RETAIL IN FREEFALL: THE IMPORTANCE OF USING THE BIG CHART

This past week some of you took a hit on Chico's.  Here's an email from Tom:

Hello Phil.  I'm sure I'm not the only one to ask you what we could have done to avoid being hit by Chico's.  I've read your book twice, read all the blogs and forums, and I'm pretty sure I did everything by the book by buying into CHS (investopedia), but then found that I got burned without any warning or any way out.

I love your approach.  You have empowered my wife and I to take control of our retirement.  Thanks in advance for your help!

Take care,

Tom

My response:

Hi Tom,

The biggest mistake I see people making is trying to keep buying when the industry is in a free fall.  CHS is in retail and the big guys pulled out of retail, dropping the price of almost everything involved in retail.  That's why you saw Whole Foods, Chicos, Cheesecake, Panera, Chipotle... even Garmin, sliding sliding sliding.

So what do you do? 

First, don't use the quick ten day moving average. 

Use the 30 day (which for you MSN toolers is midway between 10 and 50 more or less).  That forces you to wait for a major recovery.

But the biggest thing you're missing is a tool that is on the Investools site called the big chart. It basically tracks the flow of institutional money week by week, which lets you see the Big Guys exiting entire groups or industries. 

When that is happening, like I say on stage, I don't care if you have the best business at an incredible price, it can still go down 50% more.  As the Investools instructors are fond of saying, "the trend is your friend".

Chico's is a great business, but if the big guys decide that retail is the wrong place to be, it's going down.

Don't fight it.  Cash is a good place to be until you are certain you know where the money is going... or (and this is a big OR) unless you are totally willing to ride through a big down bump.  Which I'm not.  I'd rather give up some profits than have a huge hit to my investment portfolio. 

Which is where Rule #1 comes from: investing to not lose money is different than investing to make money.  Just like a doctor's Rule #1 is "first do no harm", I prefer to not do anything rather than to make a mistake.

So hopefully you are using virtual tools and not getting burned for real as you learn some of the finer points of investing in this crazy market.

Now go play!

Phil