The Wall Street Journal gives short sellers a hand

In October 2007, I took the Wall Street Journal to task for a weak article hammering Wal-Mart. Their timing turned out to be impeccable, as I wrote about in July of this year. Wal-Mart’s stock has handily beat the market since the October 2007 article.

Last week, I think the Journal may have done it again, this time with Sears (full disclosure: my clients and I own shares of Sears Holdings).

The Wall Street Journal’s article, titled “Mr. Lampert, Fire Thyself,” again seems thin on facts and long on generalized evaluations.

The gist of the article is that Eddie Lampert, Chairman and majority owner of Sears Holdings, should fire himself because his strategy with Sears has failed.

To support this claim, the article says another dismal quarter at Sears proves its strategy is failing. The article states that rivals are eating its lunch, too. Missing from the article is any support for these contentions. Which rivals? What made Sears’ quarter so dismal? How has Sears done versus rivals both in terms of stock performance and fundamental economics? None of this information is provided.

The article goes on to mischaracterize Lampert’s strategy with Sears. It claims that Eddie simply decided not to invest in Sears in hopes that would jack up return on investment. If you read any of what Lampert has to say, you’ll see that he would love to invest more in Sears as long as it provides an adequate return on investment. That’s what companies are supposed to do. The author either deliberately or ignorantly misses this distinction.

The article highlights same store sales are down 6% at Sears, but no mention is made of how Kohls, JC Penney, Nordstrom, Target, or any other competitors are doing. The author seems to believe these facts are not important, only the negative evaluation of Sears.

The article does point out that Sears has had a revolving door of executive managers. That’s fair. And, the author points out that Lampert will have a hard time using financial engineering with crunched credit markets and a difficult real estate market. That’s true, too.

But, a couple of facts and a lot of evaluative statements not supported by facts isn’t good reporting. Sears is generating a ton of cash, and its balance sheet is more solid than many rivals. This can be seen in share buybacks if nothing else. Why isn’t that mentioned, I wonder?

Sears isn’t investing much in stores, but perhaps that’s a smarter strategy than throwing good money after bad. Why isn’t that highlighted? And why didn’t the author differentiate between not investing in stores as a strategy versus not investing in inadequate return on capital projects?

I have a guess. I think short sellers are eager to see Lampert and Sears fail. At the same time, Wall Street Journal journalists are hungry for a sensational story. Combine these two ingredients and mix liberally with lack of scruples, and you get a Wall Street Journal article thin on substance and high on sensation.

Perhaps the Journal has called the bottom on Sears like they did on Wal-Mart. I’ll be eagerly watching to see what happens.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

Wal-Mart is dead, long live Wal-Mart

Full disclosure: my clients and I own shares of Wal-Mart.

Back on October 3rd, 2007, I posted a blog criticizing a Wall Street Journal article that claimed “Wal-Mart Era Wanes Amid Big Shifts in Retail; Rivals Find Strategies to Defeat Low Prices; World Has Changed.”

More specifically, I claimed the author of the article had picked the bottom for Wal-Mart’s stock.

On October 3rd, the stock closed at $45.13 per share. The most recent low for Wal-Mart had been $42.27 posted on September 10th, 2007.

Today, the shares trade at around $56 and have been as high at $59.80. At $56 a share, that’s a 24% gain in value, not including dividends.

On October 3rd, 2007, the S&P 500 closed at $1,539.59. Today, the S&P 500 is around $1,235. That’s a 19.8% loss (once again, without dividends).

In other words, the performance difference between Wal-Mart and the S&P 500 from October 3rd, 2007 until now was a whopping 43.8%!!!

Now, why am I bringing this up? Just to toot my own horn and brag how smart or lucky I got? No (okay, maybe a little).

My reason for bringing this up is the same reason I made the post on 10/3/2007, to highlight how far astray you can be lead by following the popular press for investment advice.

By the time the Wall Street Journal, or any other popular periodical, comes out with news about a company, it’s almost always figured into the price and then some.

In fact, the time to buy a company is when the popular press is saying it’s dead. The time to sell is when they are singing its praises.

As I said on 10/3/2007, “I’ll bet that in a few years I’ll be writing a blog saying that I’ve sold Wal-Mart because the popular press is reporting that Wal-Mart is back at the top of its game again.”

Perhaps that time will come sooner than I think…

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

Thank you Wall Street Journal for calling the bottom on Wal-Mart

Let me say at the get-go that both I and my clients own shares in Wal-Mart, so I’m anything but unbiased on this subject.

I’ve blogged in the past about how frequently the popular press reflects popular sentiment instead of reporting news that can be used to make good investment decisions. Well, here’s another example.

Today, a Wall Street Journal article by Gary McWilliams may have called the bottom on Wal-Mart. The article is titled, “Wal-Mart Era Wanes Amid Big Shifts in Retail; Rivals Find Strategies To Defeat Low Prices; World Has Changed.”

My point here is not to dispute the article’s facts or conclusions, but to highlight that stock prices are a reflection of popular sentiment. By the time “news” hits the front page of the popular press, stock prices almost certainly already reflect that “news.” I believe this to be the case here, too.

You see, everyone knows that Wal-Mart same store sales are low.

Everyone knows that Wal-Mart is perceived to treat its workers unfairly.

Everyone knows that competitors like Target, Whole Foods, Kroger, etc. have been growing more quickly than Wal-Mart.

Everyone knows that Wal-Mart’s suppliers like Pepsi, Proctor and Gamble, etc. are tired of being squeezed by Wal-Mart’s ever-present desire to wring costs out of the system.

Everyone knows that Wal-Mart pulled out of Korea and Germany and is struggling in Japan.

Everyone knows that Wal-Mart’s store expansion has cannibalized older store sales.

Everyone knows that Tesco is entering the US market and will probably compete fiercely with Wal-Mart.

I don’t think the article reports on a single piece of information that hasn’t already been frequently and widely reported in other places.

In other words, the article isn’t news, it’s simply the reflection of what everybody already knows. And, all of this supposedly bad news had already been priced into the stock.

When articles like this, summarizing what everybody already knows, hits the front page of the popular press, calling for the end of whatever or the ultimate dominance of whatever, it’s almost always a sign that things are about to reverse.

And, I believe this to be the case here, too.

The time to sell a company is not when the popular press reports that its era has passed. By then, it’s too late. You should probably be buying.

The time to buy a company is not when the popular press reports that it has become completely dominant. By then, it’s too late and you should probably be selling.

No, when the popular press decisively concludes that the end of a company’s era has arrived, it’s almost certainly the time to buy.

And, I’ll bet that in a few years I’ll be writing a blog saying that I’ve sold Wal-Mart because the popular press is reporting that Wal-Mart is back at the top of its game again.

Thank you popular press for making the timing of my purchases and sales easier.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.