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"Homer vs. Patty and Selma" is the 17th episode of The Simpsons' sixth season. This episode was originally broadcast on February 26, 1995. Homer attempts to earn some money through investing, and decides to invest in Halloween pumpkins."
Homer: "This year I invested in pumpkins. They've been going up the whole month of October and I got a feeling they're going to peak right around January. Then bang! That's when I'll cash in"
@Charles, I wonder if the FAAFX portfolio holdings or weightings have changed? I sketched out the math and can't see how it went up 6.58% today.
Should have gone up 2.63% just as a result of Sears alone....and I can see an increase of to a total of roughly 3% for FAAFX, as CHK, LE, and HOFD all had nice gains.
Don't see other winners sufficient to propel the fund to a 6.58%, unless the weighting in SHLD is a lot higher than the stated 8.48%
My guess is that the weighting in SHLD could be much higher than stated.
@Charles, I wonder if the FAAFX portfolio holdings or weightings have changed? I sketched out the math and can't see how it went up 6.58% today.
Should have gone up 2.63% just as a result of Sears alone....and I can see an increase of to a total of roughly 3% for FAAFX, as CHK, LE, and HOFD all had nice gains.
Don't see other winners sufficient to propel the fund to a 6.58%, unless the weighting in SHLD is a lot higher than the stated 8.48%
My guess is that the weighting in SHLD could be much higher than stated.
Any ideas?
Berkowitz was buying Sears over the last couple of weeks and that is probably not reflected - that may have contributed.
Up to 300 stores to be sold. If they want to make it an online presence, they still have to change the whole model of what Sears is. In its current form even a online store will fail. There are too many other places that shoppers can go online and do the same thing. Sears has to be different.
Now, Berkowitz has been buying blocks of shares as was noted in the original post of this thread. @Charles mentioned insider trading. It sure seems like it. If the pattern of buying just started some days ago, maybe a deal was in the works? All speculation on my part but it doesn't smell right to me.
Don't see other winners sufficient to propel the fund to a 6.58%, unless the weighting in SHLD is a lot higher than the stated 8.48% My guess is that the weighting in SHLD could be much higher than stated.
++++++++++++++
Berkowitz was buying Sears over the last couple of weeks and that is probably not reflected - that may have contributed.
++++++++++++++++++++++ I did a rough calculation:
14,212,673 : number of Sears shares in FAIRX 880,900 : number of Sears shares in FAAFX
15,093,573 : total Sears shares FAIRX and FAAFX combined
992,400 : new Sears shares purchased in October (added up all the purchases in Scott's post, subtracted the shares sold)
He increased his Sears position by 6.58% total shares. We don't know how they were distributed into FAIRX vs. FAAFX vs. any other location. I believe he also has a hedge fund.
Up to 300 stores to be sold. If they want to make it an online presence, they still have to change the whole model of what Sears is.
Sears is selling the stores to the REIT and leasing them back. So, effectively, Sears is the tenant of the REIT in those cases. It's sort of what Ackman wanted Target to do several years ago, but Target wasn't having it.
If Sears does this REIT, "While the REIT move would raise money, it also would bring additional expenses. McGinley estimates that the company would pay about $150 million in mall rents if it goes through with the plan. It’s one additional burden on a company that’s burning over $1.5 billion in free cash flow,” he said. “This places Sears as a retailer in a more precarious predicament.”"
"Investors have speculated ever since that part of the attraction for Mr. Lampert was the underlying value of Sears's real estate. Yet, only a quarter of Sears mall stores are in the best centers, with the rest in average and even subpar malls, according to Green Street Advisors, a real estate research firm."
"Not all of Sears’s space is in prime locations, though. About 27 percent of the company’s square footage lies in what CoStar Portfolio Strategy calls “weak local trade area demographics.” That means households in the surrounding neighborhood aren’t big spenders.
An additional 23 percent of Sears’s space is in “questionable” locations, with somewhat better buying power, according to Suzanne Mulvee, CoStar’s director of research in Boston."
If they are leasing back the stores, it's effectively providing a liquidity boost in the near-term. Why are they not just getting rid of this valuable real estate outright? You have this case that Simon Properties has X amount of space and Sears also has a huge amount of retail space, but that doesn't mean that the quality of the real estate is at all similar.
There's value there, but I think the relative silence in terms of people interested in buying this space from Sears over the years speaks volumes as to the value of it.
There's a ton of net lease REITs in existence. No one wanted to take this on? I do think it will be interesting to see the reaction to the Sears REIT from the standpoint of showing what the market thinks of the value. If some other REIT took this on, that's one thing, but this will be a purely Sears REIT and will be judged as such when it starts trading.
