Trading out Sears common...

Man, Sears is really struggling these days!  Frankly, with things as bleak as they are, it wouldn't surprise me to see some big changes in the near future - perhaps we'll see significant store closings, or maybe a large real estate transaction.  Your guess is as good as mine.

So, with their stock in the mid-30's, I figured it was time to swap out the common and add some options!  Specifically, I sold my 400 shares at $34.25 (for total proceeds of $13,698).  I then bought 15 SHLD Jan 2016 $60 contracts at $4.40 (for a total outlay of $6,607).  Wish me luck!

Questions?  Comments?  Email mevsemt@gmail.com.

Time to be fearful?

The best time to be fearful is when others are greedy, and with that in mind I reduced my Sears Holdings position yet again.  Specifically, I sold my 10 SHLD Jan 2015 62.50 contracts for $11.30 (for total proceeds of $11,288).  You'll recall I purchased these back in July at $3.65 per contract (here's the post: http://mevsemt.blogspot.com/2013/07/more-sears.html), so it was a very profitable 4 months!

Questions?  Comments?  Email mevsemt@gmail.com.

Out with the old, in with the new...

Today I traded out my shares of SD for a new position in CNQ.  Specifically, I sold all 4000 shares of SD at $6.46 (for proceeds of $25,835), which isn't bad considering I just bought them in April at $4.93.  I then purchased 850 shares of CNQ at $31.36 (for a total outlay of $26,661).  Unfortunately I don't have time for a full write up, but here's the elevator pitch...

Management is extremely talented and well aligned with shareholders.  If you have spare time read about Chairman Murray Edwards, he's the real deal.  Furthermore, I think CNQ is a high quality company (at least compared to other E&P's) and is selling at a compelling valuation.  In other words, at current prices I think CNQ is a much better risk-reward bet than SD.  Anyway, that's it for now, wish me luck!

Questions?  Comments?  Email mevsemt@gmail.com

Easy Come, Easy Go...

Well folks, this is going to be short and sweet...

Similar to my previous post, SHLD has continued its steady march upward.  So today I trimmed my position yet again.  Specifically, I sold 10 SHLD Jan 2015 $60 contracts at $11.70 (for a total proceeds of $11,688).  Given that I bought these contracts less than a month ago at $2.95 (http://mevsemt.blogspot.com/2013/08/call-me-crazy.html) this was a nice little gain!

Questions? Comments? Email mevsemt@gmail.com

Know when to hold'em?

For those of you keeping track, you know I've recently been buying a lot of SHLD LEAPS.  Then, much to my surprise and delight, SHLD went on a tear starting in late August.  Today it went up over 12%... on no news whatsoever!

Now I know SHLD is ripe for a short squeeze, and it seems like we're in the middle of one right now (~90 MM shares are held by long-term owners and index funds, ~16 MM are shorted, and there are only ~106 MM shares outstanding, hmmm...).  However, the truth is I have no idea how to trade around this type of thing, and with the run-up SHLD has become a significant % of my portfolio.  So today I let prudence take over, and sold both my SHLD Jan 2015 $72.50 and $85.00 LEAPS, for proceeds of $3,438 and $4,681, respectively.

Now it's not like I'm bailing on SHLD, after all I still hold the common, as well as the Jan 2015 $60.00 and $62.50 LEAPS.  Rather, today's transactions were more about managing my portfolio's composition, keeping an eye on risk, and holding my temperament in check.

Questions? Comments? Email mevsemt@gmail.com.

Call Me Crazy...

You know, it isn't easy being a value investor, and this is especially true when you blog about your picks in real time.  After all, just about anything I buy has significant "headline risk," and is likely in the midst of some sort of turmoil.  In other words, I have to be willing to look dumb now with the hope of being right later.

