David Berkowitz’s Sears Holdings Get Seared

Dec 27, 2011
J. Webster
Comments Off on David Berkowitz’s Sears Holdings Get Seared

If it’s any consolation, even “big time” hedge fund managers like David Berkowitz of Fairholme Fund make stupid stock purchases now and again. Berkowitz, according to Yahoo Finance, owned 16,270,692 shares of Sears (SHLD) as of September 30, 2011, and those shares were chopped down over 23% this morning after Sears announced they were closing 120 stores based on weak sales.

The shares were trading for $45 a piece last week and now trade for $10 less, at $35 a piece. That’s roughly a $160 million one day loss for Mr. Berkowitz. That burns a little bit I’m sure, especially around the holidays when everything is all so seemingly holly jolly.

This retailer, which operates in both the United States and Canada, is Berkowitz’s largest non-financial holding at 7.9% of the Fairholme Fund portfolio. Sears Holdings owns the Kmart retail chain, the eponymous Sears chain, and 94% of Sears Canada. Unlike most retailers, Sears’ Chairman, Eddie Lampert, is a hedge fund manager. His hedge fund, ESL Partners, is a majority owner of the company, and several prominent investors in his hedge fund, such as the Thomas Tisch (who serves on the board), own shares directly as well. Berkowitz’s Fairholme Fund, is the second largest shareholder behind Lampert, with over 15% of the shares outstanding.

Bruce Berkowitz has continued to stick with Sears Holdings, despite its declining revenues and shrinking profits. In his opinion, if Lampert and his team are able to get the retail operations turned around and the housing sector starts to recover, Sears could be a big win. At the same time, he doesn’t see much downside. Without question, the company has a lot of moving parts, and investors would be wise to do their homework before following Berkowitz into this investment. (Seeking Alpha)

Yes, it’s wise to do your own homework is right and be cautious when following big time hedge fund managers into investments – you don’t want to get burned. What’s more, expect some more risk when a hedge fund manager is running the company (Sears) you’re following a hedge fund manager into buying.

People talk about how Best Buy is only a show room for people to buy stuff on Amazon. What does that make Sears/Kmart? Oh yeah, I almost forgot, I guess the new Sears Kardashian clothing line wasn’t enough to save all those stores.

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