SHLDQ - Sears Holdings Corp

[Liberty]

I do find it interesting that Sears has over 2.8 million "likes" on Facebook. In addition, Kmart has 1.2 million. That compares very favorably to HD at 1.1 million, Lowes at 2.5. However, it's very, very poor against Walmart and Target - 20 million + for both.

 

Likes aren't always "organic". Many companies buy them either via advertising or through less above the board sources. Many ways to game the system (Youtube had similar problems with numbers of views being artificially inflated, f.ex.).

[Luke 532]

There is certainly a different amount of emotional control you need to master for these kinds of uncertainty plays.

 

I wonder if we could start a training program for portfolio managers.  The big firms like Fidelity could pay us a fee to send their portfolio managers to our camp.  We would then send them back the scores.

 

We would simply water-board the people, see how they react.  Score them on this.

 

It's like the BUDS training for the Navy Seals.  They have one exam where the candidates have to get into the pool with their feet tied together at the ankles and their wrists tied behind their backs.  They then have to do laps in the pool by bouncing off the bottom with their feet, and then taking a breath at the surface, and then bound off the bottom again, then take another breath, etc... etc...

 

It's about emotional control.  Those who panic get given a second or third try.  If they still can't control their emotions, they are bounced from the program.

 

The SEALS know that it's important to identify people who can't be calm under stress.  They get rid of those candidates before the bullets are flying.  Maybe in money management that would be a good thing too.

 

Bingo.  This is why I spend 35% of my time reading and studying behavioral psychology/behavioral investing.  It's the reason I recommend only one book ahead of The Little Book of Behavioral Investing by James Montier (that one book being The Intelligent Investor, of course).  It's the reason I recommend that when people do buy The Intelligent Investor they get the version with Jason Zweig.

 

I'm a firm believer that the psychology of investing is extremely important.  Far too many people, even those that manage money for a living, overlook it.  Looking at SHLD's stock chart for the past 8+ years it's easy to see why people would just say "forget it, I can't handle this."

 

I'm of the school of thought that once you've found a solid investment with a wide margin of safety and you've invested, then the best thing to do for the years that follow is usually nothing at all.  There aren't many industries in which doing nothing pays much at all (other than continued studying, but by "doing nothing" I mean not actively getting in and out of positions).  Value investing is not one of those industries as it pays extremely well.

[stahleyp]

I didn't know that, Liberty. Thanks man

 

I found this

 

http://www.techhive.com/article/256240/how_companies_buy_facebook_friends_likes_and_buzz.html

 

Do you know of any mainstream companies that have done this?

[abitofvalue]

Didn't Sears actually acquire a company to help with search / social apps etc for their website. iirc, this was in 2008 / 2009 and the company is based in Israel.  believe sears also has a development centre in Israel for online optimization. (basically the old company). doesnt look like that the acquisition is working out as planned.  cant imagine it was a big acquisition but worth noting that its been 3+ years and the company's web presence / search is still abysmal.

[tombgrt]

Btw, those who say investing in SHLD is speculating are confusing the difference between risk and uncertainty. 

 

Further, they clearly haven't done any analysis to determine what the potential payoff is in relation to the opportunity cost.

 

I hear what you are saying.  BTW, I wrote some September puts on Friday despite selling my common on Thursday.  Part of this is "make it back" syndrome, and part of it is my original thesis that the stock is very low relative to the asset values that haven't moved over the past few months.  All that's changed is perceptions over what will be done and when.  And of course, the lower stock price alters psychology as well.

 

I know they suck at SYW, but I know it can be fixed.  I don't know if they can fix it, but I know it can be fixed.  Something tells me it's going to be a huge fix, because these problems I'm seeing with "shifting sands pricing" are obvious and yet they took the website live with these problems.  I don't expect a patch by Monday.

 

Hey, I know that you get it.  It's the other folks I'm trying to persuade.  ;D

 

I liked your post, btw, on your own mentality and how that tends to affect what type of companies you invest in. 

 

Not to pick on any particular board members (thus, I won't mention any names), but I distinctly recall some folks who were very "bullish" on SHLD  who almost did a 180 after the share price tanked down to around $25.  In fact, I remember someone commenting that they sold a large part of their position at that time, when there was, in fact, the most MOS.  And then they missed a short squeeze -- not that that's particularly important to the SHLD thesis.