Meanwhile, you effectively play a game of Jenga with the core business, taking out parts and pieces and weakening what's left of the core. All of this discussion about Sears creating a member-centric retail operation is incredibly unrealistic from the standpoint of, you have a CEO who has neglected the retail operations for years and suddenly he goes, "Lets be Costco, only without the membership fees or value proposition." I've said previously, either Lampert is not being honest (this was never about a turnaround of the retail, and Berkowitz has said as much in an interview) or he really does think a turnaround of the business is possible and in that case, I think that's almost laughable.
Meanwhile, he's dragged out his time wrecking value at Sears to what, almost a decade now? He has a legacy as a skilled and intelligent investor. He's been a complete disaster as a retailer and as an investor, he's attempted to turn Sears - still a very large company - into his own personal financial Frankenstein experiment. Take a classic American brand and add the worst aspects of financial engineering, take nearly a decade and wind up with enormous losses and a more irrelevant brand than ever. Just take the thing private already.
Even if the store is in a decent mall it might have a poor location inside that mall. As I mentioned previously, the Sears I see are usually at the ends where the traffic would be exclusive to Sears and not the pass by foot traffic of a good location. The reason is facilitating appliance sales and the auto center.
I would be curious too how ESL is doing at the present.
At this stage of life the only tool I use is a screw driver, and I don't know or care where it is made.... but my TV is Samsung, and I wouldn't trade it for any other
I'm heavy in FAIRX and FAAFX. I'm planning to hold. I remember all those investors in Ken Heebner's funds, CGMFX, etc, who sold at the end of a long stretch of underperformance and bought at the end of a long stretch of overperformance.
Berkowitz surely has seen all those studies of Sears and he keeps buying. He sees something we and the rest of the market don't. That's what I pay him for. Maybe his vision is bad, but I plan to give him a couple more years.
Regarding the Sears bonds, are these senior bonds? If so, I wouldn't be as worried. In bankruptcy the senior bonds are ahead of unsecured bonds and common stock.
The bonds in the ridiculously complex rights offering are unsecured. Lampert has secured and I'm not sure what Fairholme currently has (I'm guessing secured?)
Although an extreme case, what happened with GM would keep me from buying any bonds in such a situation. Precedents were set.
Agree John, if you don't have confidence in the company, why would you invest in their bonds? If they go out of business, is there any guarantee bondholders would be paid off in full?
Comments
Up 14.3% this past month.
Which means I'm only down 3.7% YTD. Yeah!
Maybe one day FAAFX will deliver the Great Pumpkin!
c
btw Charles, I've updated my Firefox variant browser and now it can see your dashboard!
"Homer vs. Patty and Selma" is the 17th episode of The Simpsons' sixth season. This episode was originally broadcast on February 26, 1995. Homer attempts to earn some money through investing, and decides to invest in Halloween pumpkins."
Homer: "This year I invested in pumpkins. They've been going up the whole month of October and I got a feeling they're going to peak right around January. Then bang! That's when I'll cash in"
I sketched out the math and can't see how it went up 6.58% today.
Should have gone up 2.63% just as a result of Sears alone....and I can see an increase of to a total of roughly 3% for FAAFX, as CHK, LE, and HOFD all had nice gains.
Don't see other winners sufficient to propel the fund to a 6.58%, unless the weighting in SHLD is a lot higher than the stated 8.48%
My guess is that the weighting in SHLD could be much higher than stated.
Any ideas?
But it almost seems like insider trading, no?
I'm almost afraid to ask...
Sounds to me it is the volatility associated with Fairholme Funds that has made you wanting to seek alternatives.
FAIRX this decade is certainly more volatile than FAIRX last decade.
Serendipity or change in style?
http://www.reuters.com/article/2014/11/07/us-sears-holdings-reit-idUSKBN0IR13B20141107
Up to 300 stores to be sold. If they want to make it an online presence, they still have to change the whole model of what Sears is. In its current form even a online store will fail. There are too many other places that shoppers can go online and do the same thing. Sears has to be different.
Now, Berkowitz has been buying blocks of shares as was noted in the original post of this thread. @Charles mentioned insider trading. It sure seems like it. If the pattern of buying just started some days ago, maybe a deal was in the works? All speculation on my part but it doesn't smell right to me.
Berkowitz was buying Sears over the last couple of weeks and that is probably not reflected - that may have contributed.
