SHLDQ - Sears Holdings Corp

[Luke 532]

If Eddie turns SHLD around or turns it in to a legitimate capital allocation vehicle, I'll be on board with him until he decides to retire - even if I do have to pay a higher price for entry. Until then, or until I become aware of facts that change my mind, Sears is just too rich for my blood.

 

Scott, quick question: would you agree that ESL is becoming more concentrated in SHLD by selling off many other holdings?  If so, it's not out of the realm of possibility that he would eventually make SHLD (and maybe SHOS) his sole holding.

 

If that's the case, what do you think the odds are that he would keep ESL open instead of closing it and using SHLD as his permanent vehicle?

 

The reason I ask is that a few people have mentioned they'd invest if/when Lampert makes SHLD his permanent vehicle.  I keep coming to the same conclusion every time I ask myself these questions.  I think we're at the point that it would be more surprising if he did not make SHLD his permanent vehicle than if he did.

[DTEJD1997]

Hey all:

 

For those that think the real estate is a MAJOR component of the investment thesis, let me ask you this question.

 

Do you not think that local governments who are strapped for cash will be looking to raise property taxes?  Sometimes significantly...

 

I used to own an interest in an industrial property.  A few years ago, the local municipality started raising property taxes SIGNIFICANTLY.  The taxes were not cheap to begin with.  This happened several years in a row.

 

The municipality needed funds to build a new school.  They spared no expense...

 

There are rumors that the local pension funds are also underfunded.  So I bet they'll be looking to boost those soon.

 

The taxes finally got to the point where it was adverse to the value of the property.  Paying 3%+ of the value of the property definitely affects it's value.

 

In my home town, Detroit, the situation is WAY out of control.  There are numerous properties where the property tax is close to 10% of the market value of the property.  If you are thinking, "DTEJD1997, so what if the tax is $10 on a $100 property?  Who cares?"  There are properties in Indian Village (historical neighborhood) where the property tax equals or exceeds the mortgage loan payment!  There was a house that I looked at that was listed for $150k...taxes were a bit over $12k a year.  Detroit is notorious about not adjusting property tax to reflect current market values...

 

So I would be cautious about thinking that real estate is going to save a company or be a "magic bullet", especially in the upcoming years.

 

Not to say there is isn't value there in SHLD property, there most certainly is, just be cautious!

[merkhet]

 

So far, every analysis I've seen of the situation is full of conjecture and, in some cases, "facts" that are just outright incorrect which could have been learned from reading the credit agreements. If Eddie turns SHLD around or turns it in to a legitimate capital allocation vehicle, I'll be on board with him until he decides to retire - even if I do have to pay a higher price for entry. Until then, or until I become aware of facts that change my mind, Sears is just too rich for my blood.

 

 

I would contend that this just isn't true.

 

I think you may have conflated "I'm not convinced" with "every analysis here is full of conjecture." I think you can certainly say some of the analyses have conjecture in them, but it's certainly not every single one.

 

Edit: I guess I'm assuming you've read the whole thread, since I have replaced "I've seen" with "here." That could be an unfair substitution.

[ScottHall]

 

So far, every analysis I've seen of the situation is full of conjecture and, in some cases, "facts" that are just outright incorrect which could have been learned from reading the credit agreements. If Eddie turns SHLD around or turns it in to a legitimate capital allocation vehicle, I'll be on board with him until he decides to retire - even if I do have to pay a higher price for entry. Until then, or until I become aware of facts that change my mind, Sears is just too rich for my blood.

 

 

I would contend that this just isn't true.

 

I think you may have conflated "I'm not convinced" with "every analysis here is full of conjecture." I think you can certainly say some of the analyses have conjecture in them, but it's certainly not every single one.

 

Edit: I guess I'm assuming you've read the whole thread, since I have replaced "I've seen" with "here." That could be an unfair substitution.

 

I've read the whole thread, yes. I wouldn't even qualify most of what's in it as analysis, because there's very little of actual substance. In those cases, there's no conjecture ... because there's no analysis.

