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It Was the Pizza

By Stansberry Research Interview Series
Friday, September 15, 2006

It wasn’t the phone call to his wife, the motel bill, or the supposed ransom offer of $5 million that got Eddie Lampert away from his kidnappers... it was the pizza that one of his captors ordered using the billionaire hedge fund manager’s personal credit card.

Most investors dream of amassing fortunes through their investment savvy. But nobody wants to be so talented and wealthy that they become a target for hostage takers. Lampert, the self-made billionaire and founder of ESL Investments - and the man who has outperformed Warren Buffett for 18 years - has this distinction.

Four attackers jumped Lampert on the way to his car at 7:30 p.m. Friday, January 10, 2003. Soon after, he found himself sitting on a motel toilet with his hands and feet bound and his head covered by a cloth hood.

He would remain in this position for the next 39 hours, having his hands released and hood removed only once when his captors gave him some fried chicken to eat.

According to the media’s coverage of the ordeal, Lampert convinced his captors he’d pay them $5 million if they let him go. However, a mistake was made: one of his captors foolishly called in a pizza order using Lampert’s credit card.

Realizing the mistake, Lampert told them their only chance of not getting caught was to simply let him go. After all, he hadn’t seen any of their faces because they were wearing masks. However, if they were caught while he was still a hostage, or worse still, if they harmed him, there would be very serious legal consequences.

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Lampert is known for his “in your face” questioning of directors and executives at multi-billion dollar corporations like Sears, Deluxe, and AutoNation. Still, berating management is a whole different ball game from negotiating for your life with four highly-strung kidnappers. But Lampert did it.

And so Eddie Lampert became a free man at exit 3 of highway I-95 on Sunday morning January 12. He simply walked to the nearest police station to file a report on his assailants, and then returned home to his understandably hysterical family.

At age 40, with a net worth of several billion dollars, Lampert could have easily let the kidnapping finish his career. As the head of ESL investments, a $15 billion hedge fund, he’d averaged 29% after fees for 18 years straight.

To put these returns in perspective, Warren Buffett has averaged 25%. Granted, Buffett has maintained his average for twice as long, but Lampert is already worth more than Buffett was at the same age.

Lampert didn’t rest long though... he took a few days off, then continued his plans to refinance K-Mart from bankruptcy, turning his firm’s initial $1.3 billion stake into $5.4 billion (a 315% gain) in just under 18 months.

The most famous of Lampert’s deals was the K-Mart refinancing and subsequent merger with Sears. However, since 1997, Lampert’s been involved with another, less troubled company...

In fact, this was one of the companies that Lampert first made his multi-billion dollar fortune in. It was also one of the first companies where he took an active role in management: within two years, Lampert owned 15.7% of the shares outstanding and voted himself onto the board.

Eddie Lampert continues to buy shares in this company... and he’s buying BIG.

In 2004, he bought another $107 million worth of its stock. That’s roughly 2% of the shares outstanding... in one year.

And just eleven months ago, he bought another $53 million, bringing his and ESL’s stake in this company to roughly 28% of the shares outstanding.

In this case, Lampert’s not only an investing master; he’s also a corporate insider who sits on the company’s board with an intimate understanding of the company’s business. In other words, it could pay off big time to join forces with Eddie.

Because of the short swing rule, insiders are typically six months ahead of the market when they buy shares in their company’s stock. And for a value investor like Eddie Lampert to buy, there’s got to be a lot of value... and huge gains to come.

The company is AutoZone (AZO), the largest specialty retailer of automotive parts and accessories in the U.S.

I can’t directly recommend this stock to you here, but I can tell you, Eddie Lampert is easily on of the world’s greatest investors... and I have AutoZone in the portfolio of my newsletter, Inside Strategist.

Good investing,

Graham Summers


Market Notes


After suffering a giant decline in May, most of the world’s stock markets are well off their highs. The stocks of Hong Kong are a glaring exception.

With low tax rates and a trade-friendly legal system. Hong Kong is China’s richest city. The area is considered a freer place than the U.S. when it comes to doing business. As investors are pointing out, freedom works.

With heavy weightings in giant banks and real estate companies, Hong Kong’s version of the Dow Industrials has soared since May’s global sell-off… and now trades near 2006 highs.

As Asia continues to create wealth at lightning speed, expect Hong Kong’s bull trend to continue for a few decades.

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