When it comes to mythical beings, Mr. Market can be surprisingly human.
You see, like all of us, Mr. Market is prone to emotional swings and knee-jerk reactions. And as a result… he makes mistakes.
One of those mistakes happened during the retail wipeout earlier this year…
On May 18, Target (TGT) reported a bad quarter. The company also provided grim guidance for the rest of 2022. Its stock fell 25% that day.
Even worse, Mr. Market presumed guilt by association. And he made his emotions about the retail sector darn clear to investors…
The SPDR S&P Retail Fund (XRT) dropped 8% on May 18. Many other retail stocks fell alongside Target that day as well.
Now, Mr. Market had good reason to frown. In the current environment, it’s reasonable to assume that the cost and supply-chain problems aren’t unique to Target.
Plus, Target had inventory problems as well. It didn’t recognize changes in post-pandemic buying preferences quick enough. It should’ve stocked fewer expensive items for homebound living.
Merchandising miscues are an annoying but ordinary part of doing business in retail. So, we can’t blame Mr. Market for worrying that other merchants might slip up, too.
But in this emotional knee-jerk reaction… Mr. Market made a mistake.
Today, we’ll take a closer look at that mistake. And more importantly, we’ll go over what it means for individual investors right now…
As I said, on May 18, Mr. Market’s wrath spread across the entire retail landscape…
For example, budget-retail giant Dollar General (DG) fell 11% that day.
Mr. Market’s emotions got in the way. He assumed that Dollar General would run into the same problems as Target.
But even reasonable assumptions can turn out wrong. And in the end, Mr. Market made a mistake by smacking down Dollar General (DG).
In short, Mr. Market failed to appreciate the benefits of simplicity.
Target isn’t simple. It’s one of the powerful, big gorillas of the retail industry.
The company features an extremely broad assortment of products, including many premium items. And its sophisticated inventory systems translate into well-stocked shelves in stores.
It’s wonderful when things go well. That’s why many folks label Target as a “superstore.”
But huge businesses also have many opportunities to make errors. That’s where Mr. Market revealed his emotions…
You see, Target committed the type of error that Dollar General can’t make.
The company loaded up on high-priced goods. It expected the pandemic-buying surge to last. And now that things are turning, it’s sitting on a mountain of slow-moving inventory.
Most of Dollar General’s offerings (76.7% in 2021) are everyday consumables. The company doesn’t offer premium products. So in turn, it has fewer opportunities to misjudge consumers’ willingness to buy what it stocks.
Fortunately for Dollar General’s investors, Mr. Market proved to have a “good human” trait. Before long, he admitted his mistake and quickly corrected it. Take a look…
Target’s stock is down a staggering 33% since May 18. But as you can see, after a short panic, Mr. Market reversed course on Dollar General. It’s up roughly 10% over the same period.
The future looks similar as well. Our Power Gauge system agrees with Mr. Market…
Dollar General’s overall Power Gauge ranking is “bullish” today. Meanwhile, Target is rated as “neutral” in the system.
Folks, in an emotional market, people make mistakes. And so does Mr. Market.
One of the keys to success is recognizing your mistakes – and fixing them. That’s what Mr. Market recently did with Dollar General. And you could consider following his lead today.
In the end, don’t let your emotions – or Mr. Market’s emotions – get the best of you.
Good investing,
Marc Gerstein
