We chose to exit our entire stock and total return swap position in J.C. Penney (JCP
) at the end of August and incurred a loss of approximately 50% of our original investment. We did so because of a disagreement with the board about the timing and necessity for a CEO change at the Company, the valuation implied by the then stock price, and the risk of a successful turnaround.Turnarounds are inherently risky and require a totally aligned board of directors, a CEO with substantial turnaround experience, and the support and confidence of all stakeholders. Without all of these ingredients, we are bearish on J.C. Penney's prospects.
I have said before that investing requires the confidence and conviction to believe that one is right even when the whole world, including other smart, high-profile investors, tells you that you are wrong. Buying 25% of General Growth for pennies per share during the financial crisis and shortly before its bankruptcy required detailed analysis, execution, and confidence. Staying short MBIA stock, when Warburg Pincus, with access to inside information, invested a billion dollars of capital into MBIA, and Marty Whitman, a famous distressed investor, invested hundreds of millions in capital, required a similar degree of analysis, confidence and conviction.But confidence and conviction without humility can be dangerous in the investment business. Continue Reading »