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Open Thread: What Are You Buying/Selling/Pondering
The Bifurcation of FAIRX...up 1.67% today (on a flat to down day). Bruce puts the "X' in excitement. Today I'm glad BAC is twice the holding SHLD is as part of FAIRX holdings.
@scott: CELG went nuts this AM, crossing 52-week high, before calming down a little. Long-time position for me, so it's nice to see that holding on pays off.
@scott: CELG went nuts this AM, crossing 52-week high, before calming down a little. Long-time position for me, so it's nice to see that holding on pays off.
I guess my view is this: it's not a fundamentally cheap stock in the way that Gilead is, but I do think that they have some very strong projections/goals for 2017/2020. While a good deal of their revenue comes from one drug, Celgene has created a surprisingly collaborative culture that I think has to be difficult in what I would imagine is a secretive industry. As a result, they've done a few big deals lately and that adds to a pretty terrific portfolio of partnerships. It's sort of a fund of exposure to other companies in some regards.
With recent deals and existing partnerships (as well as the indication that there could be others) plus what they have in their pipeline, I do think that there is a lot more to Celgene if you have a long-term time horizon and they are really trying to build for the future. The projections for 2017/2020 are - I think - compelling to the point where I feel comfortable with it as a long-term holding. I'm not going to add any more than I already have (it's already a large holding and I have so much in healthcare already, plus exposure to CELG via HQL where it's the largest holding, etc) but I'm not selling any.
On the flip side, I do think that Gilead is valued the way it is because of the uncertainty over the future. Celgene on the other hand continues to build the case for growth at least for the next half dozen years or so.
The Bifurcation of FAIRX...up 1.67% today (on a flat to down day). Bruce puts the "X' in excitement. Today I'm glad BAC is twice the holding SHLD is as part of FAIRX holdings.
"Shares of Sears Holding Corp (NASDAQ: SHLD) are trading down more than 4.2 percent so far today following Ackman’s comments that the company doesn’t have much left at this point."
Three of my biotech holdings (pcyc, geva and rcpt) have been aquired so far this year, valuation is high in the biotech sect. Glad bought two Chinese ADR QUNR and CTRP last week. CELG is very good at BD activity, personally think they got RCPT at good deal.
I am guessing the the real estate didn't have the value that Ackman expected? Or else, he is shorting the stock.
In that clip he goes into a longer discussion where he talks about how it is a difficult situation and that Lampert has taken a lot of assets out of the company, but acted like there is not much left in Sears as we know it. He also stated that while there is value, when you're losing as much as Sears has, that's eaten into a lot of that. The actual discussion is slightly more positive than the single line summary, but he still acts as if there's not much left in Sears as we know it.
I don't think Ackman is short Sears, he was just responding to a question from Cramer at the "Delivering Alpha" conference.
Whether its the seismic rise of biotech firms or the catastrophe loses of Sears, mutual fund shareholders travel in the coat pockets of their fund managers.
With Sears I wonder less about Lampert as an individual owner who has every right to pare off parts of Sears for his individual benefit if he can get away with it. Where as Bruce B has a duty (my opinion) to more than just himself. I would like to know how all of this (Lampert actions of gutting Sears) adds value (alpha) to FAIRX shareholders who are in the pocket of Bruce B.
As mentioned above, If a small investor owns biotech indirectly their coat pockets now feel fur lined as their "small change" is transformed into "folding money". FAIRX investors often don't appreciate the holes in the stitching of BB's fund and he has a duty to try and hold onto that "small change" by mending his coat pockets and occasionally stop by to make sure where still there.
Whether its the seismic rise of biotech firms or the catastrophe loses of Sears, mutual fund shareholders travel in the coat pockets of their fund managers.
With Sears I wonder less about Lampert as an individual owner who has every right to pare off parts of Sears for his individual benefit if he can get away with it. Where as Bruce B has a duty (my opinion) to more than just himself. I would like to know how all of this (Lampert actions of gutting Sears) adds value (alpha) to FAIRX shareholders who are in the pocket of Bruce B.