++++++++++++++++++++++
I did a rough calculation:
14,212,673 : number of Sears shares in FAIRX
880,900 : number of Sears shares in FAAFX
15,093,573 : total Sears shares FAIRX and FAAFX combined
992,400 : new Sears shares purchased in October (added up all the purchases in Scott's post, subtracted the shares sold)
He increased his Sears position by 6.58% total shares. We don't know how they were distributed into FAIRX vs. FAAFX vs. any other location. I believe he also has a hedge fund.
http://www.insidermonkey.com/hedge-fund/esl+investments/14
http://www.tilsonfunds.com/pdf/A Tale of Two Stocks-Kiplinger's-8-11.pdf Sears is selling the stores to the REIT and leasing them back. So, effectively, Sears is the tenant of the REIT in those cases. It's sort of what Ackman wanted Target to do several years ago, but Target wasn't having it.
If Sears does this REIT, "While the REIT move would raise money, it also would bring additional expenses. McGinley estimates that the company would pay about $150 million in mall rents if it goes through with the plan. It’s one additional burden on a company that’s burning over $1.5 billion in free cash flow,” he said. “This places Sears as a retailer in a more precarious predicament.”"
They've sold a number of the best locations already, including the most profitable in the chain to General Growth. (http://online.wsj.com/articles/SB10001424052702303643304579109023202738550)
"Investors have speculated ever since that part of the attraction for Mr. Lampert was the underlying value of Sears's real estate. Yet, only a quarter of Sears mall stores are in the best centers, with the rest in average and even subpar malls, according to Green Street Advisors, a real estate research firm."
http://www.bloomberg.com/news/2014-11-07/sears-considers-sale-and-leaseback-deal-to-strengthen-finances.html
"Not all of Sears’s space is in prime locations, though. About 27 percent of the company’s square footage lies in what CoStar Portfolio Strategy calls “weak local trade area demographics.” That means households in the surrounding neighborhood aren’t big spenders.
An additional 23 percent of Sears’s space is in “questionable” locations, with somewhat better buying power, according to Suzanne Mulvee, CoStar’s director of research in Boston."
If they are leasing back the stores, it's effectively providing a liquidity boost in the near-term. Why are they not just getting rid of this valuable real estate outright? You have this case that Simon Properties has X amount of space and Sears also has a huge amount of retail space, but that doesn't mean that the quality of the real estate is at all similar.
There's value there, but I think the relative silence in terms of people interested in buying this space from Sears over the years speaks volumes as to the value of it.
There's a ton of net lease REITs in existence. No one wanted to take this on? I do think it will be interesting to see the reaction to the Sears REIT from the standpoint of showing what the market thinks of the value. If some other REIT took this on, that's one thing, but this will be a purely Sears REIT and will be judged as such when it starts trading.
Meanwhile, you effectively play a game of Jenga with the core business, taking out parts and pieces and weakening what's left of the core. All of this discussion about Sears creating a member-centric retail operation is incredibly unrealistic from the standpoint of, you have a CEO who has neglected the retail operations for years and suddenly he goes, "Lets be Costco, only without the membership fees or value proposition." I've said previously, either Lampert is not being honest (this was never about a turnaround of the retail, and Berkowitz has said as much in an interview) or he really does think a turnaround of the business is possible and in that case, I think that's almost laughable.
Meanwhile, he's dragged out his time wrecking value at Sears to what, almost a decade now? He has a legacy as a skilled and intelligent investor. He's been a complete disaster as a retailer and as an investor, he's attempted to turn Sears - still a very large company - into his own personal financial Frankenstein experiment. Take a classic American brand and add the worst aspects of financial engineering, take nearly a decade and wind up with enormous losses and a more irrelevant brand than ever. Just take the thing private already. How much in the way of redemptions has Lampert seen due to Sears? Probably lots.
http://dealbook.nytimes.com/2013/12/05/investors-pull-back-from-lamperts-fund-2/?_r=0
I would be curious too how ESL is doing at the present.
http://www.fool.com/investing/general/2014/11/08/believe-it-or-not-this-retailer-has-the-worst-repu.aspx
Berkowitz surely has seen all those studies of Sears and he keeps buying. He sees something we and the rest of the market don't. That's what I pay him for. Maybe his vision is bad, but I plan to give him a couple more years.
More than 26% of the portfolio is a Sears bond.
You are a jewel.
http://www.bloombergview.com/articles/2014-10-30/sears-has-a-deal-to-offer-its-shareholders
Get a $500 bond (five-year maturity, 8 percent coupon, senior unsecured at Sears Holdings)
This type of situation reminds all of us to be aware of that alarm when it goes off in our head