bargainman

2 things to consider - Eddie is an insider, and knew about the lousy performance coming up, so maybe he couldn't sell. - SHLD's float is small and has been shrinking, and Eddie owns most of SHLD, so who's he going to sell to? Selling AZO might have been his only option. Although I suppose he could have distributed SHLD shares 'in kind', since it sounds like that's what he did with AZO anyway..

From a price only perspective of MBIA - this is true. However, I am of the belief that once the lawyers and the judges got involved with MBIA then the law changed which flipped the analysis. In the end, we are in the probability business, not the certainty business. One could fault Whitman on this specific case, but much like John Bogle, he has been a steward of the mutual fund industry. Cheers JEast sorry if you want to be a "steward" you better have lower fees than he does. Yeah I wouldn't put him anywhere near the same class as Bogle. Vanguard is shareholder owned, I don't think third avenue is. Plus they have rock bottom fees, are one of the largest in the industry, plus Bogle talks out about all sorts of abuses and excess, I haven't heard Whitman do that. Bogle is a constant advocate for the individual investor. I don't know what happened in this case exactly but I read a reasonable amount by Whitman and Ackman. When Whitman threw in the towel he basically said that he didn't realize he was dealing with toxic management and that was what broke his thesis.

JEast, Whitman also was pounding the drum on MBIA back when Ackman was shorting it. We know who won that one.... Just pointing out he's been wrong before.... (as we all have :-) )

I have been saying this for 2 years.... Because... he doesn't know!!!! He knew when he bought it.. he was going to liquidate.. then he realized he didn't want the firing of several hundred thousand employees and their families on his hands/conscience, so he changed his mind. Then he approached it in a data centric logical sort of way and said he would try a different thing in every store and see what worked, look at the data, and replicate the things that worked and kill the things that didn't. But from what I read the execution was lacking.. Hence it was a case of garbage in garbage out on the data. Then he got that biggest financial crisis and credit crisis and real estate crash since the great depression on his hands. Then he kept not investing in the stores which made the business and the business's reputation deteriorate... He's smart but he's no oracle. I'm sure he has some general plan, but I'm sure it's fluid.. and when your plan is fluid sometimes it's better not to communicate it lest you get a cognitive bias, the same reason Pabrai doesn't discuss his investments... The other thing about that Buffett quote... “When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” It doesn't quite apply since Lampert never had a reputation for brilliance when it comes to management, just investment. That's a whole different ballgame.

Are you sure about this? Since I own some shares, everytime I want something related to tools or appliances I always check out Sears, and invariably I can find the same thing elsewhere cheaper, sometimes significantly so and sometimes with better terms. For example I was looking for a deep freezer, and found one cheaper at Costco with it's fabulous no questions asked return policy. Every time I've read Lampert's letter, I remember him talking about how they don't want to compete on service and the overall experience, not price. With Walmart, Amazon, Home Depot, and Costco competing on price, I'm not sure what else they are going to compete on. Target kind of competes on price and convenience.. Not sure about others...

On my bought shares I participate in Interactive Brokers' "Stock yield enhancement" program which gives me some money for lending my shares out. I'm not sure if it's enough to offset the advantage of doing a synthetic long, but it's something. Also I'm not sure if anyone saw this analysis, but would appreciate comments. They supposedly take the real estate and assets into account, and still come up with $6/share target. According to them it's the deteriorating cash flow plus the pension liabilities. http://notablecalls.blogspot.com/2011/12/sears-holdings-nyseshld-worth-6.html Sorry if that's been posted already, I haven't worked my way through all the SHLD threads just yet :-)

This article seems strangely relevant... http://www.mnn.com/green-tech/transportation/blogs/supercars-and-the-dictators-who-love-them

"Isaacson writes that after helping choose the name Lisa, Jobs refused to acknowledge paternity for years, even after a court-ordered DNA test proved he was the father." wrt employees it wasn't anything they did, it was Jobs. That was who he was.