As mentioned above, If a small investor owns biotech indirectly their coat pockets now feel fur lined as their "small change" is transformed into "folding money". FAIRX investors often don't appreciate the holes in the stitching of BB's fund and he has a duty to try and hold onto that "small change" by mending his coat pockets and occasionally stop by to make sure where still there.
Everyone really has to make their own best judgement. I'm not going to always be right, ab-so-lutely. However, my view of Lampert is similar to that of the '80's Gordon Gekko style. In no way to I believe that Eddie Lampert is looking out for anyone but Eddie Lampert. When you take a company that is as large as Sears is (and despite the fact that Sears isn't what it once was, it is still a fairly large company) and basically try to turn it into a financial experiment that is kind of a "heads I win, tails I win" is dismaying.
There's a lot I agree with in the comments section, as well.
"Spreadsheet math: math that does not have recursion or dynamics. Ie, if a business is sucking because the biz sucks and it has a lot of biz specific assets (like strip mall property) then spreadsheet math doesn't iterate to: hmm, maybe those biz specific but fungible assets are impaired too?"
I think this is something that has always bothered me about the bull case of Sears. Eddie Lampert has basically done a terrible job running Sears the retailer, but the bull case doesn't seem to take into account that the increasing irrelevance of Sears the retailer has caused impairments on a lot of things involved with the company, including inventory that is not worth what the bull case seems to think it is. Berkowitz has said how much the inventory is worth and to that I have to say you have to be kidding me.
There's also the matter of more than a few K-Mart stores that will remain abandoned. I know of stores that were formerly Sears or Sears-related stores that are sitting empty because Sears subleased them to someone else and that someone else left and those stores are sitting empty, costing $.
This from the comments section is also true: "To merge your RBS and Sears threads -- in 2006 RBS (via Greenwich Capital) offered to monetize over $1 billion of Sears stores assets as a "test case" at incredibly attractive rates via a CMBS transaction, only to be rebuffed by an ESL finance group which felt that those assets would only increase in value, while believing that continued robust store operations would ensure that Sears did not need cash in any event. The "spreadsheet math" would have become reality but for the hubris of ESL/Sears.
The only thing worse than not creating value is actually having value handed to one who ultimately destroys it."
Even on Fundalarm, I was asking who in their right mind would want to own Sears. "It's a value!" "It's Eddie Lampert!"
No, it's a terrible retailer run by a hedge fund manager who tried to make 2 + 2 = 5 and found himself in a mess. Berkowitz said - as if this was some sort of point of pride - that Lampert does "just enough" with Sears stores not to break the leases. This was never about a turnaround.
As for Fairholme and others, I think there's an element of it that they were convinced that Eddie Lampert could weave financial magic again. I just don't think it will turn out well.
The weird thing about Sears and Fairholme is that you do effectively have two fund managers kind of at odds in a way. Lampert is looking to make money for his ESL shareholders, which - with all of the financial engineering that has gone on in the situation, could theoretically mean that Lampert could look out for his own self and own shareholders in a way that is not favorable to Berkowitz and Fairholme shareholders. Who knows, but nothing would surprise me.
"Lampert as an individual owner who has every right to pare off parts of Sears for his individual benefit if he can get away with it"
If there is an instance where management is trying to play a game of "heads I win, tails I win", why would I want to be there? I have no guarantees that the fund I own that has exposure to the stock will ultimately benefit.
Lastly, everyone has talked about Eddie spinning off assets to create value. Land's End is just off it's low, Orchard Supply is gone, Sears Hometown/Outlet (who is heavily reliant on the parent) has done horribly and the REIT - who cares, honestly? Meanwhile, no one talking about how Sears Canada continues to get obliterated. All of the spin-offs have only illustrated the weakness of the business, if anything.