 

Emotion runs high with SHLD, especially amongst the SHLD lovers scorned.  It reminds me a lot of my RIM/BBRY investment. 

 

Correct txlaw.

 

In the case of SHLD, a $40 or $25 share price doesn't change that much in terms of MoS given the +-$16B in liabilities. Taking away almost 40% of the share price changes Enterprise Value by a much smaller amount percentage wise. Thus if SHLD isn't a buy at $50 because it hasn't got enough MoS, it's unlikely to suddenly be a buy at $40 or even $25 when looking solely at your margin of safety. Of course, from a return perspective, it's a different story. That's what you get with lots of leverage and uncertainty about the value of the assets and when it will be realized.

[stahleyp]

aren't the liabilities closer to $27 billion or so if you include the off balance sheet stuff?

[tombgrt]

Yes, one should definitely add a few extra Billions... Which only makes market cap swings even less relevant. ;x

[muscleman]

I am a bit concerned about their $200 million cost cut program in the second half of this year. They should spend a bit more on the online database stuff. If they cut cost in other areas, that would be fine.

[constructive]

Bingo.  This is why I spend 35% of my time reading and studying behavioral psychology/behavioral investing.  It's the reason I recommend only one book ahead of The Little Book of Behavioral Investing by James Montier (that one book being The Intelligent Investor, of course).  It's the reason I recommend that when people do buy The Intelligent Investor they get the version with Jason Zweig.

 

I'm a firm believer that the psychology of investing is extremely important.  Far too many people, even those that manage money for a living, overlook it.  Looking at SHLD's stock chart for the past 8+ years it's easy to see why people would just say "forget it, I can't handle this."

 

Behavioral investing is about avoiding emotional mistakes, right? I've read books like Think Twice and The Little Book of Behavioral Investing, and did not get that much out of them other than that. Do you apply them positively to investment analysis, as opposed to shooting down potential mistakes? How does that work?

 

 

I'm sure some people avoid SHLD because of poor share price performance. But we're on a value investing message board, so I assume that plenty of people avoiding any stock are not doing so because of share price performance.  I also suspect that on average, non-shareholders have a less emotional relationship to any stock than shareholders do. That is not to say that any particular person is irrational, but simply an a priori statistical assumption. I have no financial dog in this fight, never owned or shorted a single share.

[ScottHall]

aren't the liabilities closer to $27 billion or so if you include the off balance sheet stuff?

 

Mind sharing your math on that?

[ERICOPOLY]

I am a bit concerned about their $200 million cost cut program in the second half of this year. They should spend a bit more on the online database stuff. If they cut cost in other areas, that would be fine.

 

I wish your handle were "buxom blonde" instead of "muscleman".

 

EDIT:  The comment is about your new profile picture.

[OracleofCarolina]

http://m.us.wsj.com/articles/BL-CIOB-2664

 

Help is on the way!

[Guest hellsten]

http://m.us.wsj.com/articles/BL-CIOB-2664

 

Help is on the way!

 

Thanks.

 

…hopes the event will attract candidates for the few hundred technology positions it is looking to fill…

 

“We’re looking for great talent,” said George Goley, who joined Sears as CIO of online business last September, after roughly six years managing software development at Amazon.com. “We have lots of ideas… but we don’t have all the people we need yet to execute against the ideas.”

 

Eddie is investing in software after all… Looks like they have a lot more jobs listed here than on the other site:

http://www.searsholdings.com/careers/

 

I guess it can only get better from here.

[CorpRaider]

Since they're plowing all this cash into the pension, can Eddie at least run that money?

[racemize]

Since they're plowing all this cash into the pension, can Eddie at least run that money?

 

yeah, but he might just take sears completely private if he did that.  =p

[Guest wellmont]

Since they're plowing all this cash into the pension, can Eddie at least run that money?

 

perry capital handles the money.

[Luke 532]

Btw, those who say investing in SHLD is speculating are confusing the difference between risk and uncertainty. 

 

Further, they clearly haven't done any analysis to determine what the potential payoff is in relation to the opportunity cost.

 

Well said.

[stahleyp]

I am a bit concerned about their $200 million cost cut program in the second half of this year. They should spend a bit more on the online database stuff. If they cut cost in other areas, that would be fine.

 

I wish your handle were "buxom blonde" instead of "muscleman".

 

EDIT:  The comment is about your new profile picture.

