Update On Thor Industries

Thor Industries $THO is the world's largest manufacturer of recreation vehicles and a major builder of commercial buses. I first mentioned Thor back in January 2009 when it was trading at $13.50 per share. The stock was used as an example of a company that the seasoned value investor Walter Schloss might pick if he were still picking stocks on a professional basis. Schoss had a very impressive track record during his years managing money. He was also a part of Ben Graham's alumni. The stock has had an impressive run this year. I believe the stock price has gotten a little ahead of itself. They just announced today that they were making a special one time payout of 50 cents per share on their dividend. This is in addition to their quarterly payout of 7 cents per share. This is probably why the stock price ran up today. 10 months ago this stock traded at around 1X book value, where as now it trades for 2.3 book. Management still holds a big stake in this company at 39%, which is a plus, and aligns them with shareholders. The company still has a nice cash cushion of over 328 million with NO debt and free cash flow. All good looking figures for any value investor on the lookout for a new business to allocate money in. In fact Warren Buffett bought a similar business Forest River back in 2005, it to had NO debt. It would not suprize me if Buffett or another company would come in and buy this company outright. While I still feel that this is a very well managed company and things are looking up, the margin of safety is not where it was 10 months ago. *Author does not currently have position in $THO

Posted via email from stockmanmarc's posterous

Two Under Valued Companies Trading at Their Cash Value

Without getting into the current Healthcare Reform issues. Here are two managed-care companies Humana Inc. and Molina Healthcare that are now selling for what they currently have in cash. Humana has nearly doubled off its march low while Molina is only up about 30 percent. Both have current ratio's above the 1.5 ratio, which is a measure of a company's ability to pay back short- term debt with its short term assets. A ratio of under 1 shows that they might be hard pressed to pay off any monies owed if it were due at that point. Molina is currently trading at 1x book value while Humana has a book value ratio of 1.28. Molina has increased its book value almost 5.5x since 2002

while Humana has increased theirs 3x which is a key measure that Warren Buffett looks for.Both seem to be consistent free cash flow generators another key measure that most value investors look for. Income investors might want to look elsewhere due to the fact that neither company pays a dividend.

Company	Symbol	Cash/share	Price as of 9/28/2009	Book value/share	Current ratio	P/E ratio	Market cap
Humana	HUM	$36.57	$38.03	$29.82	1.62	7.5	6.3b
Molina Healthcare	MOH	$21.59	$20.97	$20.94	1.88	9.4	537m

*The Molina family along with other insiders hold 51% of the stock. Currently 20% of the float is being shorted.

*Value Investor Bruce Berkowitz of The Fairholme Fund ($FAIRX) owns 9.5 million shares of Humana which represents a top ten holding for the fund.

Mutual Series Marks 60 Years of Value Investing

Mutual Series Marks 60 Years of Value Investing

Flagship Mutual Shares Fund Employs Deep Value Strategy Since 1949

— Franklin Templeton Investments (NYSE: BEN) is commemorating the 60th
anniversary of its Mutual Series group and launch of its
flagship Mutual Shares Fund. Founded in 1949, Mutual Series has a long
history as deep value investors with a very distinct style, searching
aggressively for investment opportunities in undervalued stocks, merger
arbitrage situations, corporate reorganizations and distressed securities.

Buffettfest The Woodstock Of Capitalism

Well it is that time of year again. The Woodstock of Finance or Buffettfest which is Berkshire Hathaway's $BRKA annual meeting. Unlike most shareholder annual meetings that seem to be rather boring Berkshire Hathaway's annual meeting is anything but. Over the years it has grown exponentially. Its like going to see your favorite rock band in concert but even better. The Rolling Stones Mick Jagger and Keith Richards don't have anything over Berkshire's Warren Buffett and Charlie Munger. In years past Buffett has strummed a few licks on his ukulele while up up on stage. He has even been seen on a $HOG- that's A Harley-Davidson in case your wondering.

This is basically a weekend long event where a legion of Berkshire loyalist(shareholders) make the annual trek to their Guru's headquarters and home town Omaha Nebraska. From what I am hearing through other news sources is that this year might be a bit somber instead of the usual financial lovefest that its been in years past. You see Berkshire shareholders are not use to loosing money and 2008 was one they would like to put behind them as would most investors.

