Economic moats - A recipe for long-term outperformance

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“In business, I look for economic castles protected by unbreachable ‘moats’.”  - Warren Buffett

The greatest investor of all time - Warren Buffett -breaks down his investment criteria into the following four areas:

1. Circle of competence

2. Great long-term prospects

3. Competent management

4. A fair price

This text deals with the second point but also touches upon the third. In order for a business to have…

Kent Janér

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Investor profile at InvestingByTheBooks: The book The World’s 99 Greatest Investors: The Secret of Success provides a unique opportunity to learn form the most prominent investors globally. In the book they generously share their experiences, advice and insights and we are proud to present these excerpts. Magnus Angenfelt, previously a top ranked sell side analyst and hedge fund manager, will be presenting one investor per month. For those who cannot wait for the monthly columns, we strongly recommend you to buy the book. The investor himself writes the first section below and then Angenfelt describes the background of the investor and comments on his investment philosophy. Enjoy.

Successful investors have two important abilities. One is the ability to identify interesting and potentially profitable investments. This is grounded in a well thought-out analysis of macroeconomic developments, a stock, or some other investment. If the market valuation is too high or too low in relation to what the analysis indicates is correct, things become interesting. The probability of finding a good deal increases if you also understand the reasons for this disparity. If, on the other hand, there is no apparent reason for the disparity, there is a greater risk that the market is right, and you have missed something in your own evaluation. Financial prices assume predictions about the future, but predictions are considerably more uncertain that most of us would like to believe. Accepting and locking yourself into a particular scenario that appears to be reasonable right now is not a good way of handling insecurity. It is better to think in terms of a variety of possible future scenarios, weighing up the possibility of them occurring. The market price should then reflect a reasonably balanced assessment of these scenarios. Because new information is forever becoming available, you should adjust your weightings over time, and therefore also what you think a reasonable market price.

The other ability of successful investors is to identify and handle risk, which is mostly aimed at reducing the chances of catastrophic results from your investments. The worst possible result is so bad that you no longer can, may, or wish to make new investments. Rule number one is to never risk ending up in this situation. Further, it is important to understand which risks you are exposed to, and actively decide whether they are the ones you wish to carry, or if there are particular risks that should be insured or protected against. In many cases it can be wise, for the right price, to have a general insurance against unexpected events or macroeconomic shocks. Mathematical models can be very useful for measuring risk, but they should be combined with practical experience of financial markets. Excessive belief in models, which are of course simplifications of reality, can be downright dangerous. Good judgement and common sense are required, both of which are often underappreciated qualities.


If you as an investor want high riskadjusted returns over a long period of time in a changeable world, you will need to know about financial theory and understand macroeconomic structures and relationships, not to mention politics, including central bank policy-making. Without a certain understanding of these topics (which does not necessarily mean expert knowledge) there is a risk of becoming a one-trick pony, and making the same investment over and over again, despite the fact that reality has changed so that the factors and relationships which ensured success in the past are no longer valid.

Hard work and a passion for what you do are definitely important factors in success!

BORN Laisvall, Sweden 1961.

EDUCATION Janér graduated from the Stockholm School of Economics in 1984.

CAREER His first job after graduating was as a market maker in government bonds for Svenska Handelsbanken. After two years he switched to a similar role at Citicorp in London, working with British gilts. In 1989, Janér started working for the Swedish bank JP Bank with responsibility for bonds and the bank’s investment strategy. In 1998 he founded the hedge fund Nektar Asset Management, where he has been head of investments from the start, and is now also chairman of the board.

INVESTMENT PHILOSOPHY Janér runs Nektar, one of the decade’s most successful hedge funds in Europe. The fund is market neutral and looks for misvaluations between various financial instruments, which are advantageous from a risk perspective. The positions can also be based upon a macroeconomic theme (lower growth, higher inflation, higher volatility, etc.). The emphasis is on interest rate market. The fund usually holds several hundred positions and is characterized by relatively low risk.

OTHER Janér made his name by being one of the most successful investors to take positions on the falling Swedish krona in 1992. Today, Nektar manages over $4 billion. Among the large number of international awards received over the years, for three years in a row Hedge Funds Reviews named Nektar the best market-neutral fund in Europe over the previous ten years. He is a member of the scientific advisory board of the Stockholm Institute for Financial Research, and his hobby is deep-sea fishing.

