Is Sears the Next Berkshire Hathaway?
Jun 24th, 2007 by Wealth Builder [This post is written and copyrighted by Wealth Building Lessons (http://www.wealthbuildinglessons.com).]
In the November 2004 issue of BusinessWeek, Eddie Lampert was called the next Warren Buffett. At the time, he was single-handedly responsible for turning around the bankrupt KMart and making it a cashcow.
![[Image of Eddie Lampert on the cover of November 2004 BusinessWeek]](/wp-content/uploads/2007/06/bizweek-cover.gif)
Despite having been kidnapped, he negotiated control over bankruptcy proceedings after buying a controlling stake through his hedge fund ESL Capital. Like Warren Buffett, he started it when he was just 25 years. He studied Berkshire’s annual reports and often reversed engineered the data to analyze how the deals took place.
Ever since 1988, he returned over 29% a year to his investors, based on the same principles that Buffett uses to invest. This has beaten even Buffett’s return, although Buffett’s been returning 25% a year for almost twice as long as ESL.
If you’d like to invest with Eddie, ESL is open to new investors. However, you need $20 million and a personal invitation from Eddie himself. On top of that there’s the standard 2% fee plus 20% of future earnings and a 5 year lock-in period.
A much easier way might be to buy shares of Sears Holdings (SHLD).
Lampert took control of Sears through an $11 billion merger with Kmart in late 2004. Through the SEC filings, Eddie who is now CEO of Sears, has made it clear (just as Buffett did when he bought Berkshire Hathaway) that excess earnings would be used to buy other companies.
Since 2004, he’s increased the cashflow from $1.1 billion to $2.3 billion. Earnings per share has improved through share buybacks. In 2006, SHLD bought back $16 million worth of shares. Its current repurchase plan allows for another $600 million worth of share buybacks!
Lampert has also decreased SHLD’s long-term debt by $300 million (14%), closed 52 underperforming stores, and increased gross margins from 24% to 28%. And its share price reflects these improvements. It’s up 70% since Lampert took the reins.
![[Image of share price chart of SHLD since the past 3 years]](/wp-content/uploads/2007/06/shld.png)
One share of SHLD is currently trading for $170. Seems like a good opportunity to buy into a publicly-traded hedge fund run by a superstar without the minimums or exorbitant fees.
Related Readings:
1. The Essays of Warren Buffett
2. Warren E. Buffett & Bill Gates: How to Get Rich (Audio CD)
3. Warren Buffett Speaks: Wit and Wisdom from the World’s Greatest Investor
4. How to Think Like Benjamin Graham and Invest Like Warren Buffett
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3 Responses to “Is Sears the Next Berkshire Hathaway?”
2% fee plus 20% of future earnings and a 5 year lock-in period
I don’t see why anyone such do such a thing when there are other stocks out there which are a better value.
Doing this is like shooting yourself in the foot even thought he is a he is famous that does not make it sure of a healthy return.
That is pure madness.
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