What makes this so unique is that Buffet is unlike other CEO's of company's. For one he pays himself a low salary in comparison to most CEO's, and his interests have always been aligned with the shareholders of the company. Unlike many annual meetings where the board will make up excuses for short falls or spend half the time talking about electing board members, dolling out stock options or pay raises Buffett shoots straight from the hip. So for the better part of a day Buffett will field question after question. Also unlike other shareholder meetings Buffett and his finance-flower children will have a chance to have some fun and spend money like their on vacation.

The Buffettfest expects a record crowd of 35,000 people this year up from 32,000 last year. While Buffett is coming off his worst year ever, his popularity has rose to new heights. This might be because of the tough times we are in and who better to smooth things over than the Greatest Investor of all time The Guru of Value Investing Warren Buffett.

Below are a few good reads, so enjoy!

Berkshire Is Still A Brand Name New York Times

Buffett Fans Set For 'capitalist Woodstock' CNNMoney/Fortune

Here's the Story on Berkshire's Mungar WSJ Online

Invetors Flock To Capitlism 'Woodstock' After Buffett's Bad Year Barron's

Also check out the Ultimate 2009 Berkshire Hathaway Annual Meeting Guide @ Fat Pitch Financials

An Off Shoot Of Buffett's Partnership: The Sequoia Fund

Here is an interesting link on The Sequoia Fund. Sequoia is a value oriented mutual fund managed by Ruane, Cunniff, & Goldfarb. The Seqouia Fund $SEQUX has a large number of companies in their portfolio however Sequoia concentrates a large percentage of its dollars to a hand full of companies. Warren Buffett's Berkshire Hathaway $BRKA, $BRKB currently is their largest holding followed by Martin Marietta Materials $MLM, Fastenal $FAST, IDEXX Labs $IDXX, and Mohawk Industries $MHK. Sequoia has an excellent track record stretching back to 1970. The Sequoia Fund is not really an off shoot of Berkshire Hathaway, however they have a long history together. Bill Ruanne who was the founder of the fund was one of a small group of investors along with Warren Buffett that trace their roots back to the Father of Security Analysis Ben Graham. It seems back in 1969 Buffet ended his Buffett Partnership after a 13 year run. Buffett steered his partners over to Ruane who in turn started the Sequoia Fund. The Fund was closed off to new investors for 26 years and reopened in 2008.

Relevent Article

Buffett And Reopened Seuoia Fund Still Intertwined After Decades

A Stock Canidate That Walter Schloss Might Like!

The Many Facets of A Value Investor

What defines a value investor? Many think that value investing is about picking stocks with low PE ratios or stocks trading under book value. While this is certainly true it is only a small part of the equation. It has been 75 years since Benjamin Graham and David Dodd published their book Security Analysis which was in a time of economic uncertainty, much like, what we are experiencing today. I think any Great or even good investor is a value investor. A value investor can come in different make up. For example, Warren Buffett who is considered by many the best investor of all time, chooses his companies differently than say his contemporary Walter Schloss would. Schloss worked and studied under Ben Graham in the 1950's. Both use the same set of principles that were laid out by Graham, but if you study or listen to these men, these valuing techniques may vary. One reason for these varying in techniques, is Berkshire Hathaway's (Buffett's Holding company), shear size. You won't find many of Buffett's companies trading at Graham prices. Nowadays you here Buffett talk about businesses with economic moats. A good example might be Coca Cola $KO or Burlington Northern Railway $BNI. A economic moat is a business that may have a good brand or name recognition, pricing power or trademarks making it more difficult for rivals to compete effectively. Buffett also searches for companies with plenty of free cash flow. Where as Schloss stuck mainly to Grahams original set of principles, looking for cheap stocks trading at or near NCAV. Another investor who has applied these techniques but also added to the screening process is Joel Greenblatt. Greenblatt uses many of Grahams techniques but applied the Earnings Yield. The earnings yield is a inverted PE ratio. Many value investors take large stakes in companies (controlled or focus investing) which gives them an edge. This allows them to have more influence on day-to- day operations. We have witnessed this through Eddie Lampert's investment in Sears Holdings $SHLD or more recently Sardar Biglari's stake in Steak n Shake $SNS.