So what's new?  Well, I'm not just waxing philosophical on a Monday afternoon.  In fact, this post is to alert my readers that I bought more SHLD options today.  Specifically, I bought 20 SHLD Jan 2015 $60 contracts for $2.95 (for a total outlay of $5,919).

Now I can almost hear the collective groan through my screen, "oh geez mevsemt, not more Sears!"  But here's the thing, SHLD has a decent margin of safety.  I'm mean they've got real estate, brands, Lands' End, 51% of Sears Canada, owned inventory, etc.  Of course they also have things on the other side of the balance sheet (like that pesky pension), but suffice it to say I think the assets far outweigh the liabilities.

There's also another interesting dynamic that could be going on here (warning: the following is idle speculation).  First, Eddie has been selling/trimming everything in his hedge fund except Sears, and I think he personally owns somewhere around +30 MM shares.  Concurrently, Bruce Berkowitz (a long time supporter of Eddie), has recently been accumulating Sears, and is now up to roughly 20 MM shares.  Hmmm... 50% of SHLD in friendly hands... could Eddie be winding down his hedge fund?

And ultimately, even if Eddie has no intention of quitting the hedge fund business, SHLD still represents an opportunity to invest alongside an incredibly talented investor and businessman at a reasonable price, and these situations don't happen everyday...

Questions? Comments? Email mevsemt@gmail.com

More Sears...

It seems like Sears can't catch a break.  And, while everything else has been rallying this week, SHLD proves to be the problem child yet again, and is actually down.  So what do I do?  Well, I buy more of course!

Since I've talked about SHLD ad nauseum, I'm not going to rehash my whole investment thesis here.  Rather, this is just a courtesy post to disclose a new purchase in real time.  Specifically, I bought 10 SHLD Jan 2015 62.50 contracts for $3.65 (for a total outlay of $3,662).  Wish me luck!

Questions?  Comments?  Email mevsemt@gmail.com

Buy Mortimer, Buy?

Well, this may look kinda silly given my previous post, but today I bought 10 SHLD Jan 2015 72.50 contracts at $4.14 (for a total outlay of $4,152).  Here's why...

First, Sears dropped significantly after releasing earnings, and as a result the price of these contracts also fell quite a bit.  Additionally, compared to the SHLD options I recently sold, these new options have much more time until expiration.  They also make up a smaller % of my portfolio, which means there's less portfolio risk overall.  And lastly, as I mentioned previously, I'm still very optimistic about SHLD's future.  Wish me luck!

Questions? Comments? Email mevsemt@gmail.com 

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 mevsemt@gmail.com

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? http://mevsemt.blogspot.com/2010/04/transaction-alert-sold-usg.html)

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 (http://news.morningstar.com/articlenet/article.aspx?id=221469), 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 mevsemt@gmail.com

Hello Again Old Friend

Well there’s nothing quite as boring as a stock-picking blog that never picks new stocks!  However, I have some good news faithful readers – for the first time since 2011 I actually bought a new company!  But, before I tell you what it is, let me give you some hints to pique your interest…

First, what would you say if I told you there’s a company where the founder and CEO is dumping his shares hand-over-fist as the stock plummets to its 52-week low (which it hit Friday)?  Further, what if I told you this company has undergone massive shareholder dilution due to ill-advised acquisitions and consistently negative free cash flow?  And finally, what if I mentioned that significant company resources have been squandered on lavish C-level perks and eyebrow raising related-party transactions?

Now, I know you’re all probably thinking the same thing, which is “where can I get me some of that!?”  So, without further adieu, our mystery company is none other than Sandridge Energy (SD), and on Friday I bought 4000 shares at $4.93 for a total outlay of $19,725.

So what the heck am I thinking?  Well, despite my less-than-stellar opinion of management, they actually have assembled an attractive set of assets with real and substantial value (I think).  More importantly (and ultimately the impetus to my purchase), managements’ poor stewardship has finally pissed off some large and powerful shareholders, who just last month won a proxy fight to gain control of the Board.  As a result, the CEO should be gone by the summer (hence the reason he’s selling), and going forward the company will actually be run to maximize value for shareholders (what a novel idea!).

