Lampert’s investment in Sears (SHLD) shares certain characteristics with Buffett’s investment in Berkshire Hathaway (BRK.A)(BRK.B) in the early days, but it is not a parallel situation. For instance, Buffett bought Berkshire in the hopes of kick starting a stagnant business, as did Lampert with Sears. Yet Berkshire was a textile mill, a waning industry which Buffett said in his 1977 shareholder letter was “unlikely to produce returns on capital comparable to those available in many other businesses,” although they had put in “strenuous efforts.”
Sears, on the other hand, is in the beleaguered but growing retail sector. In November 2011, retail sales rose 4.5 percent over last year, according to the National Retail Federation. It expects holiday sales to have risen 3.8 percent over last year.
Lampert helped Kmart out of bankruptcy in 2003, then effected a merger between it and Sears Roebuck & Co. in 2005, making the new Sears Holdings the nation’s third-largest retailer. Since Lampert created Sears Holdings through the merger, revenue has declined each year and earnings have declined 84 percent, in spite improvements in the overall retail sector.
Unlike Buffett, who bought Berkshire outright, Sears comprises 30.4% of Lampert’s portfolio, making it the second-largest holding, below AutoZone Inc. (AZO) and above AutoNation Inc. (AN), giving him less exposure should it fail. And prior to his Sears-Kmart merger, he had already accomplished several big investing feats.
Lampert began his hedge fund in 1998 with $28 million in start-up capital and made his first fortune with passive investments in stable companies like IBM (IBM) and American Express (AMEX).
Lampert changed his ways in the late 1990s, becoming a far more active investor when he began his lucrative investments in AutoZone (AZO) and AutoNation (AN). He first purchased AutoZone in 1998 and owned 30 million shares, equivalent to 25% of shares outstanding at the time, by 2001. In 1998, the stock traded for around $30. Over the last 10 years, the price has appreciated 388 percent to $324 per share. Around the same time, he also made a major investment in AutoNation (AN), which has returned 165% over the last decade. At both companies, he made big changes in management and structure to create those returns.
Another of his other major successes was with Kmart before it merged with Sears. He bought a controlling stake for almost $1 billion while the company was filing bankruptcy in 2002. Lampert noticed that the blocks of real estate under the 1,500 stores were quite valuable. After saving the company from bankruptcy, he sold 68 of the firm’s stores to Home Deport and Sears for $850 million, almost the entire amount of what he paid for all 1,500 blocks. Eventually he closed 300 stores and laid off around 34,000 workers to cut costs. Under Lampert’s leadership, Kmart shares increased from $15 in March 2002, to more than $150 by mid-2005.
Some of his other current holdings have also had impressive performances. Big Lots (BIG), is up 44 percent the average price he paid for his shares, Seagate Technology (STX) is up 35 percent and Gap Inc. is up 19.5 percent.
Lampert turned $28 million in start-up capital into a $14 billion hedge fund through several brilliant maneuvers, as well as savvy value investing in cheap stocks. He is also a long-term investor, who may still have plans for Sears to rebound over the long run. Although he is no Warren Buffett, he has done incredibly well already, and may continue to do so over the long run.