Some (Value)Investor Terminology

• low PE ratio
  
• dividend yield
  
• earnings yield
  
• low debt-to-equity ratio
  
• free cash flow
  
• managements stake
  
• earnings growth
  
• NCAV or Net-Nets
  
• assets/liabilities
  
• current ratio
  
• economic moats
  
• intrinsic value
  
• margin of safety
  
• book value
• controlled investing
• return on equity

Relevant Articles

Buffet...Berkowitz...Lampert...Pabrai and Focus Investing

Has Value Investing Worked To Protect The Downside

Slicing up Eddie Lamperts Pie!?$$$

I thought this might be a good time for an up date on Sears Holdings $SHLD considering they just released earnings yesterday of $2.94 excl items vs. estimate of $2.68. While the economy sank deeper into a recession Sears held up fairly well. However many financial media pundits talk otherwise. To the ones that are new to this story let me catch you up. Mr. Edward Lampert who is the Chairman of Sears Holdings runs a Hedge Fund- ESL Investments. The Hedge Fund or ESL has 16 stocks in its portfolio totaling over 7 billion with SHLD and AutoZone $AZO making up the lions share at 75%. Lampert bought into Kmart in 2003 and Sears in 2005 and merged the two companies. The company had success coming out of the box with the stock fetching as much as $195 a share. This was due to many investors thinking Lampert would sell off part of its large real estate holdings. This has not occurred and we all know what the economy has done over the last year and a half- tanked. Many investors jumped aboard this stock solely due to its real estate, that's fine but since the stock has gone south many bailed and seem to think Sears better days are behind them. As a retailer this may be true but as a potential Investment Holding company I think otherwise. Many large profiled investment companies have been in and (out) of this stock. Two of the larger players that have their funds money invested are the Fairholme Fund run by Bruce Berkowitz and the Third Avenue Fund fund run by the veteran Marty Whitman. With the economy in tough times this company along with the majority of others will take time to pay off or will it PAY off? Lampert states in his current news letter:

Sears will continue to evaluate opportunities based upon our expectations for returns and continue to experiment with a variety of options where the returns could justify higher levels of investment...

• Taking this approach a step further this month with plans to close its Joliet, Ill., Kmart store and transform it into MyGofer, a store where buyers can pick up their online orders. An estimated 80% of the facility will be dedicated to merchandise storage; 20% will be allotted for showroom space.
• The public launch of ServiceLive earlier this month is another example of how we are creating relationships with customers that empower them to manage their lives. ServiceLive.com is an online marketplace where homeowners and businesses can name their price for a wide variety of services, improvements and repairs.
  
• The company said Kmart, which has benefited from increased layaway sales to cost-conscious shoppers, increased its adjusted earnings before interest and taxes from the prior year.
• Reduced short-term borrowings on its $4 billion revolving credit line to $435 million as of January 31 from $1.9 billion at November 1, 2008.
• Plans to close 24 stores in addition to the eight already announced.
• Repurchased 2.9 million shares for $120 million and debt securities for $29 million during the fourth quarter
• Maintained strong balance sheet and liquidity position
• Cash balance of $1.3bil as of January 31st 2009 vs. $1.6bil February 2nd 2008
• Kmart began operating its own footwear business on January 1, 2009, which had previously been operated by a third party
  

Heres what Mr. Lampert had to say in a letter to shareholders

Relevent Articles

Sears Not Just Your Average Retailer STOCKMANMARC

Sears Is Holding Strong Todd Sullivan@ValuePlays

Sears Prunes Back To Conserve Cash Forbes

Billionaire Eddie Lamperts Sears Has More Ideas In-store!

I have written several articles over the past several months on Sears Holdings(SHLD) and the man at the helm Mr. Eddie Lampert. Sears as many of you already know is a large American retailer that has been a part of our landscape for over a century. Mr Lampert has been running the show their for the last few years. Shortly after Lampert took over running the company the stock price ran up like a rocket ship, he was hailed as a hero, but since the bad turn in the economy, he has been given a lot of flack. Many critics have said that Lampert and Sears are washed up and that WalMart(WMT) and Target(TGT) are the retailers with a future. I think not, Lampert is taking this opportunity to try new ideas .....