So how’s this all going to play out?  Well, I suppose the company could be sold outright, however I don’t view this as particularly likely.  Rather, I think the new leadership is going to drastically reduce capex and focus on cash flow.  I also think they’ll sell some non-core assets to build cash and pay down debt.  As a result, I think the company is going to be much less focused on wheeling-and-dealing, and much more focused on plain vanilla oil and gas E&P.

Of course that’s not to say this purchase is without risks.  In fact, due to Sandridge’s high degree of both operational and financial leverage, there is a huge amount of uncertainty here.  Nonetheless, I think the assets help insulate me against the downside, and with a little luck this stock could easily be a double.

Questions?  Comments?  Email mevsemt@gmail.com

Just Some Minor Tweaks...

Well folks, this post will be short and sweet.  As always, I post anytime I buy or sell a stock, so this is just to keep my readers in the loop on the transactions I made Friday.  

Specifically, I sold my SHLD Jan 2014 55 (50.42 post adjustment) and Jan 2014 85 (80.42) call options, for proceeds of $16,621 and $1,158, respectively (my cost basis for these were $4,012 and $4,362).  In conjunction with this sale, I purchased 20 SHLD Jun 2014 65.42 contracts for a total outlay of $8,819.

So what's the logic here?  Well, I always get nervous when options are within a year of expiration, and the transactions I made Friday effectively "rolled" the expiration date 5 months forward.  Additionally, these transactions increased my cash position by roughly $9K, bringing my portfolio to 42% cash.  By the way, at the risk of sounding like a broken record, this is exactly what I want with the market bumping up against new highs.  

So what's next?  Well, it occurs to me that I haven't bought a "new" company since 2011.  Essentially, over the last 15 months I've basically just been "harvesting" gains or tweaking existing positions.  Admittedly, this is pretty boring stuff, but someone's got to do it ;).  

In the meantime, I'll keep looking for new opportunities.  If you know of any, I'm all ears!

Questions?  Comments?  Email mevsemt@gmail.com 

Here we go again...

I'll tell you what - owning Sears Holdings is not for the faint of heart.  

In the last year, we've seen the spinoff of Orchard Supply, a rights offering for Sears Hometown, and the partial spinoff of Sears Canada.  A small handful of stores/lease-rights were sold (for almost half a billion dollars), and a number of other stores have been closed down.  Sears's Chairman, Eddie Lampert, has purchased roughly 7 million shares for his personal account (representing 6-7% of the company).  Yet, at the same time, we've seen the core retail operations continue to flounder, with no turnaround in sight.  

Recently, in an interview with Fortune, Bruce Berkowitz (one of my favorite investors and the largest owner of Sears behind Eddie) said "the value of Sears would be over $160 a share if the land on its books was fully valued."  He then went on to say "I think Eddie Lampert will end up being one of a few unbelievable case studies on what it means to be a long-term investor."  Here's the link to the full interview: http://finance.fortune.cnn.com/2012/11/26/bruce-berkowitz-fairholme/?source=yahoo_quote.

Anyway, I continue to be optimistic about Sears (depending on your perspective, feel free to replace the word "optimistic" with stubborn, foolhardy, etc.).  So, on Friday I took advantage of the stock's recent decline and bought 20 contracts of the Jan 2015 $85 LEAPS at $1.87.  Including commissions, this cost me a total of $3,759.  Wish me luck!

Questions?  Comments?  Email mevsemt@gmail.com

Sears Rights Offering...

For those of you following Sears Holdings, you know they distributed rights to purchase shares in their upcoming spin off - Sears Hometown and Outlet Stores (will be traded under SHOS when listed in October).  Specifically, for every regular share of Sears I own (excluding options), I received one SHOS right (traded under SHOSR).  Each right entitled me to buy roughly .22 shares of SHOS at $15.  Given that I own 400 shares of SHLD, I could've used these rights to pick up 87 shares of SHOS for about $1,305 (note: this excludes any impact of the SHOSR over-subscription privilege).

