Shopping for shops
We frenetic stock pickers love to go to the mall. We consider it "research," wandering around, freaking out the mothers as we peruse the shelves in Claire's Stores (NYSE:CLE), munching on our Cinnabons and sipping the Orange Julius. How can we not love the mall, even those of us who really hate the mall? Peter Lynch, after all, said that this was a good way to generate stock ideas. And some of our favorite Fools have said the same.
But there's an element of danger here, and I'm not talking about an angry encounter with that teenager with the badge and the pepper spray. The danger is that you overestimate yourself, and you put too much weight on your perceptions.
Seeing is not believing
When I first wandered into Build-a-Bear Workshops (NYSE:BBW), the place absolutely reeked of money to me. There were kids running all over, cute little wobbly-legged booboos dragging around partially-inflated cute little furry snugglers, and their parents were powerless to stop the store's powerful Wallet Vac from extracting about 60 or 70 bucks per rugrat.
But I never really got into the stock, even though the pre-IPO numbers looked OK. I heeded the concerns of some of my colleagues, who were less impressed with how things were actually working out and, well, I don't think I missed out on much.
And just as a full store might not mean a successful enterprise, an empty store might not mean anything negative about the stock. If I relied on my own peepers for an estimate of the worth of Chico's FAS (NYSE:CHS), I'd value it about bupkis. The one I walk by every single day is nearly always empty. So empty, I could walk in there and try on a skirt and not feel an ounce of embarrassment. So did I let that cloud my investment thesis about Chico's? No. That I screwed up for unrelated reasons, and more's the pity.
Instead, I realized my perception wasn't reality. I walk by when everyone's at work. I never see the place on weekends, after which, to judge by the firm's ongoing blowout numbers, the place must be just about full. And even on the chance that this particular store is always empty -- which I still doubt -- it remains just one store.
Take it home and ponder
And keep the same thing in mind when you're judging other products you love, or hate. Remember TiVo (NASDAQ:TIVO). Always, remember TiVo. Everyone loves TiVo, except maybe those poor people who own TiVo stock. On the flip side, to judge only by the malfunctioning mouse and strikeout customer support I got from Logitech (NASDAQ:LOGI) recently, I'd assume the company is headed for heck in a hand basket. But the stock has been on a tear, supported by decent earnings growth from good sales of its innovative products, my crummy mouse notwithstanding.
The same holds for Home Depot (NYSE:HD), which runs a store near me that is staffed by frustrated, profanity-mumbling employees; rife with the evidence of major theft losses; and so poorly designed and constructed that getting to a parking space is a ten-minute frightfest that could turn the kindest Southern granny into a potty-mouthed homicidal maniac. You'd swear that every driver in that parking lot was stitched together from nothing but middle fingers.
But recent results show that the company is doing fine. Better than fine. And I look at the problems near me as an opportunity for improvement and even higher profits. That's why I sent a note to Home Depot detailing the problems, and if any of you Home Depot decision makers out there are out reading this, consider yourselves twice warned. (You might want to bring the wrecking ball, folks. This place is a mess.)
No shame in not knowing it all
The moral of the story is this. You are but a single individual, and out there in the malls or streets, or in your office, your limited vision can only bring you a few data points. So resist the urge to overestimate yourself, and forget those who would have you do so (and line their pockets with trading fees) by playing on your self-confidence or your desire to be a plugged-in player.
Ignore those bogus Ameritrade (NASDAQ:AMTD) commercials that show the guy who hands his daughter a pile of money for a pair of expensive jeans, then blows a bigger pile on the stock of the hip designer. A few years of unguided hubris and naive faith like that, and you might be dressing your kids up in discarded onion sacks. That's the kind of thing that can turn Daddy's little snookums into a snarling Veruca Salt quicker than you can say, "I don't want to wear burlap!"
Your observations may inform you and become the seeds of ideas, but the real tale is in the financial reports. You need to do your reading before you know the rest of the story.
For related Foolishness:
- Review the facts about Home Depot.
- Can Build-A-Bear build a bull?
- Learn more about how Wall Street works before you put your bucks on the line.
Home Depot is a Motley Fool Inside Value recommendation. TiVo is a Stock Advisor pick. For a free 30-day trial, click here and here , respectively.
Seth Jayson used to work in the mall. Yeah. Good times. At the time of publication, he had shares of Home Depot but no position in any other company mentioned. View his stock holdings and Fool profile here. Fool rules are here.