Does the Internet play a role? 

Will Eddie leverage his Real Estate holdings in Sears for new concepts?

Will he sell some of Sears other brand names through other distribution channels ? After all he is the biggest shareholder in AutoZone(AZO) and AutoNation(AN). 

Is Sears  a Berkshire Hathaway in the making?

Eddie Lampert Pulls A Coup d'etat Over Other Retailers!

It looks like Eddie and his

Sears Holding(SHLD) company are showing some adversity in front of other retailers and the economic down turn. Lampert has been criticised over the last year for NOT selling off real estate and NOT plowing gobs of cash back into its retail operations. It seems that the public and Wall Street just don't get it. While the ones that have followed his career path take a different view. Of course only time will tell if things will work out, Sears (SHLD) saw its shares rally as much as 23% Thursday as the owner of Sears and Kmart gave a surprisingly strong profit forecast. The rosier outlook follows Kmart's improved performance through the holidays . It seems while the industry leader WalMart(WMT) enjoyed a good year Sears continued to be sold off, however since its November low it has almost doubled from $26.80. while closing today near $50.00 per share.

A Stock Candidate That Walter Schloss Might Like!

I'm sure many value oriented investors by now are familiar with Mr. Walter Schloss, but for those who are not I will give a quick Bio. Walter started out as a runner on Wall Street back in the 1930's, later he went to work for Benjamin Graham in the Graham-Newman Partnership. By the mid 1950's Schloss left Graham to start his own investment company/partnership. He operated his firm in much the same way as Graham and that other famous student/employee of Graham's Wa

rren Buffet. Over the next 48 years Schloss averaged 15.3% compounded returns .

He had no connections or access to useful information. Practically no one in Wall Street knows him and he is not fed any ideas. He looks up the numbers in the manuals and sends for the annual reports, and that's about it. Adam Smiths Supermoney (1972)

Warren Buffett- famously dubbed Schloss a "superinvestor" is still picking unloved stocks.

Stockmanmarc- Real Pure Value Player

The market will always offer up some undervalued certain securities, but the best time to look for them is when there's panic and fear on Wall Street, Schloss often said. Buffett often quotes the same. Great minds think alike.

Schloss like to used the KISS method.

SCHLOSS WILL FOCUS ON:

• Stocks with little or NO debt.
  
• Stocks with a track record or long history.
  
• Stocks selling NEAR or BELOW Book Value.
  
• Stocks/Companies with management in place and owing a substantial amout.
  
• And Don't loose money.
  

Here is a company listed below that Schloss or any value investor might take a look at:

Thor Industries (THO) was founded in 1980 and have grown to be the largest manufacturer of Recreation Vehicles (“RVs”) and a major manufacturer of commercial buses in North America. Their market share in the travel trailer and fifth wheel segment of the industry (towables), is approximately 30%. In the motorized segment of the industry they have a market share of approximately 16%. Their market share in small and mid-size buses is approximately 37%. Thor also manufactures and sells 40-foot buses at their facility in Southern California designed for that product as well as their existing 30-foot and 35-foot buses.They rely on internally generated cash flows from operations to finance their growth although they may borrow to make an acquisition if they believe the incremental cash flows will provide for rapid payback. They have invested significant capital to modernize, improve and expand their plant facilities and expended $14,815 for that purpose in fiscal year 2008. Currently Thor Industries (THO) trades slightly above book value, while sporting a very low price to sales multiple of .32. Thor has zero debt and management has very valued interest. Management has maintained a very steady free cash flow for the last ten years, however it has tapered off over the last year but has maintained positive.

By the numbers:

• $178mil cash/NO Debt
  
• 29 year company history
  
• trading at just above book value
  
• insiders hold 46% shares
• trading at 5 x EV/EBITDA
  
• current ratio is 2.3
  
• price/sales ratio of .32
  

* With the current state of the economy Thor could suffer further down side however with their longterm record and a close eye on their bottom line Thor deserves a further look.

