Thursday, May 7, 2009

Bookkeeping: Closing Macy's (M) Short

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With the mutual fund horde moving into consumer discretionary it is difficult to fight this theme for now. Restaurants which started turning up before the market at large, weakened a few days ago so maybe they begin to lead this sector back down - too early to tell. Macy's (M) thankfully performed poorly once facts came out today - but "thesis" buying (the consumer is back) drove it up and gave us some not so happy returns.

This stock pretty much sums up the difficulty of the market at all times... you can be correct (Macy's is struggling) but as long as the herd believes differently, it does not matter. That works for both longs and shorts. In between data points, the herd can move the stock wherever it wants on "thesis" and take you way past your stop loss limits. Then a data point comes out that reinforces your viewpoint as an investor, but it does not matter because all it does is retrace the movement the horde created. You can see that in the stock chart.

Thesis!

Fact!
  • Macy's Inc. said Thursday that same-store sales fell 9.1 percent in April, a bigger drop than analysts forecast. Analysts surveyed by Thomson Reuters, on average, expected same-store sales to fall 7.5 percent. (considering the amount of discounting going on in department stores this is still quite a sad performance)
  • Total sales for the four weeks ended May 2 fell 9 percent to $1.69 billion.
  • Department stores have struggled as consumers cut back and hunt for bargains amid the recession.
So like Gretzky says, you should not be where the puck is, but where it is going. In stocks you should not be where the reality is, but where the horde thinks the reality is. Then make sure you are sitting on your chair when the music stops (like today in Macy's). Perfect example of logic versus thesis.

I am covering the last of my Macy's today - this batch was at a profit but earlier batches I had to cover at losses as I chose not to "average up"; and will have to see how consumer discretionary does from here - still watching in awe as stocks like Whole Food Markets (WFMI) continue their "thesis" runs. Well over 30x forward earnings for a GROCERY store and people still want in... any short of this stock is laughed at as longs "buy buy buy". Just have to wait for the steam to run out or maybe at 50x forward earnings valuation matters.


I do contend sometime in the summer or early fall this group will once again be an excellent short - but knowing when sentiment changes back is unknowable.

No positions

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