Saturday, February 28, 2009

Lambasting Eddie Lampert

Jeff Macke of Fast Money on CNBC recently wrote an article lambasting Sear's Eddie Lampert. It is the quintessential "noise" write up.

Merely in the title, Macke messes up, not knowing what Lampert does-act as the Chairman... The CEO is Bruce Johnson (for now).

In the article, there were a bunch of gems like this:
“A dirty store,” Ken Macke told me, “is a f**k-you to the customer”. I’ve never been in a Sears or Kmart that didn’t all but scream that vulgarity at me the instant I walked in.
As a customer I may hate that too. But I could safely assume that a dingy store means (all things equal):

1)I can get a better price on what I buy
2)The owners of the company have a high return on invested capital
3)The company is slowly dying (in which case, #1 may still be relevant)

Speaking of dingy places-you ever buy jewelry at a pawn shop? If so, you certainly got a much better deal than you ever could of at a retail store. The pawn shop assuredly made a killing on the sale too. Everyone wins; unless you believe in bad karma. Buying stock in SHLD at a discount (and to a greater extent, value investing) is similar to buying jewelry at a pawn shop-it may not be popular to do or have a pretty location-but at the end of the day your getting a great asset at a cheap price.

Another bothersome point made was in regard to how Lampert "effectively cashed out to the tune of $5 billion dollars in January of 2007 with SHLD in the high 170s". I have no idea what this is related to-there was a big option exercise by Third Avenue-SHLD certainly didn't issue shares, and ESL hasn't had any significant sales of stock... Regardless, Lampert represents more SHLD stock than anybody on the planet, as such, it is safe to assume that it is do or die for he, his hedge fund, and his company.

Macke states "I weep for the shareholders because, by definition, they were too poorly informed to know better than to trust Mr. Lampert to look out for them." Wow! Apparently Bruce Berkowitz is a jackass for riding the stock down! This, being despite buying in at a level at which the company could liquidate and the average purchase still be in good shape. I will again point out that Lampert represents over 50% of the stock, and is looking out for himself-and by extension, all shareholders.

My favorite jab at Lampert is when he is called 'amoral'. Normally, this is a form of respect that I would expect to hear thrown at Carl Icahn (in both cases, despite doing more for shareholders than most managements).

I guess that the bottom line is this: Either SHLD is the most elaborately misconstrued and covered up collapse of a retail giant ever (complete with recent share repurchases and all), or the market is simply to manic in it's valuation of the company. While I own no shares of SHLD, they certainly seem compelling at the moment (especially with the large short interest). While I disagree with many of the points made, I hope that Macke's article sends the stock to $5 bucks a share-I would sell everything I own and live in a cardboard box to buy SHLD stock.

If the lack of numbers in this post bothers you, I would suggest that you go to Noise Free Investing, Can Turtles Fly?, or Compounding Machines for some excellent SHLD analysis... take your pick, all of us value geeks think roughly the same way-some just use more numbers than others!


Mark Perkins said...

I kind of feel sorry for Macke if his dad was cursing around him when he was 5. maybe not true but who knows. I saw in his bio he is on the board of Duckwall-Alco. now thats a terrible share price

Anonymous said...

When I walk into a dingy retailer, I think, "The Customer Service probably sucks." In the case of Sears, I know this to be true from second- and first-hand reports. As for Kmart, why would you think a dingy store means lower prices? It's demonstrably true that Target and WalMart have not only clean, well-arranged stores but lower prices to boot, in almost all cases.

As for the value of Sears stock, I don't know much about that. However, I'm sure it will rise in the short-term. As for the long-term? Well, here's to hoping investors can dump the stock before it begins its inevitable decline.