* Author is currently long THO

Sears, AutoNation, & Savy Billionaires: Gates & Lampert

While many analyst and investors seem to be beating up on companies such as Sears Holdings(SHLD) and AutoNation(AN) investors Eddie Lampert and Bill Gates continue to buy shares. Why? The economy has not been this bad in at least one or maybe two generations. Sears is a retailer who seems to be out played by competitors WalMart(WMT), Target(TGT) and Best Buy(BBY). Then their is AutoNation that is caught up in the Big Three Auto Debacle of Ford(FD), General Motors(GM) and Chrysler. Why are these Billionaires pouring money into these companies? Do they see something that the majority does not see?

"Just recently UBS initiated coverage of the stock with a ‘’sell” rating Thursday, Sears needs to come up with a solution for its operating problems. Many of them involve the basics of retailing: growing comps, executing on merchandising, improving marketing. Without a strategic operating initiative, Sears won’t be able to distinguish itself from the competition in the crowded and stagnant retailing sector, and thus won’t be in a position to reverse a steep sales decline. Also short sellers have also taken an extremely bearish stance on the retailer, as more than 19 million SHLD shares have been sold short. This accumulation of bearish bets accounts for 17.6% of the company's total float, and is 8.5 times the stock's average daily trading volume. Should the equity continue its downtrend, these bears could add to their winning short positions, pushing SHLD even lower."

So what is it that is going on with these two companies? Basically Wall Street is saying these companies suck. In the case of Sears their saying that Sears has a flawed business model and that it is NO SPECIAL retailer. In the case of AutoNation, Wall Street is saying with all the negative press on the auto manufacturers we don't want this one either. Does any of this hold true? Maybe, at least in the short term it does. But for the shrewd business men that I think Gates and Lampert are the answer is a NO!

Is their something more going on here? Well in my humble opinion I think their is. In the case of Sears, yes it is a retailer that does not shine as bright as WalMart or Target, however as I have stated in earlier posts that it sits on alot of untapped Real Estate as well as BRANDED names- Kenmore, Craftsman, Diehard and LandsEnd. Most investors already recognize this and it is talked up in the media over and over. However, I think their is a bigger picture going on with these companies than meets the eye. WallStreet has ALWAYS been short term oriented, their job is to play salesman and to constantly make that commission dollar. While Lampert and Gates are making a bigger play which may take several years to pan out. Can the passive investor make money here? I think he/she can if they have patience and due their own research.

This is an interesting case to study because I think it is more than just a rich guy buying a stock and making 20 or 30%.

related links:

http://stockmanmarc.blogspot.com/2008/10/sears-not-just-your-average-retailer.html

http://stockmanmarc.blogspot.com/2008/11/sears-holdings-esl-investments-mr-eddie.html

http://finance.yahoo.com/news/Gates-Lampert-keep-buying-apf-13871819.html

The author suggest further research before investing.

Author is long SHLD

Mr. 1 Up On Wall Street: Peter Lynch

Many are already familiar with Peter Lynch, but for those that are not Mr. Lynch managed Fidelity's Magellan Fund(FMAGX) from 1977 to 1990. At the time the Magellan Fund was one, if not the biggest fund with assets under management. The Fund was always ranked as one of the top performing funds through out his tenure. In fact Mr. Lynch beat the S & P 500 Index 11 out of 13 years while accumulating a annual average return of 29%. He is also known for a couple books "One Up On Wall Street" and "Beating The Street" which should be on any Value Investors bookshelves. While the Magellan Fund was always considered a growth fund, Lynch's style is certainly one that resembles many other widely known value investors. Lynch, like many other Super Investors seemed to invest in simple easy to understand businesses, ones that seem boring or mundane.

A Lynch Quote: " I'd rather invest in panty hose than in communications satellites, or in motel chains than in fiber optics. The simpler it is, the better I like it".

Who else have we heard say the simpler the better? If you answered Warren Buffet, you are correct.

Lynch was a big proponent in looking all around your own surroundings to find stocks to buy. Almost on every corner in America you see a MacDonald's(MCD) or a Starbucks(SBUX). Every strip mall is anchored by a Target(TGT), WalMart(WMT) or a Best Buy(BBY). What kid or adult does not own a pair of tennis shoes(sneakers) these days, with a high percentage being Nike(NKE). Probably most have drank a Coke(KO) or Pepsi(PEP) and the list goes on. Lynch also observed what his wife and children purchased, these were his in house analysts you might say. He also, oftened looked for companies that had similar and favorable attributes, companies that:

1. sound dull

2. do dull things

3. do something disagreeable

4. do spin off deals

5. are not well followed on Wall Street or have no big institutional investors

6. have negative rumors are all over it

7. are in a depressing business or industry

8. are in a no growth industry

9. the business that has a nitch

10. people keep buying it

11. it uses technology

12. when management and owners are buying the stock.

