Lecture #5: An Investor Specializing in the Retail Sector discusses ARO, AEOS, ANF
John Chew at firstname.lastname@example.org/teaching/practicing investing Page 1
Editor: Go to the Appendix on page 12 and study the 10-Ks of ANF, AEOS and ARO to determine whether these are good businessesand what they are worth BEFORE reading this lecture. The lecture illustrates the power of a focused/specialized approach.
Class # 5A Professional Investor specializing in retail store investments: ARO, AEOS, ANF
November 08, 2005Hopefully you will read the
book for next Class
Another Great Investor’s (“
Presentation on investing in retail stocks.
GI = the professor and great investor.
Before she speaks, just to give you a context, she sticks to one area:
consumer productsand retail.
She has been in that area for 10 years and has averaged high 20s percent returnsstaying in that little
that she knows well. She finds enough opportunities in that one area.Her returns have been no more volatile than other concentrated investors. She has phenomenal
returns focusing on what she knows. There is a great lesson for you. It doesn’t have to be retail
but an industry that you understand. She picked something she really enjoys--that is a veryimportant lesson.A number of people have come up to me before class and said they will join a big firm and theyare afraid they will be pigeon-holed. That may be true, but you can really learn an area very welland still be very profitable. As you invest over a long period of time you will come to know moreareas. Knowing one area well is tremendous. This investor shows how well you can do in afocused investment area and with a well-honed circle of competence.
She will talk about areas she is working on…….
What is a girl from the suburbs doing in retail?
So what is a girl from Long Island doing in retail? Pick an area that you can know andthat you can understand well and that you enjoy.
I like shopping.
It is definitely an area I have tocome to know well. You start to see patterns. Over a ten-year period you learn how a particularindustry group trades that gives you a big advantage over people who are first looking at the stockand coming in cold and not having the background.I like retail because you are constantly getting information
(the barrage of same store salesreports causes more volatility)
. You get it on a monthly basis and sometimes on a weekly basis.Retailers put out same store sales numbers-Comparable sales in stores for a year-over-yearperiod. Monthly basis but most industry groups you normally get quarterly numbers. The moreinformation you have, the more people try to trade on the information before, after and during.You get a tremendous volatility
in this sector. A lot of people don’t like vola
tility. As far as I amconcerned, I can live with volatility if there is a good opportunity over the long term. And if I amtaking a two years
time horizon that is actually my greatest opportunity--are these monthlynumbers.Inevitably these companies are going to miss because of their fault or no fault of their own due tothe macro environment. There will be a missed number and the market tends to have no mercy.So the market kills these stocks. One day it is trading at 20 times and the next day it is trading 10