netrashetty
Netra Shetty
ESL Investments is a privately owned hedge fund based in Greenwich, Connecticut and estimated to be worth over US$9 billion as of 2004.[1] The fund is managed by Edward Lampert, who found it in April 1988 and named it after his initials. The firm invests in the American public equity and hedging markets. Managing the fund with a contrarian investing approach, Lampert is the company's chairman and chief executive officer, and William Crowley is its president and chief operating officer.[2] ESL is fairly unique as a hedge fund in that it takes large stakes in a small number of companies and holds them for many years.[3] Most of ESL's portfolio consists of retail companies, particularly Kmart (now Sears Holdings Corporation), by far the company's largest holding (53.5% ownership as of June 2010).[4] The revenue from Kmart plays a big part in helping ESL acquire other companies.[1]
Lampert found the fund in 1988 with initial outside investments worth $28 million. Since then, the fund has had returns averaging 29% a year. His clients include David Geffen, Michael Dell, the Tisch family (owners of Loews Corporation), and the Ziff family (owners of Ziff Davis).[1] In 2004, the fund made Lampert the first hedge fund manager ever to make more than $1 billion in a year, when the fund grew 69%, following his decision to buy Kmart and merge it with Sears.[5] At the start of the financial crisis of 2007–2010, however, ESL's retail holdings were severely affected due to a drop in consumer spending, and the company's investment in Citigroup in September 2007 saw a significant drop in value since the fund made its investment.[6] Lampert has sometimes been called "the next Warren Buffett" due to the similarities between both of their investing styles, especially that of concentrated value. Through the fund, Lampert is worth approximately $2 billion.[1] Lampert, who typically invests in undervalued stocks, is known to have modeled his investing style on Buffett's style by analyzing his annual shareholder letters.[3]
Edward Lampert is the quintessential, successful American businessman. Currently, he boasts a net worth of two billion dollars. He gained his success as a hedge fund manager and is the current CEO and chairman of the Sears Holdings Corporation. However, he gained the majority of his fortune through the founding of his company ESL Investments, of which he is also the present chairman. He got his start in finances while he was an undergraduate student at Yale University where he eventually obtained a degree in economics.
In the summer, of 1984 Lampert fulfilled an internship at Goldman Sachs. The following year he started working in Goldman Sachs’ risk arbitrage department where he stayed for three years.
He left the company he founded, ESL Investments, a hedge fund management organization, in Greenwich, Connecticut. Lampert focused on a highly particular style of investing, often described as concentrated value investing, which he largely focused on the retail sector. He will purchase and then hold his stocks for several years, usually possessing between three and fifteen at a time. Lampert is often compared to billionaire mogul Warren Buffet. He is largely responsible for the formation of Kmart and is credited with the merger of Kmart and Sears into Sears Holdings Corporation.
His strategy paid off when, in 2004, he became the first financial manager on Wall Street to exceed an income of one billion in a single fiscal year. Additionally in 2006 he was credited as the richest person in Connecticut.
At only age 47, Lampert is currently still an active executive member in both his corporations. He stays busy managing his hedge funds with ESL Investments as well as running Sears Holdings Corporation. It is estimated that each year, he makes over one billion dollars, making him one of the nation’s top billionaires. His successes in his investments, in addition to the continued expansion, of Kmart under his leadership, have earned him the title of this generation’s true financial guru.
There are several lessons to be learned from Lampert’s experiences in the financial sector. The first tenet is to pick smart, long-term investments. The other principle that he adheres to is not concentrating all of his financial assets in one investment. Also, he believes in not spreading his assets too thin, by taking on too many investment opportunities.
His other belief is having patience, with his investments. It is essential to hold on to stocks that are increasing in value. It is also of paramount importance to be able to make quick decisions, when some stocks are performing poorly. Lampert possesses vision, another important skill. One of the keys to success is envisioning the possibilities and then making a clear plan to execute, much like he did with the Kmart and Sears merger. Taking on those skills is an excellent way to start the road to success.
till, differences between the two men are legion (Midwest publicity-magnet versus East Coast recluse, for starters) and do not end with how they played the hand they were dealt: differences in how to hire, invest, manage and incentivize people are revealed in almost every sentence of the respective shareholder letters they have penned.
Indeed, so remarkably different are the letters that we here at NotMakingThisUp couldn’t help but compare the two, by topic.