 

The past... God, I don't know, probably fifty pages now have been mostly nonsense about short squeezes, whether a short squeeze actually happened, and other misc. things that have no bearing on the long term value of SHLD as a business.

 

The Baker Street report is about the only thing that's been posted recently with any merit.

[Sportgamma]

P.S. Being willing to put "your money where your mouth is" doesn't determine whether you're right or wrong. You could just be suffering from a massive case of Dunning-Kruger.

 

Haha, well played sir, but that is not my point. My argument was not "I am long, therefore I am right" (somebody long and somebody short can´t both be right, can they?)  but rather that when I read this thread I put more weight on the opinions of those (be it long or short) who have vested interest in what they are arguing.

 

Edit: I must add Scott, that I do appreciate your input regarding the guarantor/non-guarantor discussion.

[Guest hellsten]

So far, every analysis I've seen of the situation is full of conjecture and, in some cases, "facts" that are just outright incorrect which could have been learned from reading the credit agreements. If Eddie turns SHLD around or turns it in to a legitimate capital allocation vehicle, I'll be on board with him until he decides to retire - even if I do have to pay a higher price for entry. Until then, or until I become aware of facts that change my mind, Sears is just too rich for my blood.

 

Scott, could you share your view or analysis on SHLD and point out the incorrect "facts"? I think the bear case needs to be heard on this thread.

[ScottHall]

P.S. Being willing to put "your money where your mouth is" doesn't determine whether you're right or wrong. You could just be suffering from a massive case of Dunning-Kruger.

 

Haha, well played sir, but that is not my point. My argument was not "I am long, therefore I am right" (somebody long and somebody short can´t both be right, can they?)  but rather that when I read this thread I put more weight on the opinions of those (be it long or short) who have vested interest in what they are arguing.

 

Edit: I must add Scott, that I do appreciate your input regarding the guarantor/non-guarantor discussion.

 

I'm glad to be of help.

 

I'd be careful with that sort of thought process. To the best of my ability (and I'm not perfect, trust me) I try to let the facts dictate my thought process on companies that I research. Having an ownership position, or short position, in a company often screws around with people emotionally and psychologically. Do not underestimate the power of doubt avoidance tendency and inconsistency avoidance tendency, especially when mixed together.

 

I think we're all aware that many investors are arrogant at the best of times, and outright delusional at the worst. I would just keep that in mind and use other investors - long or short - as a way to discover new facts that I had not yet considered, but make sure to analyze those facts for myself. That's what I use this forum for, personally.

 

It doesn't matter to me what your opinion is so long as it is based on actual facts, as opposed to those conjured up to rationalize an investment decision. I am not saying you have done this - I am referring to people generally.

 

 

[Luke 532]

 

The past... God, I don't know, probably fifty pages now have been mostly nonsense about short squeezes, whether a short squeeze actually happened, and other misc. things that have no bearing on the long term value of SHLD as a business.

 

Nobody is arguing that a short squeeze has any bearing on the long-term value of SHLD as a business, but even Parsad has commented on the importance of this phenomenon.  Therefore, the discussion has merit.  My brokerage account is certainly appreciative of those that have been discussing it! :)

[ScottHall]

 

The past... God, I don't know, probably fifty pages now have been mostly nonsense about short squeezes, whether a short squeeze actually happened, and other misc. things that have no bearing on the long term value of SHLD as a business.

 

Nobody is arguing that a short squeeze has any bearing on the long-term value of SHLD as a business, but even Parsad has commented on the importance of this phenomenon.  Therefore, the discussion has merit. My brokerage account is certainly appreciative of those that have been discussing it! :)

 

You act as though Parsad is any less fallible than you are. He's just a dude running a small hedge fund and value investing website - he can rightfully determine what is allowed conversation on his site, but he's still subject to being wrong just like the rest of us.