13. when a company is buying back shares.

Lynch retired at the top of his game but still plays an active roll within the Fidelity Family of mutual funds.

Sir John Templeton And The Basket Approach?

Many of you value investors out their already know or have heard of John Templeton, but for those of you that have not here is a brief bio: JT grew up with little money  in Winchester Tennessee during the Great Depression. He later founded Templeton Mutual Funds which was later sold/merged with Franklin Funds to create what is now one of the largest Mutual Fund companies there is. However long before this when JT was a young man coming out of the Depression circa 1939, JT called up his stock broker and had the broker buy $100 worth of every single stock that was selling for no more than $1, on both New York & American Stock Exchange.  The broker bought every stock except the ones that were bankrupt, but JT was adamant about buying those as well. You see what I am getting at is that JT was a buyer of stocks during a time when the Whole World was in crisis. He rationalized that stocks in general were so battered  that he did not have to hand pick or study each company but to buy a basket of stocks instead. He new that this so called basket approach would produce some dogs as well as some big winners. It was the latter of course that put him on the wealth track. When stocks as a whole are driven down below their historic averages you don't have to be a professional stock picker to make some above average returns. This was not a get rich quick act, he held these stocks an average of 4 years which gives the bargain stock enough time to be recognized by the market and bid back up to fair value. 

I am not encouraging everyone to suddenly run out and by a basket of beaten down stocks, but merely making a point that when they  are trading at very low valuations that this signals a buying opportunity or very good look.

The Great Investors whom Templeton was one of  are usually buying when you are selling.....

STOCKMANMARC

Sears Holdings, ESL Investments & Mr. Eddie Lampert

This is a follow up on my previous article on Sears Holdings (see my post "Sears Not Just Your Average Retailer!?$$$"http://stockmanmarc.blogspot.com/2008/10/sears-not-just-your-average-retailer.html) which I covered just a few weeks ago. The stock has gone down another 20% since then which is probably in anticipation of earnings that are due out on Dec. 2nd, 2008. However the intrinsic value of the company still looks to be around $81.00 per share and this does not include the Craftsman, Kennmore, or DieHard brands which most Americans are familiar with. Due understand that the estimates in value are rough estimates but conservative ones at that. Since I last posted on Sears, they have since reinstated the layaway plan which use to be quite popular many years ago. It was always very popular around the holidays. For those of you not familiar with the layaway plan, you simply put down a small down payment and the retailer holds that item until the product is payed for.

Many people are strictly looking at this company as a pure retailer, and saying that they don't have a chance against WalMart(WMT) and Target(TGT). However Sears sits on a vast amount of real estate that could be sold off or converted into a different type of store, the possibilities are many. Plus they have cash on hand to redeploy or buy back shares that have been beaten down which further increases shareholder value. Furthermore their debt/equity ratio currently is .38 which is much lower than the competition. Also remember that Eddie Lampert is not only chairman of a retail giant but a chairman of ESL Investments who has a 20+ year track record.

This is an interesting stock and situation, which I will try to follow up on at a later date.

Please remember this is not a recommendation but a business to keep an eye on and do further research.

the Dhandho Investor: Mohnish Pabrai

For those of you that are not familiar with Mohnish Pabrai, he is a devout disciple on the teachings by Warren Buffett and Ben Graham. Mohnish runs a fund identical to Warren Buffett's original Buffett Partnership which was the predecessor of Berkshire Hathaway(BRKA,BRKB). Pabrai wrote a book about a year ago titled the Dhandho Investor. The word Dhandho which is pronounced dhun-doe is a Gujarati(a state in India) word. Dhan comes from the Sanskrit root word Dhana meaning wealth. Dhan-dho, literally translated, means "endeavors to create wealth".