Here's a simple solution that I haven't seen anywhere. Just let people who are underwater refinance. No mortgage forgiveness, just refi their current principle at today's rates. Banks wouldn't have to take a writedown cause they are still going to get the money back. I don't understand why banks don't do this today. I know someone who bought at the peak, put 20% down, took a 30 year fixed, and bought a house within their means, unlike a lot of others around them. Now the house dropped in value about 45%. The bank won't refinance unless they put another 20% equity (80% loan to value), meaning they would have to basically put almost another 40% down, on top of the original 20%, which they aren't going to do. But it's the same house on the books that's backing the loan so the reality is that it's not more risk since it's the same collateral before or after the refi. if the banks would just let people who are underwater refinance without forcing them to put down another 20-40% in equity their payments would go down significantly. The peak was around 2006-2007, so that would only add another 5 years to the loans if they were 30 year fixed... Or just refi at todays rate for 25 years instead of 30 without requiring a loan to book of 80% on a current property that already has a loan to book of 115%+! It seems like everyone out there wants to help the people who should not have been in their homes to begin with, just to keep them in! How about helping the responsible ones who got screwed even though they thought they were being responsible? And in the process not screwing anyone really!?

Sorry if I'm being dense but what does he mean by 'side pocket'?

I haven't seen this posted here yet: http://www.truth-out.org/goodbye-all-reflections-gop-operative-who-left-cult/1314907779 it's a very shocking view of what's going on, by a previous GOP guy who quit cause he couldn't take it anymore. How Obama was meant to get past this sort of stuff is pretty hard to see. But maybe if had better relationships it wouldn't have happened in the first place. I remember reading a book call "After the fact" on why some presidents were a lot more effective than others, even though it shouldn't seem like they should be. I think they used Jimmy Carter as an example. The main point was that presidents who had been around the legislature for a long time, had done people a lot of favors. As a result they had a lot of political capital coming into the presidency. As a result, those presidents tending to be rather effective, whereas the others did not. I guess it's just Cialdini's reciprocity principle.

The thing I'm confused about is how he repeats over and over again that their focus is combined ratios and profitable underwriting... However on this board everyone is constantly talking about how they are a mediocre insurance writing operation, and their real strength is the investing side. If I remember correctly their recent combined ratios have not been stellar. How do we reconcile what he says about their focus on underwriting profit, and their lack of underwriting profit?? Can someone more experienced w/ FFH explain this? thanks..

Take a look at M. Lewis's article on Greece, then decide if it was a political or cultural problem: http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010

None of this is the point. Of course NFLX is still a good deal.. problem is that Reed has created the classic case of false scarcity. Anyone who has read Cialdini's book influence will recognize what he has done immediately. You don't give people something for free, and then take it away or charge for it.. Or if you do so you don't do it all at once in a massive big publicized move. Check out this page, about half way down: http://books.google.com/books?id=mTYj9XUlYvMC&lpg=PA246&ots=9Z9yAkbcmZ&dq=cialdini%20influence%20revolution&pg=PA257#v=onepage&q&f=false This sort of newly experienced scarcity is what caused revolutions. He should have known better.

Wow, this is really something. She's really something. I guess I hadn't done much research on her, but my earlier impression was that she had done a pretty good job at Autodesk, was that not the case? But boy this is the stupidest thing I've seen a CEO/ex CEO do in a while. WRT handling analysts and media, perhaps Nardelli or the guys over at ATPG could give her a run for her money :-P Also just saw this: http://finance.fortune.cnn.com/2011/09/08/carol-bartz-yahoo-disparagement/ Apparently she had a non-disparagment clause that could cost her 10 million, although rumor is that Yahoo won't act on it..

