The Smartest Guys in the Room?

Let’s climb into the “Wayback Machine” and travel to a place that I like to call February 2007.

Back then, I was just getting started with managing some of my own investments.  I had decided to finally start putting my money where my theories were and focused on putting some 401(k) rollover funds to work.

Since the rest of my investments were sitting with my trusty broker, with whom I’d had a 25 year history, I thought that regardless of my personal mis-steps, I’d still be in reasonably good shape.

But barely 6 months later I was looking to rework my entire portfolio by putting my own stamp on all of its holdings.

To remind past readers, or just to inform new ones, the decision to do so came only after the unexpected death of my broker. The happy  25 year run that took us from E.F. Hutton to Paine Weber and stops in-between suddenly ended

Back in early 2007 I was far more discerning when I made my stock purchases, only because the portfolio that I was managing was relatively small. Since I was selling call options on all of the holdings and needed to do so in a sufficiently large quantity to offset bid and ask discrepancies, my self managed portfolio wasn’t entirely diversified and could easily suffer from the kind of hiccoughs that can be so common.

At that point, I already owned shares in those triple digit darlings Google and MasterCard, and Apple was soon to join them. Back then, there was no shortage of triple digit stocks.

That changed.

With some money in hand following the sales of Intel and Dell Computer (see why I hate Tech stocks), I was trying to decide between purchasing from between two more triple digit darlings:

Empty Parking LotsSears Holdings or Goldman Sachs.

Goldman was at about $215 and Sears was nearly $190 at the time.

It was never really a fair fight. Goldman always had the inside track.

No, not because Eddie Lampert, the Chairman of Sears Holdings and allegedly the next incarnation of Warren Buffett, was a Goldman alumnus, but because the Goldman CFO was a high school classmate of mine.

Easily the smartest guys in any room.

You may know some of the story as it all infolded between February 2007 and December 2011. If you don’t know the story, take a moment to check your brokerage statements.

You know, the ones that you were afraid to open.

The smartest guys in the room have seen their ups and downs over the past few years.

Today came news that 120 Sears and K-Mart stores were going to be closed.

People still marching on Wall Street would like to do the same with Goldman Sachs.

For me, the sure sign that something was amiss at Sears was when I noticed that Dick Bove was sporting a Sears necktie. To those more analytically inclined, the message was already clear when the aerial photographs of the Sears’ parking lots during the holiday season were indistinguishable from the parking lots of an Orthodox Jewish synagogue on Yom Kippur.

Don’t get that?

Alright, how about it was indistinguishable from the New York Mets’ parking lot in October.

But anyway, back to 2007 and with a decision to be made, I bought shares of Goldman Sachs and have held shares nearly continuously since that time, albeit in varying amounts as the term “dollar cost averaging” took on great meaning with Goldman, as did the expression “Value trap?”

Just to put things into perspective, Goldman is now trading below $95, although to its credit, no one has yet had their names qualified as being a “convicted felon.”

Without giving too much information away, over the years, I’ve generated about $35,000 in options premiums from my shares and have also had some capital gains as shares were assigned. Remember, I like to practice sacrifice of young children to protect the older ones and I rarely practice what Baruch preached, so while I currently have losses on existing shares, they’ll be on paper unless someone can take them out of my cold grasp.

If there really was a reason behind the decision to choose Goldman over Sears, it’s been lost to me, but I know that there really never was a reason, so I’ll go with the high school thing.

Maybe it was just cultural. Goldman, Sachs or Sears.

Mind you though, the argument for going with Sears was compelling and as they say at politically correct competitions “there really are no losers here.”

Other than investors.

It seemed as if hardly a day went by that we didn’t hear how Eddie Lampert was this generation’s Warren Buffett, despite the fact that Warren Buffett is still this generation’s Warren Buffett.

The strategy also sounded great. Look, he’d spent no money at K-Mart and made everyone that had faith gazillions of dollars.

Blue light specials? Gone. Why pay extra for the blue tinted light bulbs?

Then, he got Sears Roebuck to overpay for K-Mart, demonstrating what morons the Sears Board of Directors really was, making it all that much easier for Lampert to complete his swoop and pick up Sears on the cheap and transform it into Sears Holdings.

Besides, everyone knew that it was all about the real estate, anyway.

Genius. Pure inspired genius.

Yeah, that was yet another example of “crowd think.” Everyone piled on to the genius behind cornering the valuable real estate.

If you ever stepped foot into a Lampert era Sears, you realize that they were ghost towns, but that was clearly part of the brilliant Lampert strategy.

After all, why get bogged down with pesky things like inventory and customers when you want that “valuable” real estate to sell. Those things only get in the way.And surely, as loathe as I am to look at, much less use charts, see how well that strategy paid off? After all, everyone knows that an empty house sells much more readily and at a better price than a lived in and furnished house.

Chart: GS vs SHLD and SP 500

Sorry about not flipping the chart right side up.

I know even less about real estate than I do about stocks, but closing 120 stores probably isn’t going to do much good for business real estate values.

What did I tell you? The guy’s a genius.

The fact that a few weeks ago every analyst was blasting Best Buy for having retail outlets that were too large probably wasn’t terribly good news for the world of business real estate either.

I don’t know what my personal outcome would have been had I purchased those Sears shares back when they still had some appeal.

I never look back and play the “what if” game. That can be particularly psycholgically destructive of you’ve ever suffered assignment of shares, such as Visa or even Green Mountain after unexpected and significant price rises.

Although Sears is down about 83% from that day back in 2007, Goldman is down about 56%.

I suppose either way you could make it up on volume, but it seems ironic to introduce a retail concept to a guy who has been lambasted for not being a retailer, yet having the “cajones” to think he could run Sears.

By the same token, Goldman was about as far from the retail brokerage business as you can get, so maybe volume isn’t the way to go.

That’s why I’m not sitting in the room with those smart guys.

But I least I have the inventory to furnish the room.

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