A star hedge fund manager's run on its doom investment, repeatedly

The once christened "the next Warren Buffet" on the now-embarrassing Business Week cover story, Edward Lampert, always attracts media coverage since he restructured Kmart and Sears to become now Sears Holdings. Mr. Lampert's ESL Investment's RBS Partners controls about 64% of Sears Holdings. The reason behind Business Week's story was the hope Mr. Lampert could repeat Buffet's deem on Berkshire, which originally was a textile company and turned into a conglomerate by Buffet. But it is proven that they have different path.

The theme repeats in this way: Sears has consistently declining revenue, cash flow, uncompetitive price, enlarging number of unhappy customers, and dwindling customer base. Solutions have been closing stores, selling assets, reducing cost. All analysts claimed Sears' death and calculated how much it'd value. But its stock price enjoyed wild ride on every negative news. The logic behind the rise was the stock rise was that Mr. Lampert always bought more when price dropped and speculation that he would privatize the company came next. This repeatedly sent stock upward wildly. Why did he buy such a sinking ship?

Lampert's ESL is a $12 billion fund that focuses on a few investments such as Sears and AutoZone. The fund's performance is hard to come by to public. Lampert had his partners sign stringent confidentiality agreement. He was able to snuff a rebellion in 2008 when his fund dropped 25%, according to report. What this means was that once investors gave money to ESL, they can't withdraw for a few years and they can't reveal how the fund does. There was an attempt to vote on a provision to alter the partnership agreement in 2007. In the vote, original investors used their comparatively larger interest to veto the change.

For many investors, Sears has value that only can be realized when it is liquidated. Its hidden value is its brand names and real estates. Sears value ranges from $30 to $300. So no one really knows how much it is worth. As Lampert closed more and more stores, the median number has been down. But a consensus is that it is about time Sears gets liquidated after years of loss.

As no ones how much it is worth, the best way to Sears is buy at its low and sell its high. It still has a long way to go before its death. This also means capital will be locked for a long time for those "long-time" Sears investors.