My friend's take on L Brands' sale of Victoria's Secret; Bed Bath & Beyond Boss Tries to Declutter Stores; Why a 'balanced' life is something to be avoided and not pursued; How I've structured my life to 'pound forehands' all day long

1) Over the past few months I've been sniffing around the stock of L Brands (LB), which owns Victoria's Secret and Bath & Body Works. At just under $25 per share today, it has been decimated since it peaked at nearly $100 per share in late 2015... yet the company generates robust (albeit declining) free cash flows and pays a 4.9% dividend.

I was particularly interested in Victoria's Secret, which not long ago was the crown jewel of specialty apparel mall-based retailers – a category killer with high unaided awareness, amazing sales per square foot, and industry-leading 20% EBITDA margins.

But Victoria's Secret has fallen on hard times recently. As the Wall Street Journal noted yesterday:

Victoria's Secret, with its emphasis on supermodel "Angels" wearing padded bras, has long dominated the U.S. lingerie market but has struggled in recent years with falling sales. It has lost some women to upstart brands that promote comfort and inclusivity. Last year, Victoria's Secret canceled its televised fashion show and later said the longtime architect of its overtly sexy marketing, Edward Razek, was leaving.

It seemed to me that much of the damage to Victoria's Secret was self-inflicted, so a turnaround might be possible. If it could recover even a fraction of its former glory, L Brands' stock would likely double.

Instead, the company announced yesterday that it's close to a deal to sell 55% of Victoria's Secret to private-equity firm Sycamore Partners at a valuation of $1.1 billion. L Brands would retain a 45% stake in the company, and focus on running the Bath & Body Works chain.

My go-to expert – a 20-plus year veteran in the retail and consumer sectors – thinks this is a terrible deal and gave me permission to share his thoughts (anonymously, for reasons that will soon be obvious)...

I'm stunned. I can't believe the stock is up today. This is perhaps the worst mismanagement and decision making around a corporate strategic transaction I have ever seen. Here's why:

1. L Brands is selling a controlling stake in VS for an absurdly low price – on my model, assuming reports that no debt is going with VS, only around three times EBITDA, a fire-sale price.
2. L Brands didn't even sell/monetize the whole thing... just moved it off balance sheet, so there's plenty of downside on the 45% stake L Brands is retaining.
3. The buyer is a private equity firm that doesn't have turnaround expertise – it specializes in dead brands like Aeropostale, Jones New York, Talbots, Coldwater Creek, and Nine West.
4. CEO Les Wexner has had his head in the sand for years, totally mismanaging VS and failing to change management, and now he finally leaves after locking in a trough price?!
5. Rather than promoting Nick Coe, the long-time, beloved, and talented head of Bath & Body Works, to become the new CEO of L Brands (which is now almost entirely BBW), Wexner instead made him vice chair.
6. Wexner never empowered anyone internally or externally to try in earnest to turn VS around – and I know for a fact that there were plenty of people with great ideas.
7. L Brands didn't even use name-brand bankers to maximize proceeds – instead they used a one-man shop called Bridge Park and some boutique firm I've never heard of, PJT. L Brands sold The Limited to Sycamore long ago... did they even bother to call anyone else???
8. This is a complete embarrassment for hedge fund Barington Capital – which has been an activist here, yet couldn't prevent this debacle.

2) Speaking of retail turnarounds, here's an article in yesterday's Wall Street Journal about another one I've looked at, but avoided so far, as it smells like a value trap: Bed Bath & Beyond Boss Tries to Declutter Stores. Excerpt:

Bed Bath & Beyond's (BBBY) new chief executive, Mark Tritton, laid out his vision for remaking the troubled retailer. Decluttering stores is high on his list.

The former Target Corp. executive has spent the first 100 days on the job thinking about how many different types of can openers the retailer should stock. After the chain cut the number of options from more than a dozen to about three, sales rose.

The big takeaway: Selling too many items in stores that are overcrowded leads to "purchase paralysis," Mr. Tritton said Tuesday in an interview.

He joined the struggling company in November after its top officials, including the founders, were ousted by an activist investor. Mr. Tritton plans to trim inventory by more than 10% this year, part of a broader plan that also calls for spending as much as $400 million on store remodels, technology upgrades and supply-chain improvements.

Other changes include wider aisles and no more piles of merchandise up to the ceiling. Checkout lines flow through more of an organized queue, making them move faster. And while he has no plans to eliminate the coupons the retailer is known for, he does want to simplify pricing by doing away with overlapping promotions and use more signs to better explain deals.

3) Following up on yesterday's e-mail about working long hours, here's a related article that I found interesting: Why a 'balanced' life is something to be avoided and not pursued. Excerpt:

Much of mainstream wellness advice revolves around creating a "balanced life." There are phrases like "work-life balance," "balanced diet," and "balance of power." All of these are considered positive culturally and worth striving for.

When it comes to balance in your own life, though, this advice can lead one astray. A life worth living is making choices – which means each person is going to weigh things differently. "Balance" implies that you need at least a decent amount of everything... but the reality is that you need to clearly make choices on important things that you are going to skimp on.

I've met a lot of people in my life. I've never met one that was "balanced." Everyone, absolutely everyone, is weighted in the areas they care more about. That's natural. That's good.

Some people weigh their lives towards their kids. They give up their job, their personal dreams, and often their friendships to focus on their kids. These people are not balanced. They are weighted. They have made the decision that the best use of their time is to focus on their kids. That's their choice.

Other people dedicate their lives to helping others in need. They sacrifice their own family and sometimes their own health for the "greater good."

Everyone makes sacrifices. Everyone makes choices.

None of these people are balanced because no one is balanced. We all make choices. We all weigh our lives in directions that we think is best. And sometimes we change those weights as we mature. And often we are wrong about the best weights. Balance, while sounding nice, is both impossible and undesirable to achieve.

Balance makes a person mediocre at a lot of things instead of great at only a few.

This reminds me of some wise advice Berkshire Hathaway's (BRK-B) Charlie Munger once dispensed (I've never been able to find the exact quote), using a tennis analogy...

When you're young, you should practice your forehand, backhand, serve, overheads, drop shots, and net game. But at some point, if you have a particularly great forehand, you should structure your life so that you pound forehands all day long.

I finally took this advice to heart with my professional life...

I really love and have long experience with two things: a) the creative process of investing: coming up with ideas, doing research, and figuring out what's worthy of investment... and b) writing.

With my new business, Empire Financial Research, I pretty much do only these two things, while my partners at Stansberry Research take care of everything else: editing, proofreading, copywriting, marketing, and accounting... as well as handling customer calls and human resources, setting up and managing the website and database, and overseeing financial reporting and compliance.

It's a beautiful partnership, and I couldn't be happier.

In contrast, when I was running hedge funds on my own, I enjoyed the investing and writing... but I was also responsible for raising money and a lot of other nonsense, which often made me miserable (a major reason why I eventually exited the business).

So I encourage you to take a look at your life. Have you structured it optimally so that you're "pounding forehands all day long"?

Best regards,

Whitney