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Tuesday, August 29, 2006

Successful Investing Eddie Lampert Style

By Yaser Anwar, CSC of Equity Investment Ideas

I hardly consider myself a value investor but i don't ignore the powerful returns investors can harness by picking healthy businesses that will still be here 5 to 10 years (& more) from now.

After all one of my main inspirations comes from Eddie Lampert, who i consider to be the best wealth manager as well as top value investor amongst the value cohort. In my opinion, he's even better than Warren Buffet.

So today i'd like to provide how you can invest for success Eddie Lampert style:
Be a long-term value investor. The key words here are "long-term" and "value"

Constantly on the lookout for situations in which the conventional wisdom of the commentators and "experts" is incomplete. Eddie gave his favorite example: The view that Kmart would neither emerge from bankruptcy nor survive its first Christmas as a new company in 2003 - has turned out to be only "conventional" and not at all "wisdom."

Be an avid reader of books, newspapers, and magazines.

In college, Lampert spent countless hours reading Buffett's famous detailed annual letters to Berkshire shareholders. And he's also reversed engineered all of Buffett's main purchases, examining the businesses at the time of Buffett's purchases and trying to get inside Buffett's head to understand his thinking

Approach much of what is written and said with an appropriate amount of healthy skepticism. Lampert belongs to the selective contrarian's camp.

Be particularly careful with respect to the loudest views, the most widely held views, or the so-called "expert" views.

Double check the accuracy and the sources of your data. For many commentators, analysts, and reporters, their success is dependent on the excitement or controversy generated by their articles - not on the accuracy of their writing or of their predictions.

Lampert's prescription for investors: "Read broadly, and be appropriately skeptical of the so-called experts." Example: Most pundits missed the turnaround at IBM, missed the turnaround at American Express, missed the turnaround at JC Penney, missed the emergence of Google, and missed the resurrection of Kmart - until it was abundantly clear that those companies had succeeded.

Lampert's advice for managers: "Think about and understand one's business and its strategic and financial characteristics, make decisions based on that understanding, and have the confidence to stay with well-reasoned decisions even in the face of vocal doubters."

Sources: Sears Holdings (Message from Chairman, Sep 05 issue) & GuruFocus

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