Source: Kent Janér; Nektar Asset Management.

Real Estate Primer: Part II

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Similarly to other financial companies like banks and insurance companies, but in contrast to most other companies, the layout of the financial accounts for real estate companies deviates from the standard company. We will exemplify by looking at the 2016 financial reports for Klövern and as…

Part I of this Real Estate Primer was published December 2, 2018

Stanley Druckenmiller

One of the "masters of universe" is Stanley Druckenmiller, who here is interviewed by Kirik Sokoloff in late september.

Its a great view/listen in many aspects, I am highlighting a few.


first 10 minutes is about private life

ca 10 min: Some history and background to his trackrecord, 30% cagr.

ca 16 min: Why algos is making his old system of using the markets price signals to make money

ca 22 min: On how he made money, build a thesis and make a small bet, and wait for price confirmation

ca 29 min: On FED

ca 37 min: On big tech

ca 41 min: On big bets & capital preservation

ca 50 min: Your most important job, is to know when you are hot or cold

ca 54 min: View of the us equity market

ca 1 hour 2 min: The rise of populism, wealth inequality

ca 1 hour 6 min: Stanleys book recommendation =>  Charles Murray, Coming Apart

ca 1 hour 8 min: US in the world

ca 1 hour 16 min: His philanthropy


Real Estate Primer: Part I

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Real estate is property consisting of land and buildings on it. Real estate companies are firms that engage in the acquisition, management, development and selling of real estate, generally for a commercial purpose. The ownership of a piece of real estate is by definition a very local undertaking and real estate companies are often classified by the regions where their properties…

Part II will be published within short!

Albert Frère

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Investor profile at InvestingByTheBooks: The book The World’s 99 Greatest Investors: The Secret of Success provides a unique opportunity to learn form the most prominent investors globally. In the book they generously share their experiences, advice and insights and we are proud to present these excerpts. Magnus Angenfelt, previously a top ranked sell side analyst and hedge fund manager, will be presenting one investor per month. For those who cannot wait for the monthly columns, we strongly recommend you to buy the book. The investor himself writes the first section below and then Angenfelt describes the background of the investor and comments on his investment philosophy. Enjoy.

·       Perform only those investments that you understand.

·       I suffer from insomnia when I am in debt.

·       Amat victoria curam – Victory favors those who take pains.

·       In every danger, an opportunity.

BORN Charleroi, Belgium 1926.

EDUCATION Dropped out of secondary school.

CAREER Aged 17, after his father died, he took over the running of the family’s nail merchant business. Aged 30 he began investing in steel factories which, when he sold them in late 1970s, became the foundation for his wealth. He continued to buy and sell, mainly Belgian national companies, and has today an empire of media, oil, and utilities.

INVESTMENT PHILOSOPHY Frère has displayed impeccable timing in his dealings. His strength and strategy predicting changes is business structure, political impact, and long evolutionary trends in industries. He was, for example, the pioneer in Europe on cross-border deals. He foresaw the single European market and the consolidation that would be one consequence of the EU. The valuation is not always the crucial point for him in making decisions, and he invests in both public and private companies. This investment strategy demands specific skills and contacts, and is not easy to apply. He is described by making money by exercising stone cold patience in a serene manner in connection to being a workaholic.

OTHER Frère keeps himself well out of the limelight. He rarely gives interviews (I thank him for granting me one!) or speaks in public. According to Forbes his wealth is an estimated $3.7 billion in 2013, which makes him the richest individual in Belgium. He is nicknamed The Warren Buffett of Belgium. At the age of 85 he made one of his biggest deals so far taking the investment conglomerate CNP private. He is a hunter, athlete, and lover of fine wine. Frère took up golf in his seventies.

 Sources: Albert Frère; Wikipedia; Forbes.

The Knowledge Project Podcast with Shane Parrish: Annie Duke

I am new to podcasts. But beeing a runner sometimes means knee problems, and you need to live life differently, or in my case, sit on a stationary bike.


But if you listen to a great podcast, you don’t mind.

This is a great interview by Shane Parris, and a nice written summary in the link as well.