[Luke 532]

 

The past... God, I don't know, probably fifty pages now have been mostly nonsense about short squeezes, whether a short squeeze actually happened, and other misc. things that have no bearing on the long term value of SHLD as a business.

 

Nobody is arguing that a short squeeze has any bearing on the long-term value of SHLD as a business, but even Parsad has commented on the importance of this phenomenon.  Therefore, the discussion has merit. My brokerage account is certainly appreciative of those that have been discussing it! :)

 

You act as though Parsad is any less fallible than you are. He's just a dude running a small hedge fund and value investing website - he can rightfully determine what is allowed conversation on his site, but he's still subject to being wrong just like the rest of us.

 

I meant the discussion has merit on this message board because the Admin is discussing it.

[merkhet]

 

I've read the whole thread, yes. I wouldn't even qualify most of what's in it as analysis, because there's very little of actual substance. In those cases, there's no conjecture ... because there's no analysis.

 

The past... God, I don't know, probably fifty pages now have been mostly nonsense about short squeezes, whether a short squeeze actually happened, and other misc. things that have no bearing on the long term value of SHLD as a business.

 

The Baker Street report is about the only thing that's been posted recently with any merit.

 

 

I think I may have touched on this earlier, but I'm still a little baffled.

 

I would think that most people view potential catalysts as part of analysis. Do you not think of the short position as a potential catalyst or do you not view catalysts as analysis? I think the going thesis for most people here is that Sears has an IV > than the market value, and the short position might combine with various operational improvements/changes to cause the stock to reach IV quicker than without the short position.

 

Additionally, there has been a significant uptick in the amount of attention paid to Sears Holdings between August 22nd, 2013 and now. There is little information between earnings releases so naturally the attention shifts to those things that can be measured (such as the possible catalyst of having a large short position) in the interim. Also, I've found keeping track of the short interest to be a rather fun exercise between releases of information. This would account for the amount of posts related to the short interest.

 

Correct me if I'm wrong, but I think what you're actually saying is the following: "People are spending a lot of time talking about something that's not interesting to me." Well, that's unfortunate, but there's probably a better way to steer the conversation towards things that matter to you than saying everyone has been talking nonsense.

 

I'm reminded of a quote from Randy Pausch's "The Last Lecture" where his adviser said it was a shame that people perceived of him as arrogant because it's going to limit what he's going to be able to achieve in life. Another way to say that you catch more flies with honey I guess. Remember, you're asking people to show you their work -- it's probably better to do it nicely.

 

Moreover, this is a nitpick, but are you saying that Baker Street's presentation is full of conjecture? Logically, you must be doing that, because of your previous comment -- but I actually think this is not what you mean. I only point this out because, as I indicated above, words matter.

[cubsfan]

 

The past... God, I don't know, probably fifty pages now have been mostly nonsense about short squeezes, whether a short squeeze actually happened, and other misc. things that have no bearing on the long term value of SHLD as a business.

 

Nobody is arguing that a short squeeze has any bearing on the long-term value of SHLD as a business, but even Parsad has commented on the importance of this phenomenon.  Therefore, the discussion has merit.  My brokerage account is certainly appreciative of those that have been discussing it! :)

 

The squeeze topic seemed completely appropriate given the high short interest. Having shorted many stocks, SHLD was exactly the kind of

stock I would have avoided - high short interest, primarily held by LT oriented investors - and subject to any positive catalyst that

could cause the stock to take off. All this worthless discussion was pointed out by a few who bothered to dig deeper. And one poster, in particular,

took the time to figure out what the "real float" might be in a logical and well thought out argument. Turned out he was right and in the

space of 6 weeks SHLD is up 50%.  How in the world is this not appropriate and nonsense? Was it just that Merkhet and others

were just so lucky that it all came together, like a random walk?

 

Quite a few of us have made a lot of money off these nonsense posts.

 

 

[Luke 532]

 

The past... God, I don't know, probably fifty pages now have been mostly nonsense about short squeezes, whether a short squeeze actually happened, and other misc. things that have no bearing on the long term value of SHLD as a business.

