Thursday, May 9, 2013

Sell Mortimer, Sell!!

Today, with a loud sigh and heavy heart, I sold my 20 SHLD Jun 2014 65.42 contracts at $4.45, for total proceeds of $8,881 (basically at breakeven).

Now, I imagine you're all thinking the same thing, which is "WTF mevsemt?!  Sears, isn't that your baby?"  So here's the thing, although I'm still very optimistic about SHLD's future, I also viewed these options as the single most risky part of my portfolio.  For one, they expired in roughly a year.  Additionally, they were still pretty far OTM.  So, regardless of what I think about Sears, with any kind of broad market pullback or economic downturn, the value of these options could quickly evaporate.

Furthermore, with the market hitting new highs on pretty much a daily basis, it seems like just about everyone is reaching for return.  Personally, I think it might be a good time to be fearful...

Questions?  Comments?  Email

Friday, May 3, 2013

What Just Happened?

After 18 months and barely a rumble, have I got a treat for you!

First, it was time for some spring cleaning, so yesterday I completely sold my shares in Crimson Wine and Sears Canada.  Both these positions originated from spin-offs (Leucadia and Sears Holdings), and as a result were just a small fraction of my portfolio.  In fact, the combined proceeds were just over $2K.

My next move was to trim LUK - I sold 917 shares at $30.67 for total proceeds of $28,119 (this leaves me with 1,250 remaining shares).  Most of my LUK shares were purchased via JEF (and their subsequent merger with LUK).  However, my original LUK purchases actually predate this blog (late 2008 and early 2009).  Anyway, for those keeping score, my average purchase price is $13.68, so yesterday's transaction locked in a substantial gain.

Now this next move may surprise you... but before I tell you what it is, I'm going to tell you how it came about.

A few months back I read "The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success" (which was fantastic).  Basically, the book is a series of case studies outlining how smart capital allocation by the folks in charge can lead to truly extraordinary returns.  In many cases, this was accomplished through aggressive share buybacks.  

So, a couple of weekends ago with this book fresh in mind, I found myself looking for new stock ideas on a Saturday morning.  But rather than try to find "cheap" companies, I figured I'd try to find talented "jockeys" first, and only then look at the companies they were running.  One thing I looked at was the historical winners of Morningstar's "CEO of the Year" award.  I also looked for aggressive share buybacks.

And this brings us to my newest purchase - Strayer Education (STRA).  Specifically, yesterday I purchased 525 shares at $45.04, for a total outlay of $23,651.

Now, it's no secret that the for-profit education industry is in shambles.  In fact, it reminds me a little of the real estate bubble.  Basically, a bunch of unscrupulous folks fan the debt-fueled flame, the industry collapses under its own largess, government intervention/regulation ensues, and then finally the dust settles and opportunities emerge... (remember this?

In the case of Strayer, I'd argue that Robert Silberman (Chairman and former CEO) never allowed the company to go down the dodgy path being blazed by his competitors.  In fact, in Morningstar's 2007 CEO of the Year write-up (, they describe in great detail the "culture of quality" that Silberman built.  So, after reading their write-up, I quickly skimmed Silberman's most recent annual letter, then I re-read it in detail, and then I read his previous letters all the way back to 2001 (so much for my Saturday morning!).  Anyway, here's my takeaway...

This guy gets it.  He understands that providing value for the customers creates value for the company.  He also gets capital allocation - in the last five months he's repurchased almost 10% of the company's shares!  By the way, if you look at the BoD, you'll see overlap with Liberty and ESL companies, both of which are notorious for smart share buybacks.  And finally, he's built a deep leadership bench.  So, although he recently stepped down as CEO (but will remain as Chairman), I have nothing but confidence in the newly appointed CEO (Karl McDonnell).

Oh yeah, and the company is cheap cheap cheap... (at least I think so).

Questions? Comments? Email