It two hours long, which is very entertaining, and you soon forget that you are on a stationary bike.

Happy listening & have some skin in the game:

Stop reading and play some football!

So since you are at the investingbythebooks site, I guess you have read a few books. But besides reading books ... What else can you do to become a better investor, and not to read another book about value investing?

Lets compare with something else, for example football.  “A huge football fan that knows every tiny detail about the game. He knows exactly what is going on, what the players are doing right, what they are doing wrong. But if you put him on the field, he can't throw the ball because he never did it in his life before.”  It is one thing to know what you need to do, but it is another to execute. Only way to learn how to execute is to actually play the game, or in this case, actually invest your own money”

 Below is a text who is heavily inspired from Geoff Gannon, original here,


1) Have Skin in the Game 

Buy stocks you pick yourself. Stocks you can only blame yourself for if they lose you money. The hard work isn’t just analyzing a company and handicapping the situation. It’s putting your own money — and your own ego — on the line.

2) You have to have skin in the game.

You have to risk taking a self-inflicted blow to your money and your mind.  The most important part of investing is trying, failing, experimenting, and adapting on your own. Watch yourself work under real world stress. And be brutally honest about what you see.

3) Keep an Investment Diary

Take some time every day or at the least once a week and just write down whatever thoughts you have. Stocks you are looking at. Months from now and years from now, your memory of what you were feeling and what you read in that journal won't match. And you may not recognize the person who wrote those things. You'll have changed as an investor without realizing it.

4) Keep an Investment Bucket List

If you had to put your family’s money into five stocks before you died, which five stocks would they be? Study companies regardless of their stock price. Keep a list of your favorite companies. Imagine the following limitations:

· You have to invest all of your family's net worth in stocks.

· You can never sell a stock once you buy it.

· You can only buy five stocks between now and the day you die.

It’s amazing how quickly this exercise will force you to distill your thinking.

5) Work more

When authors list Warren Buffett's investing secrets they don't mention that he read every book on investing in the Omaha public library by the age of 11. That he owned stocks in high school. That he took a train down to Washington and knocked on GEICO's door. That he went to annual meetings of companies he knew Graham owned stock in even though he was only a student and Graham himself wasn’t going. Which brings me to the Buffett did that you can do too: 1. Work an absurd amount. 2. Become an expert .

6) Become an expert

Become an expert. You've studied some different stocks now. You've had a taste of Indian stocks, U.S. stocks, Japanese stocks, micro caps, big caps, net-nets, hidden champions, etc. What interested you? What stock was the most fun to research? What did you think you really "got"?  Think about what area you might want to learn more about.  Then become an expert in that area. Pretty soon, you'll develop your own investing style.

7) Invest with Style

Do you buy turnarounds? Hidden champions?  Wide moats?  Brands?  Companies with surplus cash? Family controlled companies? Food and beverage companies? Companies with mind share?  With cutting edge tech?  With a lack of change?  Young companies?  Old companies? Low cost operators? Stocks in industries with little price competition?  Stocks with an activist banging at the gates?

8) One example – of someone with an investment style…

One example of  investment style”, watch an interview — any interview — with Tom Russo, for example he gave three lectures at Columbia. He is a buy and hold investor. He is a global investor. He likes brands. He likes food and beverage companies. And he likes family controlled companies. He wants a high return on capital and the ability to reinvest that capital for many, many years to come. He cares about price. But he’s a lot more flexible on price than most value investors. Just Google him.

To summarize, grow your own style, and play some football!

Selling and Selling Short

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“Almost all of the really big trouble that you’re going to experience in the next year is in your portfolio right now; if you could reduce some of those really big problems, you would come out as a winner […].” /Charles Ellis

When it comes to investing in portfolios of individual stocks, it doesn’t matter if your benchmark is an index or an absolute return number; there are still two basic ways to beat that target…

Insurance Primer

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Life presents us all with a wide variety of risks. This gives us a choice to either accept the consequences of those risks, should they materialize, or to try to protect ourselves from these consequences and by this reduce the exposure to various perils. Insurance companies protect against the financial risks of both retail customers and those of corporations. Those who…

Warren Buffett’s only public investment thesis

Although Warren Buffett is open and transparent about most things he never discusses the details of his investment theses. That is too bad since that is probably what most of us investors are interested in. But there is actually one investment case that he has described publicly. And it is not any investment, but his favourite and probably most important investment, Geico.

