Einhorn is shifting his focus from technology to retail according to public filings. Looking at this closely may provide you with some new perspectives.
I have commented numerous times in the past that the belief that the internet would crush bricks and mortars was extreme. While the game has a long way to go, there is still “a lot of playing time in the game.” Never forget that with each action is a reaction. It is known as the secondary effect and there are multiple effects after that. That is why accurate predictions are so difficult to make. It is like a game of chess.
I always love the moments when the crowd rushes one way or another in a herd fashion. When solid state drives came out, the crowd dumped the disk drive companies. Great opportunity. When Amazon built a strong position in retail, the crowd said “retail is dead”. Another great opportunity.
These extreme opinions happen regularly in the market. The world, in general, is not extremely one way or another, but somewhere between the two extremes. And, like calculus, there are always limits.
Einhorn hasn’t had the best luck in retail. There was the JC Penny debacle. JC Penny is like Afghanistan. So many have thought they would conquer Afghanistan, only to find it is tenaciously resistant to change. JC Penny is still languishing. Einhorn is going back to a high retail industry exposure. We’ll see if his timing is right.
One thing to avoid in the retail market are fad stores. Fad stores are driven by short term fashion trends and younger people. I learned that lesson well with Buckle (BKE). Their fundamental numbers were great for a long period, but when trends changed, their top line buckled!
Everything I’ve learned about market timing tells me it is unwise to make extreme changes in exposures. It is alright to gently and steadily shift, but extremes are risky. A lot of investors have been successful with a single call only to be burned by a series of future incorrect calls. Does any remember Elaine Garzarelli? She incisively called the 87 crash and then had a number of bad calls thereafter.
To fund his foray into retail, Einhorn has lightened his exposure to technology. I do believe the technology field still has some great growth ahead of it. Technology is not going away anytime soon. The benefits to be had are just too great. That is not to say that technology equities will not pull back in price. I do believe they will, but the fundamentals will continue. When will a pullback happen? Quite frankly, that’s anybody’s guess. Myself, I am keeping my exposure because I believe the fundamentals are just too strong. To stay ahead in our competitive world, efficiency is one of the most important corporate characteristics and computers equal efficiency.
I have seen too many fortune 500 companies using technology that’s twenty years old. Take the spreadsheet. It is a mainstay in most all companies today, but it causes a morass of problems that work contrary to efficiency. The spreadsheet started its life in the 1980’s; spreadsheets are the mainstay of corporate life more than 35 years later. Companies are still going to have to get up to speed and put in the capex in technology to improve operations. Sure, lots of upgrades have been done with many companies, but I think we are at the top of the first inning.
When Andrew Carnegie built his steel company, he installed the latest technology for the time. When new technology came out, he ripped out the old and installed the “latest and greatest”. He didn’t even care if the old technology had useful life left. This helped him springboard into being the wealthiest man in America when he sold his steel company. Technology clearly has legs. Today is no different.
It remains to be seen if Einhorn will be successful, but only time will tell. I wish him well.
No one knows the future or has a crystal ball, but learning well from past history and experiences provides a great springboard into the future.