On Investing Excess Cash:
“As we have done since we took control of Kmart in 2003, we will continue to evaluate alternative uses of the company’s cash flow and capital resources to generate long-term value for all shareholders. Each year brings with it different circumstances, and we expect to have a variety of opportunities to invest our cash in the years to come. Our discipline in evaluating opportunities leaves us prepared to weather difficult times as well as to prosper when economic conditions improve.” —Edward S. Lampert
“Our elephant gun has been reloaded, and my trigger finger is itchy.” —Warren E. Buffett
On Management:
“We continue to make changes in our broader leadership team, as we allocate more responsibility to leaders who have delivered results and seek to attract leaders who are capable of improving performance in areas that have lagged. In particular, we want leaders who are capable of transforming key aspects of our business, as retail is increasingly impacted by new technologies and social interaction.” —ESL
“Our trust is in people rather than process. A 'hire well, manage little' code suits both them and me.” —WEB
On Investing for the Long-Term
“We will continue to make long-term investments in key areas that may adversely impact short-term results when we believe they will generate attractive long-term returns. In particular, we have significantly grown our Shop Your Way Rewards program, improved our online and mobile platforms, and re-examined our overall technology infrastructure. We believe these investments are an important part of transforming Sears Holdings into a truly integrated retail company, focusing on customers first.” —ESL
"By being so cautious in respect to leverage, we penalize our returns by a minor amount. Having loads of liquidity, though, lets us sleep well…. That’s what allowed us to invest $15.6 billion in 25 days of panic following the Lehman bankruptcy in 2008. —WEB
On Making a Key Hire
“Lou knows what it is like to be the 800-pound gorilla from his days at IBM, and he knows what it is like to compete against 800-pound gorillas from his days at Avaya. He also understands how technology can shape and change companies and industries. The profound changes that many industries, including retail, are currently experiencing require new thinking, new leadership and new business models. Information and technology have always been an important part of the supply chain in retail, but more and more it is becoming critical that we use information and technology in a much more profound way to deliver great customer experiences. Lou is a proven winner, and I am excited to have him as the leader of our company.” —ESL
“It’s easy to identify many investment managers with great recent records. But past results, though important, do not suffice when prospective performance is being judged. How the record has been achieved is crucial, as is the manager’s understanding of—and sensitivity to—risk…. In respect to the risk criterion, we were looking for someone with a hard-to-evaluate skill: the ability to anticipate the effects of economic scenarios not previously observed. Finally, we wanted someone who would regard working for Berkshire as far more than a job.
“When Charlie and I met Todd Combs, we knew he fit our requirements.” —WEB
On How to Deal with a Cyclical Business:
“Given the large proportion of the Sears Domestic business which is in 'big ticket' categories and linked to housing and consumer credit, Sears is much more susceptible to the macro-economic environment than Kmart. But I don’t accept this as an excuse: our results at Sears in 2010 were completely unacceptable. The profit erosion at Sears Domestic occurred primarily in appliance-related businesses and in the Full-line Store apparel and consumer electronics businesses….
“When industry margins are shrinking, an organization must respond by adding new innovative products and bundling them with services and solutions that meet customers’ evolving needs….
“The new management in our appliance business has already taken actions to rebuild leadership in this area and to further reinvigorate the Kenmore brand….
“In parallel to the efforts that we are making to increase the productivity of our Sears stores, we are also looking at adding world class third-party retailers to our space. Earlier this year we announced that Forever 21 will be taking over 43,000 square feet of Sears space at South Coast Plaza in Costa Mesa, CA…” —ESL
[Editor’s Note: We are not making this last part up; the author also discusses leasing out space to Whole Foods].
“Our businesses related to home construction, however, continue to struggle…. A housing recovery will probably begin within a year or so. In any event, it is certain occur at some point. Consequently: (1) At MiTeck, we have made, or committed to, five bolt-on acquisitions during the past eleven months; (2) At Acme, we just recently acquired the leading manufacturer of brick in Alabama for $50 million; (3) Johns Manville is building a $55 million roofing membrane plant in Ohio…; and (4) Shaw will spend $200 million in 2011 on plant and equipment, all of it situated in America. These businesses entered the recession strong and will exit it stronger. At Berkshire, our time horizon is forever.” —WEB
On Wonderful Businesses vs. the Wonder of Financial Legerdemain
“I wouldn’t be surprised to see our share of Coke’s annual earnings to exceed 100% of what we paid for the investment. Time is the friend of the wonderful business.” —WEB