Now, this has special-situation written all over it, and at $15 a share I think SHOS could be a good value.  Nonetheless, I sold SHOSR yesterday at $2.60 per right, for total proceeds of $1,035 (after fees & commissions).  Here's why...

Had I exercised my rights, I would've foregone the sale proceeds of $1,035.  So, the real economic cost for me to participate in the spin off would've actually been $1,305 + $1,035 (cost of shares plus foregone proceeds), which equates to almost $27 per share for SHOS.

Questions? Comments? Email mevsemt@gmail.com.

Q2 Review and Commentary

Before I get into a review of my holdings and performance, let's do a little housekeeping.  On June 25th, I withdrew $10,000 from my account.  This is shown on the "My Returns So Far" page (link to the right) and is also reflected in all the quarter-end exhibits further down.

Additionally, as I'm typing, it occurs to me that I haven't written a new post since April (when I sold my AIG warrants), so I apologize for the lack of activity.  It's not that I haven't been thinking about investing, it's just that I haven't had anything especially insightful to say or do.  It's also worth mentioning that the AIG transaction took me to roughly 45% cash, and given the recent market decline, the timing couldn't have been better.  In fact, in my April post I lamented, "with the overall market close to it's 52-week high, I thought now may be a good time to raise some cash for the next rainy day."

Alright, now let's get to the good stuff.  

• I came into the year with $138,179.  At the end of Q1 I had $246,569, and I finished Q2 with $206,988.  Had I not withdrawn the $10K, I would've finished the quarter with $216,988.
• Although I went backward in Q2, the good news is I'm still way ahead of the S&P for the year.  In fact, for the first six months I'm up roughly 57%, whereas the S&P is only up 9%.

Below are the following exhibits: 6+ year performance summary, waterfall graph, holdings summary, and quarter-to-quarter bridge (all values are as-of 6/30/2012, click to enlarge).  

I remain as comfortable as ever with my current holdings (BAC, JEF, LUK, and SHLD).  In fact, given the market's recent pullback, I think all of them represent pretty compelling values.  Even more importantly, they're all run by fantastic leaders who are focused on building shareholder value.

BAC continues to strengthen their balance sheet and has made significant progress with their back-to-basics business transformation.  In the not-to-distant future, they should be allowed to start returning cash to shareholders via dividends and buybacks.  In Moynihan we trust!

As CEO Handler says about JEF, "We are the nicest property in a devastated neighborhood."  Well I guess that's one way to put it!  The fact is JEF operates in what could be a pretty attractive industry.  Unlike their peers (Goldman Sachs, Morgan Stanley, etc.), JEF has used the recent economic turmoil to hire talent and make acquisitions on the cheap.  Over the next few years, I think we'll see significant earnings growth as these investments start to pay off.

I don't have a whole lot to say about LUK.  I'm not thrilled that their Chairman, Ian Cumming, has indicated that he doesn't plan on renewing his employment contract in 2015.  However, I am confident that LUK leadership will continue to faithfully build wealth for their shareholders, and I'm curious see what Justin Wheeler (the new COO) can accomplish in his expanded role.

And of course there's SHLD.  I've written about this one ad nauseum, so I'm going to keep it short.  However, to even the passive observer, it's clear the transformation has begun.  So, even if you're not a shareholder I'd keep an eye on this one, things could get interesting.

And finally, let's talk about what's next.  Given my high cash %, I'm looking to put some money to work.  However, I find myself struggling to actually pull the trigger (which is nothing new).  Part of it's the hope that stocks will get cheaper.  The other issue is that I've found a handful of opportunities that are pretty compelling, but I'm having trouble deciding which 1 or 2 to buy.  Here's what I'm looking at most closely: CNQ, VRX, JCP, SCHW, EXPD, SD, XCO, and AIG.  Interestingly enough, I've previously owned JCP, SD, and AIG. If anyone has researched any of these companies, feel free to share!

