The greatest enemy of investors is behavioural bias. Hedge Fund managers those that do well have been able to identify and control their behavioural biases. Cold hearted, flinty eyed even psychopathic they are here for the buck and only the buck.
Roger so far. So how come two major forays into retail are far from stellar successes. Sears Holdings (Nasdaq:SHLD) with Eddie Lampert 51 and William Ackman 45 rebuilding JC Penney (NYSE:JCP).
You can say a lot of things about these two individuals but stupid is not one of them. Yet the big bet investments have yet to start looking good.
Why is that?
Here is my very biased very opinionated answer.
Rich guys do not understand stores or retail. They have unlimited amounts of personal funds. They go into a store and they just buy it. Pair of shoes sure. Some new suits and a dozen fresh shirts and silk ties no problemo. So when they analyze or think they are analyzing retail they have that blind spot of enormous wealth.
The average well to do millionaire knows his wealth is somewhat limited. Not on food stamps but there are limits and they know them. The average working man is pay cheque to pay cheque and so goes retail.
Hedge Fund Billionaires believe there is a magic formula; just like you know, an algorithm running a high frequency black box which will make exactly the right choices and just move on.
So buy control, fire the old idiotic managers who screwed up and hire new bright pennies who promise not to screw up and there you have it. People will just come in and buy stuff if you manage it properly right.
They have forgotten the utility value of a dollar to a billionaire is very different to people living pay cheque to pay cheque which adequately describes America’s consumer class.
And that ladies and gentlemen is the rationale for hedge fund behavioural bias when considering retail as an investment.
Most creative fresh retail concepts have been started by rebels and out of the box thinkers. Not by the monied classes. Very few rich kids become cutting edge designers who build big labels.
So Eddie Lampert and William Ackman will probably not make mega billions and will gladly exit as soon as hubris allows.
George Gutowski writes from a caveat emptor perspective. I have a behaviourial bias about retail investment. I actually view retail as risky because I cannot guess at the next big thing. I usually rely on beautiful women to guide me in these matters.