 

+1  ;D

[muscleman]

I am a bit concerned about their $200 million cost cut program in the second half of this year. They should spend a bit more on the online database stuff. If they cut cost in other areas, that would be fine.

 

I wish your handle were "buxom blonde" instead of "muscleman".

 

EDIT:  The comment is about your new profile picture.

 

Sorry English is not my first language.

I searched for "buxom", and I got:

 

1. (esp of a woman) healthily plump, attractive, and vigorous

2. (of a woman) full-bosomed

 

Description of a woman? :o

[ERICOPOLY]

I am a bit concerned about their $200 million cost cut program in the second half of this year. They should spend a bit more on the online database stuff. If they cut cost in other areas, that would be fine.

 

I wish your handle were "buxom blonde" instead of "muscleman".

 

EDIT:  The comment is about your new profile picture.

 

Sorry English is not my first language.

I searched for "buxom", and I got:

 

1. (esp of a woman) healthily plump, attractive, and vigorous

2. (of a woman) full-bosomed

 

Description of a woman? :o

 

I updated mine.  Now there is something better to look at.

[ragu]

[...]working for free.

 

FYI: He really isn't.

 

Best,

Ragu

 

Disclosure: No position currently.

[muscleman]

I am a bit concerned about their $200 million cost cut program in the second half of this year. They should spend a bit more on the online database stuff. If they cut cost in other areas, that would be fine.

 

I wish your handle were "buxom blonde" instead of "muscleman".

 

EDIT:  The comment is about your new profile picture.

 

Sorry English is not my first language.

I searched for "buxom", and I got:

 

1. (esp of a woman) healthily plump, attractive, and vigorous

2. (of a woman) full-bosomed

 

Description of a woman? :o

 

I updated mine.  Now there is something better to look at.

 

Hahaha! Now our pictures look to "fit well" with the investing board!

 

Once I was thinking, if I became successful investing my own money, and quit my daily job, what kind of name would I give to my hedge fund? I considered "muscle fund", but investors would likely shy away from it just by seeing the name. Especially compared to cooler names like "quantum fund", or "Omega advisor"

[muscleman]

http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=9474017-919-277554&type=sect&TabIndex=2&companyid=656789&ppu=%252fdefault.aspx%253fsym%253dSHLD

 

Let's look at the guarantor/non-guarantor income statement portion. Gain on sales of assets, 74 million comes from the guarantor and 181 million from non-guarantor.

The overall corporate structure is not fully disclosed in the SEC filing, which sucks, but judging from these numbers, I think the 181 million is from Sears Canada, which is held as equity interests in SHLD parent. Therefore, the remaining asset sale gains must come from some retail subs, which implies that the real estates in the US are held by those retail subs.

 

If this is true, it is a bit dangerous. The retail subs can suck the blood out of those real estate subs. I wish it was a different sub directly owned by the parent that hold those real estates.

 

There is still more work to do. I should have read all the SEC filings regarding the organization, and see if there is any clue.

 

 

[FCharlie]

This is his entire strategy -- it's kind of important to make it work.

 

Well, although he claims that SYW and online shopping are the core of the strategy, you have to keep in mind that online is only ~2% of sales. Most customers are probably not aware of the websites, and even most SYW members have probably not used the websites.

 

Very true. I have personally been carry a SYW membership card in my wallet since 2009 and I have never once even looked for an item on shopyourway.com

 

The main thing I love about the card is that you get 5% off everything you buy at Kmart when you pay with a Sears Mastercard.  By the way, I'd love to know how much gross margin is being impacted by this 5% off everything discount.

[FCharlie]

If when the stock was bought back, the value was over $200, then it was a good decision.

 

Not if it left them short of cash and needing to sell properties/assets that they didn't want to let go of. 

 

Eddie has commented that they didn't want to sell some of what they sold.

 

You should only return to shareholders cash that isn't needed by the business.  It clearly was needed, given Eddie's comments.  Thus, a mistake.

 

 

But remember,  when SHLD was buying back shares at $100 the company had billions of cash on the balance sheet and was producing huge piles of cash every year. Read the old 10K's and you'll see that KMRT & SHLD produced something like $7 billion of free cash flow in the first six or seven years Eddie was involved.

 

If that's the type of cash you are steadily producing and the assets are actually worth what he's now proven they are worth, then buying your stock at $100 probably wasn't that dumb.