Packer, This is interesting. But I think that what you are saying in effect is that the standards that the president should be held to higher than the standards each and every congressperson should be held to. I guess I agree in principle that that higher office should have an exceedingly high standard wrt leadership ability. However there are 2 sides to each negotiation. Obama IMO has tried harder than the republicans to strike deals including more Republican principles. Now with regards to his effectiveness. What is frustrating is what you pointed out.. that clearly something 80%+ of the population is in favor of can not be passed. Why is that? Well you can either attribute that to Obama's ineffectiveness, or you can attribute it to the effectiveness of a small minority to control the agenda through tactics like fillibusters etc. I'm not sure if this is accurate: "Obama on the other hand developed a relationship with one senator so he could get 60 votes in the Senate. No outreach to anyone in the opposition until he was forced to with Boener and then only the minimal effort to appear to be working with him." I assume you've researched this more than I have though. I guess I don't keep up on the details of washington relationships, but given Obama's youth and inexperience, what you wrote would not surprise me. The thing that strikes me is that the climate seems very different than from the Reagan era. There was a great speech or write up a few months or a year ago by a long time congressman or senator. (I can't remember his name, but someone did post it here). He talked about how much things have changed since the Reagan era. He said back then that congressmen moved to DC and worked with eachother, and worked hard to govern, whereas now since the Newt(?)/Clinton time, all freshmen congressmen are forced to work the polls back home all the time to keep the party in power, the heck with governing! The speech had a lot of eye opening comments. Does anyone remember the link/speech I'm referring to? The other thing I found frustrating was the recent 'debate' where every candidate said they would not accept an increase in taxes even if it came bundled with a 10x or 12x decrease in spending. (I don't remember the exact ratio). I find that incredibly frustrating. I mean how is that fiscally conservative at all? It's frustrating that neither party is fiscally responsible. Even Reagan raised taxes. Anyway all I can say is that I hope things improve. It's hard to watch this circus over and over again... I must say I'm happy that we can discuss politics on this board with respect and a calm demeanor, something one can not say about the media in general and a lot of the internet. It says a lot about the quality of people on the board. Thanks to all of you, and Sanjeev of course!

Packer, but who's fault is that? It seems to me that Obama is always making gestures to the other side. But those are regularly rejected. During the debt ceiling debacle it sounded like he was willing to cut into medicare and medicaid, and anger a lot of his party, but the one thing he asked in return was an increase in taxes for the wealthy, but there was no willingness to budge from the other side, not an inch. Do you not see it that way? I'm not defending Obama per se, but in order for a respectful relationship to emerge, both sides must be open to that. I personally perceive that Obama is, but the other side is not. But I'd be interested in hearing another opinion. The other thing that makes me think this is the fact that the use of the fillibuster was unprecedented. I read somewhere that the republican party used the fillibuster more times in the first 2 years than it had been used in a decade or more. Thanks.

There's a lot of great advice out there on this.. Here's one funny article, along the lines of "eat that frog" http://www.43folders.com/2005/05/23/cringe-busting-your-todo-list

I think Bigs has done himself some major damage with his premature moves. All the things he's done basically are making it easier for companies to fight him off, and harder for him to take the high ground and go after 'crappy boards'. This article shows this perfectly.. Nice letter by the CBRL CEO: "Biglari Holdings is currently seeking approval by its shareholders to create a two-class capital structure, including Class B shares with only 1/100th of a vote. As stated in its July 5, 2011 proxy statement, “Biglari Holdings is in the business of acquiring other businesses,” and it intends to issue the low-vote Class B shares in acquiring other companies without significantly diluting the voting power of Biglari Holdings shareholders who retain Class A shares. Although Mr. Biglari stated to senior management and members of the Nominating and Corporate Governance Committee on several occasions that he had a significant agenda in seeking to join the Board, he consistently refused to articulate that agenda. In this context, the Board is concerned that Mr. Biglari may place the interests of Biglari Holdings above the interests of Cracker Barrel shareholders. The Board views Mr. Biglari’s actions as chairman and chief executive officer of Biglari Holdings as shareholder-unfriendly and inconsistent with the highest standards of corporate governance, including: engineering a reverse stock split in a manner that precluded many individual investors from owning the stock (and attempting a second reverse stock split that was abandoned only after substantial investor criticism); attempting to create a two-class stock ownership system that would permit Mr. Biglari and others owning a relatively small economic stake to control the company’s vote; and attempting to institute an excessive and uncapped compensation scheme for Mr. Biglari that was only modified after substantial investor objections.""