 

Nobody is arguing that a short squeeze has any bearing on the long-term value of SHLD as a business, but even Parsad has commented on the importance of this phenomenon.  Therefore, the discussion has merit.  My brokerage account is certainly appreciative of those that have been discussing it! :)

 

The squeeze topic seemed completely appropriate given the high short interest. Having shorted many stocks, SHLD was exactly the kind of

stock I would have avoided - high short interest, primarily held by LT oriented investors - and subject to any positive catalyst that

could cause the stock to take off. All this worthless discussion was pointed out by a few who bothered to dig deeper. And one poster, in particular,

took the time to figure out what the "real float" might be in a logical and well thought out argument. Turned out he was right and in the

space of 6 weeks SHLD is up 50%.  How in the world was this not appropriate and nonsense? What it just that Merkhet and others

were just so lucky that it all came together, like a random walk?

 

Quite a few of us have made a lot of money off these nonsense posts.

 

Not to mention that the short interest as percentage of float, as of September 13th, is largely unchanged... with the stock up sharply.  The odds of another 50%+ spike is just as good today as it was a month or so ago.  I don't expect another squeeze, but I'm positioned to take advantage should it happen again.

[heth247]

Scott, could you share your view or analysis on SHLD and point out the incorrect "facts"? I think the bear case needs to be heard on this thread.

 

+1  I'd like to hear more from Scott on this as well.

 

I appreciate comments from Scott since you apparently have deep knowledge on the company structure and the guarantor/non-guarantor. I have to admit that I personally do not have the capability (and time) to read through all of those legal documents and understand what they really boils down to.

 

But as Buffet said, you don't need to know a person's exact weight to tell if he is overweight or underweight.  All I know are simply 

1. Sears have a huge RE value, much more than its market cap, IF realized properly.

2. Lampert has put in a much better safety net for SHLD (than JCP) by separating various divisions, so that they can create value/liquidity when things get worse.

3. Sears has more options of road to success than just retail turnaround.

 

Even for JCP, which is in a much worse shape than SHLD, there are still so many hedge funds piling into it and Goldman willing to lend billions to it against its RE portfolio.

 

How high will SHLD go if succeeded is anybody's guess, but I am more interested inn hearing what really can kill Sears now,  barring general comments like a severe economic downturn?

 

 

[ScottHall]

I am going to go get dinner now, but I'll respond to you all when I get back. Don't expect anything groundbreaking.

[Sportgamma]

P.S. Being willing to put "your money where your mouth is" doesn't determine whether you're right or wrong. You could just be suffering from a massive case of Dunning-Kruger.

 

Haha, well played sir, but that is not my point. My argument was not "I am long, therefore I am right" (somebody long and somebody short can´t both be right, can they?)  but rather that when I read this thread I put more weight on the opinions of those (be it long or short) who have vested interest in what they are arguing.

 

Edit: I must add Scott, that I do appreciate your input regarding the guarantor/non-guarantor discussion.

 

I'm glad to be of help.

 

I'd be careful with that sort of thought process. To the best of my ability (and I'm not perfect, trust me) I try to let the facts dictate my thought process on companies that I research. Having an ownership position, or short position, in a company often screws around with people emotionally and psychologically. Do not underestimate the power of doubt avoidance tendency and inconsistency avoidance tendency, especially when mixed together.

 

I think we're all aware that many investors are arrogant at the best of times, and outright delusional at the worst. I would just keep that in mind and use other investors - long or short - as a way to discover new facts that I had not yet considered, but make sure to analyze those facts for myself. That's what I use this forum for, personally.

 

It doesn't matter to me what your opinion is so long as it is based on actual facts, as opposed to those conjured up to rationalize an investment decision. I am not saying you have done this - I am referring to people generally.

 

I think you´re still missing my point. Note that many of the longs here have been trying to kill their thesis and that in my original post I am actually recognising that I am fallible.

 

Remember that you are making decisions under uncertainty, no matter the amount of facts you gather.

