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Eddie Lampert: The Focus And Immersion Of A Zenway Superinvestor

June 06, 2006
Originated in the ancient Shaolin Temple in China as a Kung Fu system to unleash the power of the mind and body, oriental Zen philosophy became an American pop culture when American soldiers learned about it from the Japanese Samuri swordsmen after the World War II. It is quite clear to me that Edward S. Lampert, Chairman of Sears Holdings Corp (SHLD) and ESL Investments, adopted many Zen practices to boost the power of his billion dollar money mind. If we ever to construct a hall of fame for what we call "The Zenway Superinvestors" who act with focus, discipline and simplicity, Lampert would definitely deserve one of the top spots.

Lampert: "We Try To Stay Very Focused."

When Billionaire Richard Rainwater, Lampert's mentor, owned the Texas Rangers (with George W. Bush), he would occasionally take Lampert and the other guys to the stadium on sunny afternoons to play baseball. Eddie would go along, but he would spread out his papers on the right-field stands and be totally absorbed by his financial numbers as if the exciting baseball field did not exist.

Lampert focuses on research by cutting off unnecessary activities. "Eddie works harder than anyone I've ever seen," said Richard Rainwater. Lampert laughed at Rainwater's portrayal. "Richard's office was like the Grand Central Station," Lampert said. "Richard would say, ‘Joe Smith is coming to town. Let's all have lunch with Joe Smith.' I'd say, ‘No, I have my work to do.'"

At the end of his recent shareholder meeting on April 12, 2006, Edward S. Lampert recommended a book: "Crazy Busy" by Edward M. Hallowell, M.D. It is a book by a psychiatrist who dealt with Attention Deficit Disorder (ADD) patients. The doctor's thesis is that, at the end of the day, being focused on one task at a time is superior to multi-tasking. Eddie says he agrees with that thesis.

The Power Of Zenway Focus

The importance of focus as a discovery of modern psychiatric science confirmed what the ancient Zen Masters discovered thousands of years ago when they performed primitive "scientific" experiments using their own body and mind. Essentially, a trained focus unleashed the punching power of their fists which enabled them to become powerful lords who could choose prettier wives. And the secret of success started to spread around into other professions.

In fact, the Chinese word of Zen is composed of two characters: "single" and "minded". The idea and the practice of a single-mind focus has produced some of China's fastest martial artists. As a practice, Zen originated from Shaolin Temple in China, a place arguably accredited as the ultimate origin of almost all sects of oriental martial arts. As a philosophy, Zen is the merged ideas of Lao Tzu, Confucius, Buddha and Bodhidharma, four of the wisest men from the East.

It is interesting to note that the essence of Zen practice was somehow lost after the original ideas were translated from Chinese to Japanese, and later, from Japanese to English. Nowadays, Zen as an American pop culture is generally thought of as something cool, serene, mysterious, or enlightening, while the true essence of the philosophy should be dedication and focus.

Warren Buffett jokes that, if he was born a few thousand years ago, he might become some animal's lunch, running for his life in dark forests screaming: "I can allocate capital." In ancient times, martial art is an essential skill to conquer land and become kings. At those ages, the smartest discovered the power of focus and the related exercises. As the world moved ahead, the Universal Law of focus had spread into practically all walks of life. When capitalism took over martial art as a much more important skill in society, the practice of singled-minded focus is now adopted by a number of superinvestors like Buffett and Lampert.

Investment Research With Total Immersion

Lampert describes his research methods as a "form of immersion."

Before he put a penny into AutoZone, he visited dozens of the auto-parts retailer's outlets himself.

Lampert also had one of ESL's analysts spend six months calling on hundreds of stores, posing as a demanding customer. "It's probably overkill," Lampert says, but as a hands-on detail oriented investor-operator, he can't resist his fascination with the nuts and bolts of each business.

Lampert's Three Role Models

According to Warren Buffett, the choice of personal role models can often tell a lot about where someone is heading.

Eddie Lampert has three role models that together may say more about where he's heading:

  • Bob Rubin, former Treasury Secretary and now Vice-Chairman of Citigroup, who strive to make his best decisions by keeping his options open until the last reasonable moment;
  • Bill Belichick, the coach of the New England Patriots football team, who constantly adjusting his game plans to confuse and outwit his opponents; and
  • Warren Buffett, the investor turned conglomerate empire builder, who bought control of businesses at bargain prices and re-allocated the cash flows opportunistically to the highest risk-adjusted return available at any given time.

Decoding Lampert's Money Mind

To decode Eddie Lampert's billion dollar money mind, a good starting point is to read about the heroes who shaped his life. Here are some of the books we suggested to members of our investors club:

In an Uncertain World : Tough Choices from Wall Street to Washington (by Robert Rubin)

http://www.amazon.com/exec/obidos/ASIN/0375757309/zenway-20

The Education of a Coach (by David Halberstam)

http://www.amazon.com/exec/obidos/ASIN/1401301541/zenway-20

Football Physics : The Science of the Game (by Timothy Gay, Bill Belichick)

http://www.amazon.com/exec/obidos/ASIN/157954911X/zenway-20

Management Secrets of the New England Patriots: From Patsies to Triple Super Bowl Champs (by James Lavin)

http://www.amazon.com/exec/obidos/ASIN/0976203952/zenway-20

Buffett: The Making of an American Capitalist (by Roger Lowenstein)

http://www.amazon.com/exec/obidos/ASIN/0385484917/zenway-20

Interestingly, even the ancient Zen Masters had figured out the importance of reading as human society moved from fist towards capitalism. There was a Zen saying that: "Inside the pages of books, you can find gold houses and beautiful wives." And this is thousands of years ago before guns took over fists and capitalism took over kingdoms. Eddie Lampert surely found what he was looking for in the corporate books with his zen-like focus.

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Brian Zen, CFA, PhD, is the founder of Zenway.com Inc., an investment research firm that publishes Superinvestor Digest and runs Zenway Superinvestors Club, a mutual-and-self-improvement network for dedicated stockpickers focused on co-operative research. Operating details of the exclusive club can be requested from Brian at: bzen@zenway.com. This article is a special excerpt from an in-depth analysis of Eddie Lampert's unique strategies published by Superinvestor Digest.

About the author:

Dr. Zen
Brian Zen, CFA, PhD, author of "Superinvestor Lecture Notes", serves as Chief Investment Strategist at Zenway Group, a New York-based registered investment advisory firm providing asset management services, training Certified Securities Appraisers (CSA), and teaching Graham-Buffett Value Investing. Previously, Brian served as vice president at JPMorgan Chase and portfolio manager at Prudential-Bache Securities and Janney Montgomery Scott, while teaching graduate-level investment analysis at St. John's University. Brian was a Bernard Baruch Fellow and graduated summa cum laude from Bernard M. Baruch College. He is also a graduate of Columbia University's executive program in value investing. Brian appreciates your feedback at: bzen@zenway.com

Visit Dr. Zen's Website


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