It is interesting to read up on the strategies from some the great investor.
I consider Max to have the similar Value Investing principle as Benjamin Graham & Walter Schloss. Michael Price added a new twist to Max’s approach by being more inquisitive when looking at the companies to invest. While Eddie Lampert’s principle is more towards Value+Growth investing – more towards Warren Buffett.
Max Heine is famous for his deep-value and distressed company investing. Some of his quotes which I find interesting includes: If you follow this method, you will earn 15% per year on average. One year out of ten, you will look like a genius. One year out of ten, you will look like a loser. Be mentally prepared for that.
His fund had bought bonds in the bankrupt Penn Central railroad. Max had calculated that the steel in the tracks alone was worth enough to pay off the bonds. It turned out to be a huge home run.
He looked at what it actually was. When he was buying bonds of bankrupt railroads, a lot of people would have said, “They’re bankrupt,” and “Who needs railroads?” However, Max and one of his partners knew how many miles of track the railroad had, what the scrap steel on the track could have been sold for and which railroads might have wanted pieces of those networks. They also knew what the real estate rights above the terminals were worth.
In the 1930s, he was given $1,000 to buy furniture for their apartment as a wedding gift from an uncle. Instead of buying furniture, he went out and bought ten thou- sand dollars worth of bankrupt railroad bonds at ten cents on the dollar, which then went up five times in value. He was a value guy from day one and trying to find cheap stocks through all the nooks and crannies of Wall Street.
Michael F. Price has managed money since 1974 when he joined Mutual Series under Max Heine. Price became partner in 1982 and took over Mutual Series after Heine’s passing in 1988. I find this website on Michael interesting where he talks about special situations & opportunities whereby investors can buy stocks at great value. The same principle of value investing is applicable in these modern day situations. He shared his thesis on Hospira (HSP), a manufacturer of generic drugs. Hospira shares plummeted when regulators closed the company’s largest plant. He felt that investors had shaved off too much equity value in response to the bad news.
Heine was an opportunistic investor with a value-based approach towards investing. While Price takes on an inquisitive approach when looking at the companies to invest in. Price extensively studied mergers and acquisitions to further research the buying patterns or interest of other investors. And ask himself how much someone else would pay if he is to buy the company. Price also does some distress investing, but he is careful to invest in companies which has a management that act for the best interest of the shareholders and are able to lead the company after restructuring.
I see a lot of similarities between Eddie Lampert and Warren Buffet. For one Eddie Lampert has been able to turn failing and lousy companies into profitable giants. His foray into Sears and Kmart has been liken to Warren’s foray into Berthshire Hathaway. He believes in the investment style of “concentrated value”, and this is often focused on the retail sector. Lampert typically holds his investments for several years and usually has between three and fifteen stocks in his portfolio.
One of his great achievement is the merger of Kmart with Sears. While the company was facing bankruptcy in 2002, Lampert bought the controlling stake at $1 billion. He observed that the real estate blocks under the 1500 stores were very valuable. After stabilizing the company, he sold 68 of the company’s stores to The Home Depot, Inc. and Sears.
However, unlike Warren he takes a proactive approach to managing his investment. It was widely believed Mr. Lampert had been calling the shots since merging Kmart and Sears. Being the CEO of Sears, Lampert acknowledge that shoppers are turning more towards the online retailing rather than the brick and mortar shops. Sears has been experimenting with online platforms and clearly this is the main focus for the chain. He has been shutting stores and getting rid of assets such as the Lands’ End clothing business while trying to boost sales to rewards program members.
However, although Lampert is a great investor, he has yet to prove that he is a great CEO for companies that some considered to be dinosaurs. (read here)