“In April, we had the opportunity to purchase an additional 17% of Sears Canada for $560 million, increasing our ownership from 73% to 90%. In 2010, Sears Canada has paid two dividends, which returned $639 million of cash to Sears Holdings. Of course, of the cash we received in dividends, we would have received $518 million without the additional shares purchased (because we already owned 73% of Sears Canada), so in effect we received $121 million in dividends on behalf of the additional shares purchased in 2010.” —ESL
On Reinvesting in the Business, or Not
"Furthermore, not a dime of cash has left Berkshire for dividends or share repurchases during the past 40 years. Instead, we have retained all of our earnings to strengthen our business, a reinforcement now running about $1 billion per month." --WEB
"We invested more than $400 million in capital expenditures in 2010, including significant investments in stores in important markets, and contributed over $300 million to our pension and post-retirement plans. We invested just under $400 million in Sears Holdings share repurchases in 2010, a slight reduction from 2009.... "Share repurchases are not a panacea, nor are they a singular strategy. Yet they are more than just the return of capital to shareholders... As a form of discipline on alternative capital allocation strategies, share repurchases can magnify returns." --ESL
Lampert found the fund in 1988 with initial outside investments worth $28 million. Since then, the fund has had returns averaging 29% a year. His clients include David Geffen, Michael Dell, the Tisch family (owners of Loews Corporation), and the Ziff family (owners of Ziff Davis).[1] In 2004, the fund made Lampert the first hedge fund manager ever to make more than $1 billion in a year, when the fund grew 69%, following his decision to buy Kmart and merge it with Sears.[5] At the start of the financial crisis of 2007–2010, however, ESL's retail holdings were severely affected due to a drop in consumer spending, and the company's investment in Citigroup in September 2007 saw a significant drop in value since the fund made its investment.[6] Lampert has sometimes been called "the next Warren Buffett" due to the similarities between both of their investing styles, especially that of concentrated value. Through the fund, Lampert is worth approximately $2 billion.[1] Lampert, who typically invests in undervalued stocks, is known to have modeled his investing style on Buffett's style by analyzing his annual shareholder letters.[3]
Edward Lampert is the quintessential, successful American businessman. Currently, he boasts a net worth of two billion dollars. He gained his success as a hedge fund manager and is the current CEO and chairman of the Sears Holdings Corporation. However, he gained the majority of his fortune through the founding of his company ESL Investments, of which he is also the present chairman. He got his start in finances while he was an undergraduate student at Yale University where he eventually obtained a degree in economics.
In the summer, of 1984 Lampert fulfilled an internship at Goldman Sachs. The following year he started working in Goldman Sachs’ risk arbitrage department where he stayed for three years.
He left the company he founded, ESL Investments, a hedge fund management organization, in Greenwich, Connecticut. Lampert focused on a highly particular style of investing, often described as concentrated value investing, which he largely focused on the retail sector. He will purchase and then hold his stocks for several years, usually possessing between three and fifteen at a time. Lampert is often compared to billionaire mogul Warren Buffet. He is largely responsible for the formation of Kmart and is credited with the merger of Kmart and Sears into Sears Holdings Corporation.
His strategy paid off when, in 2004, he became the first financial manager on Wall Street to exceed an income of one billion in a single fiscal year. Additionally in 2006 he was credited as the richest person in Connecticut.
At only age 47, Lampert is currently still an active executive member in both his corporations. He stays busy managing his hedge funds with ESL Investments as well as running Sears Holdings Corporation. It is estimated that each year, he makes over one billion dollars, making him one of the nation’s top billionaires. His successes in his investments, in addition to the continued expansion, of Kmart under his leadership, have earned him the title of this generation’s true financial guru.
There are several lessons to be learned from Lampert’s experiences in the financial sector. The first tenet is to pick smart, long-term investments. The other principle that he adheres to is not concentrating all of his financial assets in one investment. Also, he believes in not spreading his assets too thin, by taking on too many investment opportunities.
His other belief is having patience, with his investments. It is essential to hold on to stocks that are increasing in value. It is also of paramount importance to be able to make quick decisions, when some stocks are performing poorly. Lampert possesses vision, another important skill. One of the keys to success is envisioning the possibilities and then making a clear plan to execute, much like he did with the Kmart and Sears merger. Taking on those skills is an excellent way to start the road to success.
till, differences between the two men are legion (Midwest publicity-magnet versus East Coast recluse, for starters) and do not end with how they played the hand they were dealt: differences in how to hire, invest, manage and incentivize people are revealed in almost every sentence of the respective shareholder letters they have penned.
Indeed, so remarkably different are the letters that we here at NotMakingThisUp couldn’t help but compare the two, by topic.