Warren wrote the article when he was 21 years old and working as a security broker at his father’s investment firm Buffett-Falk & Co. He had just received his degree from Columbia where he studied under his mentor Benjamin Graham.

What struck me is that, contrary to public perception about his old strategy, Warren was investing in a fast growing company with competitive advantages. Although he paid a value multiple of 8 times earnings, Geico was clearly not a cigar-butt or liquidation play. On the contrary, Warren discusses the advantages the company has compared to its competitors. Another thing that struck me is that he only mentions management and insider ownership briefly. That is a factor that he has focused more on as he has developed. That said, the quality of the analysis is high and impressive given his young age. Already at 21, he was good at making difficult things sound simple.

Enjoy the read: The Security I Like Best

Carl Icahn

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Investor profile at InvestingByTheBooks: The book The World’s 99 Greatest Investors: The Secret of Success provides a unique opportunity to learn form the most prominent investors globally. In the book they generously share their experiences, advice and insights and we are proud to present these excerpts. Magnus Angenfelt, previously a top ranked sell side analyst and hedge fund manager, will be presenting one investor per month. For those who cannot wait for the monthly columns, we strongly recommend you to buy the book. The investor himself writes the first section below and then Angenfelt describes the background of the investor and comments on his investment philosophy. Enjoy.

There are no words in our vocabulary that define the common quality that all very successful people share, but the closest words would be ‘passion’ or ‘obsession’ relating to what they do. A second quality these people share is a lack of hubris when achieving a great victory in a game or investment. When they are victorious they do not believe they are geniuses, rather they understand how much luck is involved. As Rudyard Kipling put it, ‘if you can meet with Triumph and Disaster and treat those two impostors just the same’.

A third quality that I believe all great investors share is the ability to recognize the difference between a ‘secular’ and ‘cyclical’ change in companies they have carefully studied. If a company they have studied and believe in is down because of a cyclical change, successful investors use the opportunity to purchase as much as they can as quickly as they can. They do not care and are not influenced or frightened by market conditions, etc. However, if a company is in trouble due to ‘secular’ change, successful investors will take their losses and back away.

The ability to recognize secular and cyclical cycles cannot be taught, in my opinion. Rather, it is an instinct or talent that has been honed over many years of arduous work. In other words, the great investors, just like the great champions in other fields, can divorce themselves from their emotions and just play the game.

BORN New York, USA 1936.

EDUCATION He studied philosophy at Princeton University in 1957 and at the New York University School of Medicine, but he left without graduating.

CAREER Icahn began his career on Wall Street in 1961 as a registered representative with Dreyfus & Company. Aged 32 he bought a seat on the New York Stock Exchange and started Icahn & Co. Inc., a brokerage firm that focused on risk arbitrage and options trading. In 1978, he began taking substantial controlling positions in individual companies. Today, he is chairman of Icahn Enterprises, a diversified publicly listed holding company engaged in a variety of businesses, including investments, metals, real estate, and consumer goods.

INVESTMENT PHILOSOPHY Icahn is the most successful and famous stock market activist in the world, but his roots are in contrarian value investing. His strategy is to invest in beaten-down assets that nobody else wants, usually out of bankruptcy, then fix them up and sell them when they are back in favour. When studying a firm’s structure and operations to explore the reasons for any disconnect between the company’s stock price and the true value of its assets, ‘for the most part the reason for this disconnect is management’, as he explains it. To take the steps necessary to seek to unlock value he uses tender offers, proxy contests, and demands for management accountability. When valuing companies, he looks at replacement cost, break-up value, cash flow and earnings power, and also liquidation value.

He operates with almost all market instruments – including long and short equities and bonds, bank debt and other corporate obligations, options, swaps, etc. He regards consensus thinking as generally wrong. ‘If you go with a trend, the momentum always falls apart on you’ says Icahn. In contrast to the general view about activists, he is more of a long-term investor. The focus is on capital structure, management, and finding the best long-term owner for the assets.

