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Victor Niederhoffer: Deception in Retail Comps
A budding spec writes to me that he found that if you buy restaurant companies in the months following good reports of comparative retail sales that this is somewhat profitable. It seems to me however, that it is more likely to be a case of the angler fish dangling a worm like lure in front of its prey before devouring him. The bait that such as the batfish, and flounder dangles on the end of its front spine lights up because of the light cast by the numerous bacteria inside its mouth. The retail and angler fish combo led to the following after thoughts from a recent lunch with the world's leading retail analyst and hedge fundist, a man of great stature, and esteem.
It's always a treat, especially at the well known Century Club, founded by many well-known elegant Jewish-German merchant immigrant mavens. How one wishes he could have participated in the weekly lunches my friend attended with such eminences the "Chairman," the secretary of Treasury, and the bearish hotelier and friend of Abelson.
My friend's schtick is called "The analysts don't know anything." It's a variant of the ever-fashionable "You people are the best in the world" that one often hears at cabaret performances. He delivers it to all the leading retailers each year, and if you butter him up, he'll tell it to you if it increases your self-esteem.
It starts, "I was once a merchant like you, before I was an analyst" (he ran a major manufacturing enterprise and was employer of my "better" right-hand man, Gunga Git. After much folderol it develops into: "and you know something, you're a lot smarter...a lot better than my current colleagues, the analysts who have never held a job in the REALLLLLL WORLD...the ones that never had to meet a payroll, and all they know is balance sheets and ratios."
He points out that retail sales comps are usually misleading because in January and July if the December and June have been good, then there's nothing left to sell in January or July. So "comps" are bad. But if the reverse, why then, "The comps are bang up."
"So when the stock goes down on bad comps, that's when I like to buy and you merchants know that but my friends don't." After a few twists and turns he ends with: "Guys, you're a lot smarter than we are. I tip my hat to you and I often wish I was still with you and Michael hadn't bought my firm away."
He's one of the world's most inspirational men. Truly the opposite of the Sage -- young-hearted in every way ...but his ideas deserve testing.