[LC]

I'm feeling feisty this afternoon, so here is an attempt to question the long thesis:

 

-Who is shorting this? Why are they continuously paying absurd borrow fees? How long as the short interest been so high comparable to the "true/freely traded float"? Was the "squeeze" really a squeeze and not just Eddie/Bruce buying more and more of a falling share count?

 

-Speaking of Eddie/Bruce, is this their big mistake? People seem to think they are the next calling of Buffett, but maybe not. Buffett was acquiring other businesses under Berkshire. Eddie has had 7? years now. Where are the other businesses?

 

-Is the RE really worth all that it is? The RE market is good now, will it be that way forever? How much can they REALLY liquidate?

 

-What about the pension? What if the market falls, QE continues, and the pension liability does not shrink or maybe grows?

 

-What if their IP is not worth what you think it is? Can they really realize the value of their IP if they don't have Sears outlets to sell it?

 

-Shopyourway is a test. What if it fails? Can they really compete with Amazon?

 

-Data centers? Sounds like a half baked attempt to monetize the RE that Sears can't do anything with. Is installing datacenters really the first choice? Why doesn't Eddie just sell the property? He can, can't he...?

 

-What if the retail footprint keeps eating up capital. Eddie could plow money into a bunch of test ideas and they fail, burning more and more cash. He is a hedge fund manager, not a nationwide retail & real estate operator.

[no_free_lunch]

LC, I hear you.  I made a quick 50% on sears and sold out a couple weeks ago when it was above $60.  It was a no-brainer at $40 but at $60, it's trickier.  I don't think it can be maintained at $60 without some turnaround operationally.  However, it seems just about every retailer is reporting horrible comps.  If abercombie is losing market share, then how is sears doing?

 

I also worry about the RE.  I have read that the US has significantly greater retail space per capita than most other countries.  With online ripping into traditional retailers, you might have to make a lot of data centers.

 

The US has 23 sq feet per capita of retail space (but as much as 46.6 sq feet). It’s difficult to come by reliable numbers, but that compares to 14 sq feet in Canada, 6.5 sq feet in Australia, 2.3 sq feet in France and 1.1 sq feet in Italy.

 

http://www.forexlive.com/blog/2012/12/05/the-massive-us-bubble-that-no-one-talks-about/

 

It seems so much relies on the short-thesis and Eddie's magic abilities.  To me neither counts as a true margin of safety.

[heth247]

LC, I hear you.  I made a quick 50% on sears and sold out a couple weeks ago when it was above $60.  It was a no-brainer at $40 but at $60, it's trickier.  I don't think it can be maintained at $60 without some turnaround operationally.  However, it seems just about every retailer is reporting horrible comps.  If abercombie is losing market share, then how is sears doing?

 

I also worry about the RE.  I have read that the US has significantly greater retail space per capita than most other countries.  With online ripping into traditional retailers, you might have to make a lot of data centers.

 

http://www.forexlive.com/blog/2012/12/05/the-massive-us-bubble-that-no-one-talks-about/

 

It seems so much relies on the short-thesis and Eddie's magic abilities.  To me neither counts as a true margin of safety.

 

What makes you think "it is a no-brainer at $40"? Was it because you find some true margin-of-safety at $40? If so how did you come up with the number?

 

What if it dropped to $30 instead of bouncing back to $60 over the last month, would you still think $40 as a no-brainer?

[Luke 532]

It seems so much relies on the short-thesis and Eddie's magic abilities.  To me neither counts as a true margin of safety.

 

The short-interest has absolutely zero impact on my investment thesis.  It is a separate phenomenon in which I have placed multiple trades via call options.  If nobody was short I would still have the same number of shares (albeit the entry price would likely not have been as attractive without shorts driving it down so much).

 

My long thesis is based on sum-of-the-parts, which I believe far exceed the current valuation the market is giving SHLD.  The fact that Lampert is an excellent capital allocator helps in my conviction that adequate value will be extracted from their vast array of assets, but any of Lampert's "magic abilities" are just gravy.