Questions?  Comments?  Email mevsemt@gmail.com

It's so hard to say good-bye...

Today I sold my position in AIG TARP warrants for proceeds of $37,944 (3,000 warrants at $12.65).  Thanks to the Herculean efforts of CEO Benmosche and Chairman Miller, this investment has turned out extremely well for me.  And because of my confidence in these executives, and the solid franchise of AIG's core operating businesses, it's with a heavy heart that I decided to sell.  Nonetheless, anytime a stock is bumping up against its 52-week high I start to get nervous.  Besides, with the overall market close to it's 52-week high, I thought now may be a good time to raise some cash for the next rainy day.

For those of you keeping track, I first purchased 2,000 warrants in August 2011 at $6.94, for an initial outlay of $13,885.  In November 2011, I added 1,000 more at $5.37 for $5,375.  All-in-all, my total cost basis was $19,260, which means I made a profit of $18,684 on this position... not too shabby!

Questions?  Comments?  Email mevsemt@gmail.com.

Quick Update

This post is just a quick update on a transaction I made today.

As you'll recall, I trimmed my Sears position (by selling Jan 2013 $95 calls) earlier this year.  However, the last month or so has not been kind to the stock (it's fallen from the mid-80's to the high 50's), and I figured I'd use this pullback as an opportunity to add to my position.  Specifically, I purchased 10 Jan 2014 $85 LEAPS at $4.35 per contract, for a total outlay of $4,362.

Questions?  Comments?  Email mevsemt@gmail.com

He who rides a tiger is afraid to dismount...

That Chinese proverb just about sums up my feelings on Sears Holdings, which has been on an absolute tear in 2012.  Nonetheless, after much deliberation (and honestly, angst), I decided to trim my position once again.  Specifically, on Friday I sold my remaining 25 contracts for the Jan 2013 $95 options at $6.80, generating proceeds of $16,986 (I'd sold the other 10 contracts in February 2012 for proceeds of $1,239).

For those of you following my blog, you know I first bought these particular options all the way back in November 2010.  Between then and August 2011, I added to my position 3 more times (click on the "zz Sears" label to the right to read about all my Sears transactions).  When all was said and done, I'd invested $14,592.  Then came December 2011, which was not kind to Sears investors.  In fact, as of 12/31/2011, my 35 contracts were worth $210 (that's no typo, my $14.6K investment had shrunk to two hundred bucks!).  Now, less than 3 months later, those same 35 contracts have been sold for total proceeds of $18.2K!

But why sell now, after all things are just getting interesting?  Well remember, I'm not selling out of Sears, but rather just trimming my position.  In fact, back in December when things were looking really bleak, I bought $18,329 of stock plus an additional $4,012 of Jan 2014 $55 options.  So, given my significant exposure to Sears from these purchases, I could no longer justify holding options that were both 1) out-of-the-money and 2) had less than a year until expiration.

Questions?  Comments?  Email mevsemt@gmail.com

Quick Update

Yesterday I sold 10 Sears Jan 2013 $95 call options at $1.25 per contract.  If you've been following the stock, you know it's taken off in 2012.  In fact, between my call options and common stock, Sears was roughly 12% of my total portfolio coming into the year.  Before yesterday's transaction, it had gone up to 22%.  So do I think Sears is overvalued?  No, not by a long shot.  However, since it had become the single largest position in my portfolio, I figured the best thing was to be prudent and trim it back a little.

Questions?  Comments?  Email mevsemt@gmail.com.

Adding to BAC

Another quick update.  I just added 2500 BAC Class A TARP warrants at $2.01 apiece, for a total outlay of $5,030.