@Bee, @Scott. Berkowitz certainly has skin in the game, all his gigantic net worth is in the funds, so I don't think it's Berkowitz's conflict of interests that's the problem here. (Lampert is another story, but is it possible that he could make giant decisions without consulting his only major outside shareholder?)
Scott's argument, and many other bear cases on Sears do make sense to me. I don't really understand the bull case.
But I'm paying Fairholme's management fee in the expectation that Berkowitz can see something I and the rest of the market can't. I'm not at all confident at this point that that expectation will be met, but I haven't given up hope -- he's been right on a lot of left-for-dead cases in the past -- so I'm holding for now.
But all this is increasingly making me question active management. If any manager had the signs of future success it would be Berkowitz: great track record, tons of skin in the game, reasonable fees, low turnover / tax costs, and a willingness to think differently and think long term. He may yet come back, but if he doesn't, I think it's going to be index funds for me in the future, at least when it comes to equities, or at most team managed funds with low expenses, like Primecap (my biggest holding, thankfully).
And getting back to the thread, I'm thinking of adding to BBL and buying TDW.
I think BBL and TDW will both survive until the next uptick in iron ore and petroleum, and I also think their generous dividends are safe, so I'll get paid to wait.
But I don't have all that much dry powder, so I'm waiting to see if prices drop a little more. I'm already close to fully invested so if the market turns and I miss the bottom, I'm okay with that.
Comments
LA times Article:
bank-of-america-earnings
With recent deals and existing partnerships (as well as the indication that there could be others) plus what they have in their pipeline, I do think that there is a lot more to Celgene if you have a long-term time horizon and they are really trying to build for the future. The projections for 2017/2020 are - I think - compelling to the point where I feel comfortable with it as a long-term holding. I'm not going to add any more than I already have (it's already a large holding and I have so much in healthcare already, plus exposure to CELG via HQL where it's the largest holding, etc) but I'm not selling any.
On the flip side, I do think that Gilead is valued the way it is because of the uncertainty over the future. Celgene on the other hand continues to build the case for growth at least for the next half dozen years or so. "Shares of Sears Holding Corp (NASDAQ: SHLD) are trading down more than 4.2 percent so far today following Ackman’s comments that the company doesn’t have much left at this point."
http://finance.yahoo.com/news/delivering-alpha-delivered-far-191706184.html
The exact discussion from Ackman is in the second half of this clip:
http://finance.yahoo.com/video/mcdonads-culture-needs-changing-peltz-130400380.html Pretty awesome job w/three biotech holdings bought!
I don't think Ackman is short Sears, he was just responding to a question from Cramer at the "Delivering Alpha" conference.
Whether its the seismic rise of biotech firms or the catastrophe loses of Sears, mutual fund shareholders travel in the coat pockets of their fund managers.
With Sears I wonder less about Lampert as an individual owner who has every right to pare off parts of Sears for his individual benefit if he can get away with it. Where as Bruce B has a duty (my opinion) to more than just himself. I would like to know how all of this (Lampert actions of gutting Sears) adds value (alpha) to FAIRX shareholders who are in the pocket of Bruce B.
As mentioned above, If a small investor owns biotech indirectly their coat pockets now feel fur lined as their "small change" is transformed into "folding money". FAIRX investors often don't appreciate the holes in the stitching of BB's fund and he has a duty to try and hold onto that "small change" by mending his coat pockets and occasionally stop by to make sure where still there.
This blog from hedge fund manager John Hempton goes into better detail:
http://brontecapital.blogspot.com/2011/12/sears-holdings-liquidation-sale.html
There's a lot I agree with in the comments section, as well.
"Spreadsheet math: math that does not have recursion or dynamics. Ie, if a business is sucking because the biz sucks and it has a lot of biz specific assets (like strip mall property) then spreadsheet math doesn't iterate to: hmm, maybe those biz specific but fungible assets are impaired too?"
