It’s funny how you can think yourself into a hole. It’s especially common in analysis, which is the breakdown of a whole into its component parts. I recently did this when I was playing the addictive stock market stimulation,
TMF Caps, where thousands of players rate stocks that they predict will out- or under-perform the S&P 500. You’re then awarded points based on whether your favored stocks out-perform the S&P and your un-favored ones under-perform the S&P. The next few paragraphs delve into 2 picks I made on Caps with the dual purpose of talking about the companies and then portraying my analytic rut. Then we’ll pop out and look at the nature of the rut itself.
One of my first picks was in favor of The Men’s Wearhouse (
MW). MW sells discounted formal men's clothing and rents out tuxedos from hundreds of stores across the country. Here were my thoughts at the time:
Shopping is predominantly a female experience. Men’s sections at department stores are a joke. They’re at best a third the size of women’s sections and they’re always overpriced. My hunch is most men only find themselves in these stores because they’re brought in by their female counterparts. Which is fine, because expensive department stores can sell plenty of $80 ties to absently wandering men who are waiting for their women. But if a young man suddenly needs a bunch of formalwear - say, a whole new job’s worth of clothing – then he’s not going to fumble around at an overpriced department store.
Across the range of brands, prices for men’s formalwear increase exponentially. It’s not like cars, where there are plenty of discount, standard, and luxury items. Rather, the distribution of prices is heavily skewed with large price-jumps as you get just a bit fancier. On the one hand, you might expect this for any luxury good: You won’t find many cheap gold watches, because gold is expensive by nature. But at the same time, for many men, formalwear is an occupational necessity rather than a luxury.
MW is the biggest national company offering discounted men’s clothing, and this niche has a promising future. Consider 2 inescapable trends: Our economy continually shifts away from physical labor, and the baby-boomers – who are the wealthiest and most skilled workers – are retiring. The shift away from physical labor means that more occupations require men to wear suits; while retiring baby-boomers means that the remaining population will be younger and less wealthy, which makes them more likely to seek clothing discounts.
Based on this argument, I went ahead and placed my vote of confidence for MW on Caps. A few weeks and about 10 stock picks later I came across Syms (
SYMS) which appealed to me for the same reason: Cheap men’s clothing. Syms is a much smaller company (with 30-some stores), and I’d frequented a local one, where the customer service was stellar. Their stores are physically bigger than MW’s, kind of like a Burlington Coat Factory but with suits instead of coats. And the store by me constantly has many ethnic minorities (both shopping and working there), which is a good sign because America is becoming less white.
But it didn’t take long for me to realize that Syms is a dreadful stock option. The stores make hardly any money and management has remained mostly in-family, to the point of concern. More disturbing were rumors about the company’s desire to go private. They delisted from the market for 4 months due to extra costs from new burdensome accounting laws, and during that time they expressed the desire to go totally private, but shareholder pressure persuaded them to reenlist. Yet just a few months after their return to the NASDAQ, they started touting the value of their real estate, and shareholders suspected that this was a ploy from the management to raise the stock's value just enough to buy it back and go private for good. Again, shareholder pressure prevented this. In response Syms’ PE ratio jumped to over 100, and it's suspiciously remained at that level for months. So in sum you have an extremely overvalued retail company, which is underhandedly more in the real-estate sector, and which is run by family management who’ve had to keep the company public against their will…and all of this is during a recession. The situation was so ugly I was compelled to vote against them on Caps (e.g., that they would under-perform the S&P).
Over the next few weeks I researched different companies and watched my score fluctuate. MW rose a bit, making it look like a nice recession-proof stock, and Syms dipped a bit, convincing me they had it in for them. However the problem was that whenever MW rose, Syms seemed to rise as well, and whenever MW fell, Syms fell as well. So when they both rose, I made points on MW but lost points on Syms; and when they both fell, I made points on Syms, but lost on MW.
One of my first picks was in favor of The Men’s Wearhouse (MW). MW sells discounted formal men's clothing and rents out tuxedos from hundreds of stores across the country. Here were my thoughts at the time:
Based on this argument, I went ahead and placed my vote of confidence for MW on Caps. A few weeks and about 10 stock picks later I came across Syms (SYMS) which appealed to me for the same reason: Cheap men’s clothing. Syms is a much smaller company (with 30-some stores), and I’d frequented a local one, where the customer service was stellar. Their stores are physically bigger than MW’s, kind of like a Burlington Coat Factory but with suits instead of coats. And the store by me constantly has many ethnic minorities (both shopping and working there), which is a good sign because America is becoming less white.
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