Pabrai is a focus investor usually holding about 12-18 stocks in his portfolio. Pabrai likes to put no more than about 10% in each stock. Currently Pabrai holds about 16 stocks in his portfolio with about 320 million under management. Fairfax Financial(FFH), Harvest Natural(HNR), and Sears Holdings(SHLD) represent his 3 top holdings. The current 13F filings show that Pabrai increased his holdings by 52% in Wellcare(WCG) while selling most of his position in Jackson Hewitt(JTX).
For those of you that have not read the Dhandho Investor, you should, it is simple to understand and makes a lot of sense.

Buffett...Berkowitz...Lampert...Pabrai... And Focus Investing

What is Focus Investing? Does it mean staring at your stocks so long that you become cross eyed. No! Focus Investing is a style that has been around for many many years but it is not talked about much in the mainstream, only in value circles do you hear it mentioned. Its concentrating your bets, putting a large amount of your investment dollars or portfolio into your best ideas. Investors Mohnish Pabrai, Bruce Berkowitz, Eddie Lampert, and Warren Buffett have practiced this style, along with many other notable investors. The first three mentioned, Pabrai, Berkowitz, and Lampert practice this method very much today. For example, Eddie Lampert has 50% of his ESL Investments in Sears Holdings(SHLD) and another 20% in Autozone(AZO). Buffet however over the years has become more diversified owning roughly 90 public and private companies, not necessarily by choice but by the growth and success he's had. Both Pabrai (The Dhando Investor) and Joel Greenblatt (You Can Be A Stock Market Genius) mention focus investing in their books. Focus Investing also has to do with position sizing and what percentage you should allocate to each security, 5% 15% 25% or greater. This all depends on ones risk tolerance, and your expectations for upside(downside) potential. Pabrai has stated that ideally he favors putting no more than 10% of his total holdings in one individual security and only buying about 10-15 stocks. Here again this has to do with ones own personal risk level.
If you study many of the master stock pickers over the last 60 years you will see that they have used or use Focus Investing out performing the indexes.

Your comments or thoughts...

SEARS NOT JUST YOUR AVERAGE RETAILER!?$$$

Many people think of Sears(SHLD)as that old line retailer who had those big thick catalogues that came out every year that offered a zillion items inside its pages. Those days have been replaced by the internet + other big box retailers such as Walmart and Target. What many people including investors don't realize that underneath this stodgy retailer breathe a different animal. Sure Sears is still a retailer with stores everywhere. But it is not just any retailer. Sears is comprised of Sears, K-Mart and Sears Canada(70% owned subsidiary). Sears is the leading home appliance retailer as well as a leader in tools, lawn and garden, home electronics , automotive repair and maintenance. Their main brands are Kennmore, Craftsman, and DieHard. They also have several different lines of apparel such as Lands' End, Jaclyn Smith and Joe Boxer, they also offer Apostrophe, Covington Brands and Martha Stewart Everyday products. Sears is the nations largest provider of home services, with more than 13 million service calls made annually. ESL Investments Inc a privately owned hedge fund run by famous value investor Eddie Lampert is the man running the show. Lampert has a 20 year track record of 20% annually. Besides being Sears Holdings largest shareholder he has sizable stakes in AutoZone(AZO), AutoNation(AN), Home Depot(HD), and Citigroup(C). Sears is ranked number eight in the U.S. for internet retail sales. Currently Sears trades at .60 book value (48.50 per share/ 80.80 book value per share). The company made 49 billion over last 12 months with a market cap of 6 billion. The company has 1.5 billion in cash with a low debt/equity ratio compared to its pier group. The company has been buying back shares in the open market which should further strenghten shareholder value. Lastly Sears sits on a huge real estate portfolio that is valued at $50 per share to over $100 per share.
Cash = 1.5 bil
Real Estate = 6 bil + (low estimate)
Lands'End = 1.5 bil +
Service Call Unit = 1.3 bil (13mil service calls a year @ $100 per call) low estimate

Total = 10.3 bil/126.4 mil shares = $81.50 per share

These figures do not include the values of the Kennmore, Craftsman, and DieHard brands that could be sold off or sold through different chains like Home Depot, Walmart, Target and AutoZone or different distribution channels which would increase revenue and put a much higher value on the company.

The author suggest further research before investing.

STOCKMANMARC