company beats up investors more yet every year the investors make bigger and bigger excuses.

 

Oh, is that a bruise on your cheek? It's ok - look at his historic hedge-fund returns!

Is that a cracked rib you're nursing? He didn't mean it.  Besides, look at all that vacant real estate!

Now your arm is broken?!?! You don't know him like I do! He's got all these valuable brands!

 

Since Eddie took over Sears in 2004, the stock is down about 50%.  That's nine years.  Other than a tiny position in total return swaps years ago, Eddie has made no investment outside of the retailer.  This is not been the story of Eddie becomes Warren through SHLD.  This is a case of Eddie trying to steer a sinking ship in the right direction.  He's been a slow-motion Ron Johnson up to this point.

 

Could he suddenly channel Warren tomorrow? Sure, anything is possible.  But there has been NOTHING in Eddie's SHLD history to justify the optimism around this stock.

 

[alwaysinvert]

It is kind of hard to take a money manager seriously when he doesn't even know the last name of the famous billionaire hedge fund manager/CEO of the company he is shorting.

 

Somewhat bright people can go a lifetime without learning how to spell 'Buffett' and 'awesome', so I wouldn't read too much into it in terms of his research. I get just as frustrated with these kinds of misspellings as you, but some people are just bad spellers and most of us have a few words/names that we habitually misspell without being aware of it.

[Luke 532]

It is kind of hard to take a money manager seriously when he doesn't even know the last name of the famous billionaire hedge fund manager/CEO of the company he is shorting.

 

Somewhat bright people can go a lifetime without learning how to spell 'Buffett' and 'awesome', so I wouldn't read too much into it in terms of his research. I get just as frustrated with these kinds of misspellings as you, but some people are just bad spellers and most of us have a few words/names that we habitually misspell without being aware of it.

 

I agree, and I'm not a spelling-guru (my wife's the published author not me, certainly a field in which I would never excel).  It's just if I was managing the amount of money that John Hempton is, I would at least have somebody spell check my work.  It points to a lack of attention to detail.  Does that spill over into his investment research?  I have no clue.

[T-bone1]

JSArbitrage,

 

I could turn out to be wrong, but I am trying my best to focus on the value, rather than the stock price.

 

It appears that Ron Johnson destroyed a lot of value at JCP.  It does not appear that Mr. Lampert has destroyed much if any value at SHLD.  Sure retail, and particularly mall based discount retail, may be dying . . . but Lampert has preserved as much of the value as possible while spending as little as possible to do so.

 

This is not unlike what Buffett did with the Berkshire textile mill.  When more efficient looms came on the scene, rather than purchase them and compete in an even more competitive environment, Buffett chose to shut down the mill.  I think Eddie has made the same choice in the face of an arms race of in-store CAPEX.

 

It is certainly not easy to liquidate a business like SHLD quickly, but it does appear that Lampert has been planning for this eventuality for years and has structured the holding company accordingly. 

 

From where I am standing, I have not seen sins of omission or commission on the part of Lampert that would suggest he has "lost it".  I don't think a stock price is always a good judge of management.  There are plenty of examples, Henry Singleton most importantly, of smart capital allocators looking stupid in the market for years at a time.  I think these create opportunity, but I certainly agree that timing can be a problem.

 

Given that more than the entire float appears to be short, by my count, I'm thinking now is a good time to bet on Mr. Lampert and the value of his company.

 

Best,

 

t-bone1

[texual]

JSArbitrage

 

- Almost spit my water out reading your post, that was actually really funny and made perfect sense if you consider that we as a group are still making excuses for underperformance. Make no mistake Sears has been a underperformer for many years under the ESL leadership. Whether that remains true or not is up to many factors. So far I think we are making excuses. ESL has to make big decisions and make money for shareholders sooner than later unless he just wants to own the entire company himself and let it crumble with him holding all the stock.

[texual]

T-bone

 

If my history serves me correctly even WEB spent a lot of dough on new upgraded mill equipment for years trying to salvage it. He did think at some point he could bring about efficiency using the upgraded factories but it never happened.

[Luke 532]

I could turn out to be wrong, but I am trying my best to focus on the value, rather than the stock price.

 

And this is all we should do as value investors.  That's our job.  The stock price only comes into play AFTER doing an analysis of the business to estimate it's true value.  If there's a large discrepancy in the value of the business and the stock price, then you dig deeper and see if it's the right investment (or short) for you.  I find it very, very difficult to make a logical case that SHLD is overvalued (if you only look at SSS, FCF, etc., then sure) but factoring in the assets makes it difficult.  I can easily see a case for this being multiples higher than where the stock is trading.  To look at the stock price as the primary driver for one's opinion on the business isn't value investing, in my opinion, it's trend following.

[T-bone1]

T-bone

 

If my history serves me correctly even WEB spent a lot of dough on new upgraded mill equipment for years trying to salvage it. He did think at some point he could bring about efficiency using the upgraded factories but it never happened.

 

Textual, I'll try to find the specific quote I'm talking about.  I believe Buffett had the specific insight that better equipment would ruin the overall business, rather than improve his portion of it - an insight I was initially puzzled by and later very impressed with.

 

Some less helpful references here:

 

"Buffett and his investment partners paid about $14 million in the 1960s for a controlling interest in Berkshire Hathaway, then a New Bedford, Massachusetts-based manufacturer of men’s suit linings, according to biographer Andrew Kilpatrick. Buffett spent less than rivals on improvements to equipment and used Berkshire’s earnings to help fund investments, including the 1967 acquisition of insurer National Indemnity Co."

 

http://www.bloomberg.com/news/2010-10-18/berkshire-the-textile-mill-was-buffett-s-worst-investment-he-tells-cnbc.html

 

Buffett had quietly set his sights on Hathaway and began acquiring stock in the early

1960s.  Ken Chace, vice president of manufacturing, was installed as president with instructions to cut

costs.  Profits would be invested elsewhere – insurance, banking, publishing.  Later Berkshire Hathaway

invested in Coca-Cola, The Buffalo News, The Washington Post, manufactured homes, and furniture

retailing.  Anything profitable but nothing related to textiles.  By 1968, the New Bedford site was down to one

building. 

 

Cotton textile production ended in 1969.  Rayon linings and synthetic curtains continued to run until 1986. 

The company did not close because it continued to make money.  When the plant closed, it was the last

textile mill in the city of New Bedford.

 

http://www.textilehistory.org/BerkshireHathaway.html