Exactly. Some forget how dark those days were, but I remember. The freeways in silicon valley were like something out of the dust bowls (hyperbole but just barely). There were Ph.D's in CPSC from Stanford and Berkeley being sent back to their countries of origin because there were no jobs. Super qualified people were doing day long interviews involving implementing real code competing against eachother. it was really something. To contrast, today, perhaps in the midst of another mild tech bubblette, people are fighting left and right for tech talent. I know of several people who got lured away for big bucks at some other startup. As for capital allocation, I agree in the traditional sense of a value investor that Jobs doesn't fit the bill. But you know what, it's a darned good thing that value investors don't run tech companies or you'd end up with a million HP Mike Hurds cost cutting everything into the ground. As far as allocation of capital, he cut a pile of projects (Newton anyone?), Apple has the most streamlined product portfolio of any computer company. The fewest skus. Jobs once said their entire product portfolio could fit on a board room table. They have a million ideas and only the very very best make it to production and then in a massive focused way. They cut everything else out. This leads to massive scale because they can buy in bulk on the same components, plus massive leverage over their suppliers. During the Japanese Quake they literally sent execs to Japan with cash in hand to tie up the supply so no one else could get it. He understands a lot about capital allocation and the power of cash, not unlike another certain guru who always has cash and doesn't do buy backs... On top of that if you look at the ratio of $ spent on R&D vs MSFT or other tech firms, Apple spend a massively amount less. Yet they are the far more inventive company. That's capital allocation at its best, where the capital is spent on R&D. That said, does he put shareholders first and foremost? of course not.. But in a way, by putting the product and invention and ecosystem and customer above all else... he does. That's the odd dichotomy of the tech world and Apple.

What has Lampert's record in ESL been since he acquired SHLD? That's really the measuring stick one should use. He never claimed (to my knowledge) that SHLD was going to be his BRK. That was just speculation and hopeful dreaming on the part of value investors ... I think.

Does the PE 10 make any adjustments for financials?

Yeah, this quote kind of says it all: "Five years out of the University of Illinois, Andreessen sold his first startup, Netscape Communications, to AOL for $4.2 billion." We all know how well that turned out for AOL and AOL shareholders..

Remember, media sells.. advertising! The more alarming it sounds, the more clicks they gather the better! That's what they're selling. They aren't reporting news, they're selling advertising.. just remember that...

To me the question isn't just what's a value trap, but if so can I make money on it? SHLD seems like it will either hover around where it is or take off if Lampert finally decides to break it up or sell off the pieces. So I think it has some optionality. I doubt he'll run it into the ground, he's just too smart to do that. He's been delaying the decision to sell it off into pieces because he doesn't want to put so many people out of work. But at least in the letters he writes he does talk about putting the emphasis on mygofer and other initiatives, not the retail store itself. Now how much of his writings translate into reality I don't know. On the other hand I've never heard Lampert say that he wanted to make this his BRK. In fact I do remember an interview where he reportedly said he would sell SHLD one day. Buffett closed up shop at his hedge fund and told his partners that BRK was his new vehicle. Until Lampert does that I don't anyone should think that he wants to run this as anything other than a retailer. So back to the making money bit. I think if he doesn't do anything, in the meantime I can sell options on the insane volatility and make pretty nice annualized returns. Plus I can get the upside with less downside by doing what Ericopoly suggested in an earlier thread (selling 1 put and buying 2 calls 2013) since heavily shorted stocks like this do tend to have options mispricings. Just because something is a value trap doesn't mean you can't make an investment out of it. If Eddie does finally monetize the real estate (which fairholme once estimated to be 100+ a share conservatively) I think the stock could certainly move up.. In the meantime I don't think it's going to 0. The main risks imho are that he can't hold his shares because his ESL clients bail, and he's forced to liquidate, or that he takes it private at a low price and screws all other shareholders.. In the meantime I'm happy to earn some hefty premiums.. (oh, and lend out my shares to the shorts which also give me some hefty premiums...)