[no_free_lunch]

heth247,

 

Not a no-brainer in the sense it couldn't go down.  If it goes bankrupt, disorderly liquidation, etc (which I still don't think is likely), then yes $25-30 is quite possible.  I just mean I didn't have to get too particular with the RE valuation, the value of the inventory, etc.  I did some work on the RE value but with the leases it is just a black box.  However, being fairly conservative it wasn't too hard to say the thing should be worth $40-80.  That is my crude estimate of fair value.  Could be worth more but again without knowing the details of the leases it's hard to say.

 

So at $40, when I think it's worth $40-80 (and again I'm being conservative, could be worth more), that's what I meant by no-brainer.  You also get the short-squeeze thrown in for free.  At $60, eh...., it's trickier.  Could be worth more but operations really do need to turn around soon.

 

EDIT:

 

To further address your question on how I come up with IV, this is what I posted earlier.  It is basically just ramblings, but it is based on a number of factors that I am trying to juggle.  Sorry to all for reposting my own comments.

 

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:

 

Quote

 

    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

[ragu]

If Eddie turns SHLD around or turns it in to a legitimate capital allocation vehicle, I'll be on board with him until he decides to retire - even if I do have to pay a higher price for entry.

 

Agreed. I think it's pretty clear that Eddie's legacy will be SHLD. What is less clear is when he will start running it as a capital allocation vehicle (w/o having to deal with the retail turnaround) and how much capital is available to him at that point.

 

As you say, you'll end up paying a higher price for entry when these issues are clearer. However, if you have a long-term investment horizon, you don't need a distress price when you have a brilliant capital allocator at the helm, in order to do well.

 

Best,

Ragu

[Luke 532]

Agreed. I think it's pretty clear that Eddie's legacy will be SHLD. What is less clear is when he will start running it as a capital allocation vehicle (w/o having to deal with the retail turnaround) and how much capital is available to him at that point.

 

Question to ponder... which is more likely?

(A) Lampert has SHLD as his sole investment but never turns it into his permanent capital allocation vehicle and just runs it as a retailer, or...

(B) Lampert does make SHLD his permanent investment vehicle

 

To choose "A" one would have to come to the conclusion that a self-made billionaire, who made his money through investing in a hedge fund environment, would all of a sudden put all his eggs in one basket in the retail sector and try to run it himself rather than a permanent investment vehicle.  Yes, AutoZone and AutoNation were retail but he is MUCH more involved in SHLD's day-to-day operations than he ever was in those other names.  Unless he has gone crazy, I don't think option "A" is very likely.  Option "B" seems to be a much more plausible result, in my opinion.

 

Note: obviously these aren't the only two possible outcomes, but I was just trying to make a point.

[bobp]

LC  "-Speaking of Eddie/Bruce, is this their big mistake? People seem to think they are the next calling of Buffett, but maybe not."

 

Two smart value guys owning so much of the company could also be seen as a problem. Why are all the other smart value guys not touching Sears. Why does a Mike Price not see the value in Sears? I wonder if Lampert is colossally wrong and almost everyone else sees it.

 

Edit: That should read all the other smart value guys other than our host Parsad and the longs here.

 

Btw, I like this board. It's interesting reading. And the short squeeze conversation was a good one.

[Kraven]

This thread is kind of strange.  No matter what is posted there are any number of people who then respond saying everyone involved in Sears is a sucker and that no rationale for investing has been offered other than as a result of a short squeeze.  Likewise, there are people who post who effectively say that Eddie and Bruce are dreamy and can do no wrong. 

 

In my reading of this thread there has been both good and bad information.  There has been good analysis of the capital structure, including the guarantor/non guarantor arrangement.  There has been fluff as well.  Kind of like . . . just about every other longer thread on the board.  Since last I checked the future isn't knowable, some will be right and some will be wrong.  But I do think there is enough solid posts here that one has a nice headstart on whichever path they want to follow.