Better to be negative than right?
A double standard exists in the media: Being bearish means never having to say you're sorry.
By Jim Cramer, TheStreet
Asymmetrical thinking. That's what my friend Tom Keene at Bloomberg calls the notion of how you're viewed as an excellent thinker and a helpful participant in the debate if you are negative about a stock or the market -- right or wrong. If you are positive and right about the stock and the market, it means very little. And if you are positive and wrong about the market, then you are roundly criticized, often to the point that it ain't worth it. That's how bad the heat is.
We had a classic example in the papers this week. In Wednesday's Wall Street Journal a constantly saturnine writer, Kelly Evans, who writes a very important article on the left-hand corner of the "Money and Investing" section, penned a piece called "Weak Economy Saps Dollar Stores' Strength." In it there were a series of negative thoughts about Family Dollar (FDO), which was due to report the very morning the article appeared.
The incredibly cautionary article talked about how the "discount space is looking increasingly crowded" and how there already may be too many stores. Then the article gets more negative: "More troubling, the squeeze on dollar stores' core lower-end shoppers is getting worse as unemployment continues to hover just below 10% and the economic rebound proves anemic." That macro backdrop, Evans writes, "is likely to put pressure on margins."
More woes: "Bargain prices on food, drinks and other 'consumables' may get customers in the door, but discount retailers rely on higher-margin discretionary purchases for profit growth." We then get a cautionary note from a William Blair analyst who says expiring jobless claims could hurt growth going forward, maybe by as much as 3 percentage points.
The conclusion? "A weak economy mightn't turn out to be quite the gold mine for dollar stores that many investors seem to think."
Five minutes after I read that article, Family Dollar reported and blew the numbers away. Let's just go through the cautionary comments laid out by Evans and what really happened.
First, right to the headline: "Weak Economy Saps Dollar Stores' Strength." Just flat-out wrong. The weak economy continued to bolster FDO's strength as more and more people trade down to the store and the people who are already impoverished stick with it. The exact opposite of the piece's main thrust occurred. Now, if the economy had gotten stronger, there would be a chance for a trade-up. We didn't get that. The correlation with a weak economy, precisely what drives investors to these stocks, continued unabated, if not accelerated.
Now, the contention of how "the discount space is looking increasingly crowded" was prima facie rebutted by Family Dollar's decision to expand more rapidly than in the past, putting up 300 stores in the new fiscal year. I had been expecting about half of that growth.
Before you think they are being too aggressive, remember this decision is being made by the always prudent Howard Levine, the chairman and CEO, whom I know to be the most knowledgeable exec in this field. Believe me, if the segment were getting too crowded, he would keep growth plans the same or throttle them back. The segment, if anything, is understored. Another negative canard.
How about the idea that "the squeeze on the core low-end shoppers is getting worse," with an anemic economic rebound and high unemployment issue? Again, it is exactly that "squeeze" that drove the sales higher than expected. Exactly that. A positive of FDO turned into negative by Evans. I don't see how that even gets in the paper.
The squeeze on the consumer was supposed to put pressure on gross margins. But gross margins actually moved up slightly, from 34.5% to 34.7%. No, not a great increase, but it was an increase and that's what matters.
The consumables, the food and drink categories, were supposed to be pulling down gross margins, offsetting the higher-margin discretionary purchases, but this, too, is untrue. The rapid escalation of food stamps in this country has created a whole new class of buyers who are less sensitive to price, and the consumables are not particularly low-priced at FDO.
I have to believe that Evans simply hasn't shopped at an FDO or at any of the other dollar stores. Otherwise she might not have reached this erroneous conclusion. The stores are increasing consumables, not as a loss leader but as a profit center.
So the next day I pick up the paper. Does Evans say she got it wrong, as I would have to do (and have done on "Mad Money" and on these pages)? No, she is on to the next story. Is she called out for it? I don't believe so, except here.
Such is the case if you are negative and get it wrong. It simply doesn't matter. There is zero accountability for what I regard as a travesty of reporting and opinion. A totally bogus analysis with no rigor whatsoever that would have cost you money had it come out the day before. Fortunately, Family Dollar reported so early that the article couldn't affect your thinking or throw you off the money-making scent, as the stock rose in a tough day for equities.
Now, let's imagine a rosy piece about FDO that comes out just before FDO falls short of expectations. She could have been laughed at, scorned, perhaps even called onto the carpet internally. She would have been widely ridiculed, perhaps even to the point that she might have had to eat crow. Again, contrast this with "Mad Money," where I keep a fake crow in my prop closet adjacent to the set (along with some Grey Poupon to be sure the taste isn't totally abhorrent).
I am not writing this to exonerate myself or excuse myself or praise myself. I am doing it just to point out a crude and all-too-consuming asymmetrical relationship between what happens if you are negative and get it wrong versus if you are positive and get it wrong.
There is a crazy imbalance between the two. And the result is that, far too often, the press keeps you out of good stocks and doesn't even attempt to put you into them.
Why is that right? Shouldn't the point of analysis be to try to make you money? It isn't just to be cautionary -- especially when there is no reason to be, as was the case with Family Dollar's excellent results.
At the time of publication, Cramer held no positions in the stocks mentioned.
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