Shares of Walmart (WMT) are up a whopping 8% this morning after reporting Q1 sales that beat expectations with a same sales stores sales comp of a 1%. The stock is making back a good bit of recent losses as the stock sold off from $69 over the last week alongside a slew of disappointments from other big retailers and cautious commentary about their upcoming report:
Before you get all geeked up and buy WMT, remember that they just reported a 5% yoy eps decline, on a mere 1% yoy sales bump in the April quarter. And their online channel? A mere 10% of their trailing 12 month sales came from online, and those sales rose only 7% in the quarter. I suspect the stock finds sellers in the high $60s and that a lot of this bounce is trapped shorts covering.
What about my analysis into the print? A couple weeks ago I wanted to isolate the earnings event (read here, watch here) and play for a move lower. I got that move beforehand, having nothing to do with WMT’s results, and was fortunate enough to close that positioning yesterday (read here) as the stock was down in sympathy with disappointing results from Costco (COST) and Target (TGT).
That’s not a victory lap as much as a word of of advice (or caution) in trading and investing. The fact is my trade was a winner based on the macro, despite ultimately being wrong on the micro. But the micro didn’t matter as long as I made sure not to be greedy with profits.
And that leads me to a broader point made better than I ever could by Matthew McConaughey’s character in The Wolf Of Wall Street. “Nobody knows… I don’t care if you are Warren Buffett or even Jimmy Buffett, nobody knows if a stock is going up, down, sideways, or in circles”:
Nobody knows. Well, maybe those trading with material non-public information. But we certainly didn’t know what Walmart would report. And by yesterday, we certainly knew what was already in the stock. Earnings would have had to be really ugly for this to match the moves we already saw in competitors like Target.
The only real way to beat the market is to stay one step ahead of sentiment. The work that I do at best gives me the slightest of advantage, and event then sometimes results in me being early to a trade (which in this business means wrong).
My time and energy is not spent trying to do better research than analysts and portfolio managers with far greater resources and access then me, but by trying to get a sense for a potential shift in sentiment, and using options to define risk and target asymetrical risk/reward situations. Which is why our process uses qualitative and quantitative inputs.
I am not Warren Buffett in investing. I’m not even Jimmy Buffett. I don’t have expectations of massively outperforming the S&P 500 and therefore try not to over trade. But I do enjoy trying to figure out where and how the herd may be wrong and use my trading to add beta and define risk.