YCG Investments
“If you buy above average businesses at below average prices, on average, we believe you should come out ahead.” — Brian Yacktman

Is there anybody that doesn't shop at Wal-Mart?

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In today’s WSJ, in an article titled “Wal-Mart Flourishes as Economy Turns Sour”, this morning I read the following statement:

“For every $1 spent in the last year on goods other than cars in the U.S., 8.2 cents went to a cashier at a Wal-Mart store or a Sam’s Club.”

Wow! That’s pretty amazing. Is there anybody that doesn’t shop at Wal-Mart?

With all the doom and gloom, especially in the midst of very dismal retail earnings reports, you’d think perhaps we’re purchasing Wal-Mart shares. They just reported earnings for the third quarter rising 9.8% while sales rose 7.5%!

We’ve actually been doing the reverse. When the expected forward returns of a stock drop due to significant stock price appreciation, it’s time to find better places to allocate capital.

I’ve heard Warren Buffet say, “You pay a high price for a cheery consensus.” We not only agree with this statement, but we especially feel so in this case. Wal-Mart stock seems to be running ahead of itself, especially relative to other bargains that are surfacing. No doubt people will continue to shop at Wal-Mart, particularly during these difficult times, but we certainly won’t be shopping in their stock at this price.

Disclaimer: The specific securities identified and discussed should not be considered a recommendation to purchase or sell any particular security. Rather, this commentary is presented solely for the purpose of illustrating YCG’s investment approach. These commentaries contain our views and opinions at the time such commentaries were written and are subject to change thereafter. The securities discussed do not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings. These commentaries may include “forward looking statements” which may or may not be accurate in the long-term. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable. Past performance is no guarantee of future results.

Posted by: Brian Yacktman | November 14, 2008 | Permalink

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