Famed fund manager Peter Lynch said his favorite source of investment ideas for retail stocks is the Burlington Mall located 25 miles away from his home.
“Hanging out at the mall is far superior to taking a stockbroker’s advice or combing the financial press for the latest tips,” he wrote in his best-selling Beating the Street published more than two decades ago.
“If you like the store, chances are you’ll love the stock,” said Lynch.
But even when one notices shoppers lining up at a particular chain and goods flying off the shelves, it is dangerous to buy into a stock simply because you like what you see.
It makes great sense to launch a serious investigation of a company, which Lynch would normally do.
Uniqlo is a good example.
If you visit an outlet of the casual wear retailer, chances are you might see a long queue at the cashier. Yet great sales don’t always equate with great profit.
The booming customer traffic turned out to be quite deceiving and the stock of the chain operator – Fast Retailing Co. Ltd. – an investment trap.
Despite a rise in revenue for the six months to February, Fast Retailing’s earnings more than halved due to rapidly rising costs and foreign exchange losses, Hong Kong Economic Journal columnist Lam Tin-ching pointed out.
The company’s share price has lost about 25 percent since the beginning of the year, and the decline was far more serious when compared with its peak last year.
Getting investment idea from daily shopping experience can be a useful investment approach, but execution is a lot more complicated as many factors combine to determine the profitability of a company and the performance of its stock.
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