How do you get investor Eddie Lampert to manage your money for free? By following his money and hanging out with his friends.
Lampert is founder of the ESL Investments hedge fund, chairman of
and the richest man in Connecticut -- he's worth over $4 billion, and he made more than $1 billion last year. He recently picked up more than 15 million shares of
He also recently picked up two new positions and increased a couple of others. For all of his holdings and details on those latest portfolio changes, please check out the
page on Stockpickr.
So why did Lampert pick up $800 million worth of Citigroup? The financial services firm has been a laggard recently, with its stock hovering in the $40s. The news of Lampert's investment, however, caused Citigroup shares to jump.
The real question: Is Lampert a passive investor, or is he going to shake things up, perhaps by ousting Citigroup CEO Chuck Prince? If it's the latter, maybe we can take advantage of his activism. The entire problem with Citigroup seems to be that investors don't like Chuck Prince. Activists, and even Jim Cramer, have called for his head.
The business may not be the healthiest, but it's certainly cheap here, trading for just 10 times forward earnings, compared with competitors such as
, which trades for 11 times.
Lampert is making the bet, first off, that Citigroup stock is relatively safe at these levels. And if Lampert's former boss, Robert Rubin, a director of Citigroup, decides to take a more active role, the stock could easily find its way to $70 or more, up from its current levels of $55.
Certainly, Lampert is an investment all-star who has not been shy about pulling his weight. He has also been labeled the next Warren Buffett, and his investment vehicle,
, makes the
, a list of stocks that could become the next
No wonder. From his modest office in Greenwich, Conn., which has 15 employees and no nameplate, he has amassed a 29% average annual return consistently since he founded ESL Investments in 1988.
Lampert is a keen student of the Oracle of Omaha. Like Buffett, he has an "aggressive conservative" style, buying companies with unrealized value for a low price and realizing their value by riding herd on management, leaving a few bodies along the way.
Certainly, that's what he did in his most celebrated deal, the Kmart-Sears merger. When Kmart was on the verge of bankruptcy, he invested heavily in Kmart bonds, directing its resurrection. After it emerged from bankruptcy, Kmart had $1.2 billion in cash, just $50 million of mortgage debt and a three-year unused credit line.
After Kmart become public, its shares surged from $15 to $109. Lampert's next step was to engineer the merger with Sears, creating Sears Holdings. Many super-investors have followed Lampert into Sears stock, including
and one of Cramer's favorite hedge funds to piggyback,
Lampert's philosophy is to invest like an owner. He learned from some heavy hitters. A 1984 Phi Beta Kappa, summa cum laude graduate of Yale, Lampert studied economics under Professor James Tobin, a Nobel laureate. He parlayed a senior-year internship at Goldman Sachs into a full-time job in its arbitrage department, under the tutelage of Goldman president (and future secretary of the Treasury under Clinton) Robert Rubin. Rubin, as mentioned, is now on the board of directors of Citigroup.
Although they worked in different departments, I'm sure Lampert bumped into Jim Cramer, who worked in Goldman's sales and trading department at roughly the same time. When he started his hedge fund, Lampert was 25 years old.
Piggyback Lampert's Investments
So how can your portfolio profit from Lampert's performance? An obvious first step is to invest where he invests. Check out the
we created at Stockpickr.com to see where he's placing his bets. In addition to Sears and Citigroup, Lampert sits on the board of directors at
. The others are more passive investments, but when you own shares of AutoZone or AutoNation, Lampert is working for you.
Rumors of Lampert's next move pop up frequently. In the portfolio mentioned above, we show some stocks he is accumulating, including
In general, when attempting to piggyback Lampert, look for companies with a valuable brand that might have hit a rough patch. Lampert can then buy them cheap. Recent rumors have included
. Of course, with these names you would not be buying Lampert's expertise now. But like Citigroup, these stocks would probably increase in price should Lampert invest in them in the future.
Friends of Eddie
Another investment idea is to hang out with Lampert's friends. Moguls David Geffen and Michael Dell have their money tied up -- with a five-year lock-in -- with Lampert. So he may very well be looking at
-- two companies that have experienced a few bumps. Another possibility is to check out the investments of Michael Dell's holding company,
Another friend of Eddie is Marty Whitman, who runs the Third Avenue Management hedge fund. Whitman manages both private money through his hedge fund and public money through his mutual funds. Whitman invested heavily in the Sears-Kmart deal, which paid off handsomely. Third Avenue takes the same value-oriented approach. You could invest in his
Third Avenue Value Fund
, but then you would need to pony up a steep $10,000 minimum fee and pay 1.08% in annual expenses. Instead, look at the
at Stockpickr to check out its holdings.
Some ideas from the portfolio are Florida real estate developer
, South Korean steelmaker
and U.S. oil and gas driller
Finally, maybe Eddie Lampert will actually become the next Warren Buffett. Berkshire, after all, is hiring. If that were to happen, you could just buy Berkshire Hathaway's stock. Its B shares trade around $3,600.
Lampert is a driven man. His father died of a heart attack at 47, leaving Eddie as the man of the house at 14. Money, or the lack of it, was an issue in the Lampert household. Can it be that, even though he's pulling in $1 billion a year, he still feels like he's one step away from the poorhouse? He may have bought all those Citigroup shares just as a lark, but I wouldn't bet on it.
Check out the
at Stockpickr to track these ideas. And, again, to see the latest updates to Lampert's portfolio check out the
If you have more ideas about what Lampert should or could be buying, let me know on Stockpickr Answers under the question,
At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.
James Altucher is president of Stockpickr LLC, a wholly owned subsidiary of TheStreet.com and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
to send him an email.
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