I think this is something that has always bothered me about the bull case of Sears. Eddie Lampert has basically done a terrible job running Sears the retailer, but the bull case doesn't seem to take into account that the increasing irrelevance of Sears the retailer has caused impairments on a lot of things involved with the company, including inventory that is not worth what the bull case seems to think it is. Berkowitz has said how much the inventory is worth and to that I have to say you have to be kidding me.
There's also the matter of more than a few K-Mart stores that will remain abandoned. I know of stores that were formerly Sears or Sears-related stores that are sitting empty because Sears subleased them to someone else and that someone else left and those stores are sitting empty, costing $.
To make matters worse, Sears has pension problems (http://www.wsj.com/articles/poor-returns-weigh-on-sears-pension-plan-1429130235) and it will have to pay money to the REIT.
This from the comments section is also true: "To merge your RBS and Sears threads -- in 2006 RBS (via Greenwich Capital) offered to monetize over $1 billion of Sears stores assets as a "test case" at incredibly attractive rates via a CMBS transaction, only to be rebuffed by an ESL finance group which felt that those assets would only increase in value, while believing that continued robust store operations would ensure that Sears did not need cash in any event. The "spreadsheet math" would have become reality but for the hubris of ESL/Sears.
The only thing worse than not creating value is actually having value handed to one who ultimately destroys it."
Even on Fundalarm, I was asking who in their right mind would want to own Sears. "It's a value!" "It's Eddie Lampert!"
No, it's a terrible retailer run by a hedge fund manager who tried to make 2 + 2 = 5 and found himself in a mess. Berkowitz said - as if this was some sort of point of pride - that Lampert does "just enough" with Sears stores not to break the leases. This was never about a turnaround.
As for Fairholme and others, I think there's an element of it that they were convinced that Eddie Lampert could weave financial magic again. I just don't think it will turn out well.
The weird thing about Sears and Fairholme is that you do effectively have two fund managers kind of at odds in a way. Lampert is looking to make money for his ESL shareholders, which - with all of the financial engineering that has gone on in the situation, could theoretically mean that Lampert could look out for his own self and own shareholders in a way that is not favorable to Berkowitz and Fairholme shareholders. Who knows, but nothing would surprise me.
"Lampert as an individual owner who has every right to pare off parts of Sears for his individual benefit if he can get away with it"
If there is an instance where management is trying to play a game of "heads I win, tails I win", why would I want to be there? I have no guarantees that the fund I own that has exposure to the stock will ultimately benefit.
Lastly, everyone has talked about Eddie spinning off assets to create value. Land's End is just off it's low, Orchard Supply is gone, Sears Hometown/Outlet (who is heavily reliant on the parent) has done horribly and the REIT - who cares, honestly? Meanwhile, no one talking about how Sears Canada continues to get obliterated. All of the spin-offs have only illustrated the weakness of the business, if anything.
Scott's argument, and many other bear cases on Sears do make sense to me. I don't really understand the bull case.
But I'm paying Fairholme's management fee in the expectation that Berkowitz can see something I and the rest of the market can't. I'm not at all confident at this point that that expectation will be met, but I haven't given up hope -- he's been right on a lot of left-for-dead cases in the past -- so I'm holding for now.
But all this is increasingly making me question active management. If any manager had the signs of future success it would be Berkowitz: great track record, tons of skin in the game, reasonable fees, low turnover / tax costs, and a willingness to think differently and think long term. He may yet come back, but if he doesn't, I think it's going to be index funds for me in the future, at least when it comes to equities, or at most team managed funds with low expenses, like Primecap (my biggest holding, thankfully).
I think BBL and TDW will both survive until the next uptick in iron ore and petroleum, and I also think their generous dividends are safe, so I'll get paid to wait.
But I don't have all that much dry powder, so I'm waiting to see if prices drop a little more. I'm already close to fully invested so if the market turns and I miss the bottom, I'm okay with that.