Top Gun FP Client Note: I Was Wrong

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NOTE: Every week I write a Client Note for my clients.  For a limited time, I am allowing non-clients to sign up and receive the Client Note.  You can sign up at the top right hand corner of the website.  I will also be posting the notes on my blog with a 24-48 hour delay from time to time.  Here is this week’s.


Two weeks ago today, Nike (NKE) reported a strong quarter ended February 28, 2010 with future orders up 6% excluding currency effects and revenues up 6.6%.  That breaks a string of four straight quarters of negative numbers in both categories. 
Last Monday, jeweler Tiffany’s (TIF) also reported notable top line growth.  US same store sales increased 11% and overall revenues 17% in the quarter ended January 31, 2010.  That broke a five quarter string of negative numbers in both categories.
Last Tuesday, restaurant operator Darden (DRI), owner of The Olive Tree and Red Lobster, reported the first positive same store sales quarter (+0.5%) since the quarter ended May 31, 2008.
Finally, last Thursday Best Buy’s (BBY) fiscal 4th quarter showed the same thing.  US same store sales were up 7.4%.  That implies that same store sales were up 1.3% from the peak quarter ended February 28, 2007.  Operating and net income were the best for any quarter in the last four years for which I have inputted data.
Nike is the leading shoe and athletics apparel company in the world with almost $20 billion in sales over the last 12 months.  Tiffany’s operates 91 stores in the Americas and 220 worldwide.  Darden operates almost 1800 restaurants in the US including 704 Olive Gardens and 664 Red Lobsters.  Best Buy operates almost 1100 stores in the United States. 
Combined, these businesses cover a broad swath of US consumer discretionary spending.  What their numbers conclusively show is a substantial pickup in discretionary spending by American consumers in the 1st quarter of 2010.

I am fully aware that my mistakes over the past few months have been numerous and far-reaching. Above all, I have been steadfastly skeptical regarding the sustainability of the domestic economic recovery and in the view that the foundation for a sustained move in the U.S. stock market was on shakier ground than the consensus believed.


The consensus seems to have grown emboldened as share prices around the world have risen parabolically over the past 12 months.  By contrast, I have opined that the risk/reward of U.S. stocks has turned negative, as it is my view that some of the recent signs of economic growth in many industries represented little more than a statistical expansion from historically depressed levels.  To this observer, those signposts of growth are now too readily extrapolated by the bullish cabal.  They may be signaling a false sense of prosperity.

All this said, I have been wrong — at least, Mr. Market has been saying so!

I may still prove to be correct in my economic and investment conclusions; as Warren Buffett has written (in paraphrasing Ben Graham), the market is a voting machine over the short run, but it is a weighing machine over the long run. Regardless of the eventual outcome, however, perhaps the single most important ingredient to being a successful money manager or individual investor is to control risk and avoid large losses when one’s baseline expectations go awry.


The discipline of recognizing the errors in the timing of one’s analysis and, even more important, respecting Mr. Market’s price action are integral parts of the investment equation — whether or not the price action is later confirmed or unconfirmed by the fundamentals.

There are many ways to control risk  but sucking it up and stopping out losses before they get too unwieldy are the best ways and most straightforward strategies to control risk.

Taking small losses is part of the game; taking large losses can take you out of the game.
– Doug Kass, “Moving On”,, Monday March 22, 7:54am EST
Last Monday, Doug Kass, President of SeaBreeze Capital in Palm Beach, FL, a frequent CNBC contributor, Barron’s interview, and well known bear, posted a compelling mea culpa on  While maintaining his bearish long term perspective, Kass admitted that he underestimated the current bull market, wrongly calling for its end time and again.
I must have read Kass’s piece five times in the last week since printing it out because he put into words my own feelings and perspective perfectly.  Almost four months ago I wrote a Client Note titled “What If I’m Wrong?” (Top Gun FP Client Note, December 15, 2009).  Re-reading that Client Note today in conjunction with Kass’s piece, I realized that it’s time for me to step up too, like Kass, and admit that I was wrong:
I underestimated this bull market almost from the start.  I called its top time and time again.  I’ve been wrong since early April 2009 and the low 800s – 12 months and 350 points on the S&P 500.
At the same time, I don’t want any misunderstandings of my long term outlook.  I am a bear.  The structural imbalances in the United States and the global economy as a whole are frightening and unsustainable.  This economy and market are so heavily medicated they can’t remember their last name or what they did yesterday. 
At some point the medication will wear off or become ineffective or the side effects will cause a new illness.  I have lost the battle but I have not lost the war.  I am as confident and clear headed as ever that the portent of the forces now lurking beneath the surface will one day in the not too distant future show the current complacency to have been a mere lull.  Those whose misinterpret the current move will be appropriated of their profits.  The wisdom of my caution will prove itself and bear fruit in the course of time.

SPECIAL OFFER – FREE INVESTMENT REVIEW: For a limited time I am offering a free investment review.  Pick any stock, bond, ETF or mutual fund.  I will do a comprehensive fundamental/macro/technical analysis, write a concise analyst report, and consult with you for 30 minutes by phone or in person for free.
YTD Returns (through 3/26)
S&P: +4.62%
DJ Total: +5.53%
Top Gun: +0.69%
Greg Feirman
Founder & CEO
Top Gun Financial (
A Registered Investment Advisor
9700 Village Center Dr. #50H
Granite Bay CA 95746
(916) 224-0113

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