On Investing Excess Cash:
“As we have done since we took control of Kmart in 2003, we will continue to evaluate alternative uses of the company’s cash flow and capital resources to generate long-term value for all shareholders. Each year brings with it different circumstances, and we expect to have a variety of opportunities to invest our cash in the years to come. Our discipline in evaluating opportunities leaves us prepared to weather difficult times as well as to prosper when economic conditions improve.” —Edward S. Lampert
“Our elephant gun has been reloaded, and my trigger finger is itchy.” —Warren E. Buffett
On Management:
“We continue to make changes in our broader leadership team, as we allocate more responsibility to leaders who have delivered results and seek to attract leaders who are capable of improving performance in areas that have lagged. In particular, we want leaders who are capable of transforming key aspects of our business, as retail is increasingly impacted by new technologies and social interaction.” —ESL
“Our trust is in people rather than process. A 'hire well, manage little' code suits both them and me.” —WEB
On Investing for the Long-Term
“We will continue to make long-term investments in key areas that may adversely impact short-term results when we believe they will generate attractive long-term returns. In particular, we have significantly grown our Shop Your Way Rewards program, improved our online and mobile platforms, and re-examined our overall technology infrastructure. We believe these investments are an important part of transforming Sears Holdings into a truly integrated retail company, focusing on customers first.” —ESL
"By being so cautious in respect to leverage, we penalize our returns by a minor amount. Having loads of liquidity, though, lets us sleep well…. That’s what allowed us to invest $15.6 billion in 25 days of panic following the Lehman bankruptcy in 2008. —WEB
On Making a Key Hire
“Lou knows what it is like to be the 800-pound gorilla from his days at IBM, and he knows what it is like to compete against 800-pound gorillas from his days at Avaya. He also understands how technology can shape and change companies and industries. The profound changes that many industries, including retail, are currently experiencing require new thinking, new leadership and new business models. Information and technology have always been an important part of the supply chain in retail, but more and more it is becoming critical that we use information and technology in a much more profound way to deliver great customer experiences. Lou is a proven winner, and I am excited to have him as the leader of our company.” —ESL
“It’s easy to identify many investment managers with great recent records. But past results, though important, do not suffice when prospective performance is being judged. How the record has been achieved is crucial, as is the manager’s understanding of—and sensitivity to—risk…. In respect to the risk criterion, we were looking for someone with a hard-to-evaluate skill: the ability to anticipate the effects of economic scenarios not previously observed. Finally, we wanted someone who would regard working for Berkshire as far more than a job.
“When Charlie and I met Todd Combs, we knew he fit our requirements.” —WEB
On How to Deal with a Cyclical Business:
“Given the large proportion of the Sears Domestic business which is in 'big ticket' categories and linked to housing and consumer credit, Sears is much more susceptible to the macro-economic environment than Kmart. But I don’t accept this as an excuse: our results at Sears in 2010 were completely unacceptable. The profit erosion at Sears Domestic occurred primarily in appliance-related businesses and in the Full-line Store apparel and consumer electronics businesses….
“When industry margins are shrinking, an organization must respond by adding new innovative products and bundling them with services and solutions that meet customers’ evolving needs….
“The new management in our appliance business has already taken actions to rebuild leadership in this area and to further reinvigorate the Kenmore brand….
“In parallel to the efforts that we are making to increase the productivity of our Sears stores, we are also looking at adding world class third-party retailers to our space. Earlier this year we announced that Forever 21 will be taking over 43,000 square feet of Sears space at South Coast Plaza in Costa Mesa, CA…” —ESL
[Editor’s Note: We are not making this last part up; the author also discusses leasing out space to Whole Foods].
“Our businesses related to home construction, however, continue to struggle…. A housing recovery will probably begin within a year or so. In any event, it is certain occur at some point. Consequently: (1) At MiTeck, we have made, or committed to, five bolt-on acquisitions during the past eleven months; (2) At Acme, we just recently acquired the leading manufacturer of brick in Alabama for $50 million; (3) Johns Manville is building a $55 million roofing membrane plant in Ohio…; and (4) Shaw will spend $200 million in 2011 on plant and equipment, all of it situated in America. These businesses entered the recession strong and will exit it stronger. At Berkshire, our time horizon is forever.” —WEB
On Wonderful Businesses vs. the Wonder of Financial Legerdemain
“I wouldn’t be surprised to see our share of Coke’s annual earnings to exceed 100% of what we paid for the investment. Time is the friend of the wonderful business.” —WEB
“In April, we had the opportunity to purchase an additional 17% of Sears Canada for $560 million, increasing our ownership from 73% to 90%. In 2010, Sears Canada has paid two dividends, which returned $639 million of cash to Sears Holdings. Of course, of the cash we received in dividends, we would have received $518 million without the additional shares purchased (because we already owned 73% of Sears Canada), so in effect we received $121 million in dividends on behalf of the additional shares purchased in 2010.” —ESL
On Reinvesting in the Business, or Not
"Furthermore, not a dime of cash has left Berkshire for dividends or share repurchases during the past 40 years. Instead, we have retained all of our earnings to strengthen our business, a reinforcement now running about $1 billion per month." --WEB
"We invested more than $400 million in capital expenditures in 2010, including significant investments in stores in important markets, and contributed over $300 million to our pension and post-retirement plans. We invested just under $400 million in Sears Holdings share repurchases in 2010, a slight reduction from 2009.... "Share repurchases are not a panacea, nor are they a singular strategy. Yet they are more than just the return of capital to shareholders... As a form of discipline on alternative capital allocation strategies, share repurchases can magnify returns." --ESL