OTHER Icahn Enterprices has revenues around $20billion and almost $30 billion in assets. In 2008, Icahn launched the Icahn Report, which campaigns for shareholder rights and encourages them to shake up the management and boards of underperforming companies. He has through his different vehicles taken positions in various corporations over the years and very seldom failed to wring out changes and higher valuation. Some of the most famous battles were RJR Nabisco, Texaco, TWA, Phillips Petroleum, Western Union, Gulf & Western, Viacom, Blockbuster, Time Warner, Yahoo, Motorola and recently Dell. In the fight over Time Warner, where he owned about 3.3 %, he unveiled a 343-page proposal calling for the break-up of the company. In 2013 his net worth was estimated by Forbes to be $20.3 billion, making him the eighteen richest man in the world. He has been an active participant in a variety of philanthropic endeavors through Icahn Charitable Foundation, which mainly focuses on child welfare, education, and medicine. 

Sources: Carl Icahn; Icahn Enterprises L.P.; Icahn Enterprises; the Icahn Report; Wikipedia.

The Market and Corporate Governance

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Who is “the Market”? Or rather, how does the stock market work? Why does it react as it does? Why is our stock valued as it is? What do investors really want out of us? Board directors and executive managers at times have a strained relation to a stock market they view as short-sighted, moody and that infringes on their valuable time. Many are genuinely unsure of what makes this unruly monster tick and others…

Bank Primer

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Financials is one of the really big global sectors in equity markets. In fact, measured in market capitalization it’s the largest one. It’s also a more diverse sector than many perhaps realize hosting a number of different business models. In the GICS framework the sector is made up of four industry groups, namely banks, diversified financials, insurance and real estate. Each industry…

The Zurich Axioms

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The Zurich Axioms by Gunter, Max

1.      On Risk: Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough.

·       Always play for meaningful stakes

·       Resist the allure of diversification

2.      On Greed: Always take your profit too soon.

·       Decide in advance what gain you want from a venture, and when you get it, get out.

3.      On Hope: When the ship starts to sink, don’t pray. Jump.

·       Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.

4.      On Forecasts: Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly. 

5.      On Patterns: Chaos is not dangerous until it begins to look orderly.

·       Beware the historian’s trap.

·       Beware the chartist’s illusion.

·       Beware the correlation and causality delusions.

·       Beware the gambler’s fallacy.

6.      On Mobility: Avoid putting down roots. They impede motion.

·       Do not become trapped in a souring venture because of sentiments like loyalty or nostalgia.

·       Never hesitate to abandon a venture if something more attractive comes into view.

7.      On Intuition: A hunch can be trusted if it can be explained.

·       Never confuse a hunch with hope.

8.      On Religion and the Occult: It is unlikely that God’s plan for the universe includes making you rich.

·       If astrology worked, all astrologers would be rich.

·       A superstition need not be exorcised. It can be enjoyed, provided it is kept in its place.

9.      On Optimism and Pessimism: Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic.

10.   On Consensus: Disregard the majority opinion. It is probably wrong.

·       Never follow speculative fads. Often, the best time to buy something is when nobody else wants it.

11.   On Stubbornness: If it doesn’t pay off the first time, forget it.

·       Never try to save a bad investment by averaging down.

12.   On Planning: Long-range plans engender the dangerous belief that the future is under control. It is important never to take your own long-range plans, or other people’s, seriously.

·       Shun long-term investments.

Mats Larsson, September 27 2018


P.S. Please see the review of the book The Zurich Axioms for more color on the philosophy presented. Or read the book.

Post-Merger Integration

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The historic evidence is quite clear, listed corporations’ acquisitions on average destroy value for their shareholders. And companies that make large and infrequent acquisitions are especially efficient in transferring their hard earned wealth to the purchased company’s shareholders. Basically, all the value of the generated synergies and then some - on average – accrue to the...

Mr. Buffett Miscalculates

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How does one get the most bang for the buck? - The most future benefit out of ones present scarce resources? How does one decide between different options? In finance the way is often to compare the return on the various uses of ones capital and then select the one(s) with the highest return on equity, return on capital employed, return on capital invested, internal rate of...

Margin of Safety - From Engineering to Investing

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Warren Buffett has often stated that the Intelligent Investor by Benjamin Graham is the best book ever written on investing. The two chapters that Buffett rates most highly are chapter 8, The Investor and Market Fluctuation where Graham came up with the metaphor of the manic-depressive Mr. Market, and chapter 20, "Margin of Safety" as the Central Concept of Investment. The focus for this brief and introductory text is the latter.

Margin of safety as a concept

"Long ago, Ben Graham taught me that "Price is what you pay; value is what you get" / Warren Buffett

Margin of safety is in investment terms often described as the difference between value and...

Utilities Primer

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A utility is a company that produces and/or provides electricity, gas or water or handles waste. Electricity utilities, more commonly called power utilities, generate power, manage power transport networks and supply end users with electricity. Prior to the deregulation of the power utility industry all this was handled by the same often publicly owned organization – an...

Edward Lampert

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Investor profile at InvestingByTheBooks: The book The World’s 99 Greatest Investors: The Secret of Success provides a unique opportunity to learn form the most prominent investors globally. In the book they generously share their experiences, advice and insights and we are proud to present these excerpts. Magnus Angenfelt, previously a top ranked sell side analyst and hedge fund manager, will be presenting one investor per month. For those who cannot wait for the monthly columns, we strongly recommend you to buy the book. The investor himself writes the first section below and then Angenfelt describes the background of the investor and comments on his investment philosophy. Enjoy.

The idea of anticipation is key to investing and to business generally. You can’t wait for an opportunity to become obvious. You have to think, ‘Here’s what other people and companies have done under certain circumstances. Now, under these new circumstances, how is this management likely to behave?’

One of the things I try to advocate to other investors and companies is that if you can have a large long-term investor then you have the ability to run the company for the long term.

So much time and money ends up spent ensuring that the financial statements are immune from criticism that it can become much more of a distraction than a useful tool for investors and managers.

BORN New York, USA 1962.

EDUCATION Lampert graduated with a BA in Economics from Yale University in 1984.

CAREER After school he started as an intern at Goldman Sachs. Inspired by Warren Buffett’s letters to shareholders he left its risk arbitrage department in 1988 to start his own hedge fund ELS aged 26. He still serves as chairman and CEO.

INVESTMENT PHILOSOPHY Lampert defines himself as an “aggressive conservative” investor; one could also say a ‘concentrated value’ investor. He is uncommon for a hedge-fund manager in that he is a mix of investor and businessman. He is, among other things, CEO and chairman of Sears, the gigantic retailer store which is ELS largest holding and accounting for more than a third of the assets. Lampert focuses on finding companies that are seriously undervalued, and he is willing to target poorly run ones because they can produce greater returns if the right changes are made. As a result, Lampert is more hands-on with management, and the number of investments is normally below ten, although intimately known holdings are kept for several years.

Lampert’s style of investment requires a more detailed knowledge of the business, company management, and its values, than those who invest for shorter periods of time. He seems to prefer mature and easily understandable companies that generate lots of cash. He thinks past performance used as a measure of quality is wildly overrated. When investing, he focuses intensely on how their companies allocate capital to maximize returns. Lampert has significant experience investing in retail, even if his first retail investment was only in 1997. He does not have any known shorting strategy.

OTHER Lampert has carefully studied Buffett for years. He went back and read annual reports in the couple of years preceding some of Buffett’s investments: ‘Putting myself in his shoes at that time, could I understand why he made the investments?’ He has also been nicknamed ‘the new Warren Buffett’. Lampert is most famous for forming and merging Kmart and Sears into Sears Holdings. He took control of Kmart (the third largest discount store chain in the US, then with above $20 billion in sales) by buying up debt during its bankruptcy, cutting costs and by then reduce the workforce by 34 000 employees. Due to underperformance in Sears the asset under management in ELS has recently dropped from 10 to around $2,5 billion. Lambert’s earnings in 2004 were estimated to be $1.02 billion, making him the first Wall Street financial manager to exceed an income of $1 billion in a single year. Forbes estimated his wealth to be $2.9 billion in 2013. In 2003 Lampert was kidnapped, but he managed to talk himself out of the situation and was released after two days.

Sources: Edward Lampert; CNNMoney; Bloomberg; Sears annual letter to shareholders, 2008; the Third Avenue Management Investor Conference and Luncheon, 18 November 2003; BusinessWeek, 2007; Wikipedia;, the performance is estimated.