Ramblings of a Portfolio Manager 5-11-2009

Ramblings of a Portfolio Manager or you can learn a lot from at tattooed teenager with a nose ring.

We’re speaking specifically of Teen Retailer Hot Topic, which caters to budding Vampires and others seeking the Goth lifestyle. Over the years we’ve been on both sides of this trade—being both long and short at different times. For the better part of this year we have held the stock long and have been rewarded—HOTT’s customers tend to be fast food workers and, as we all know, the likes of McDonald’s and Taco Bell have benefited from the “trade down” effect and so have not contributed significantly to the rising tide of unemployment. Last Thursday, however, HOTT experienced a good old fashioned sell on bad news reaction. It seems expectations for April Same Store Sales had been ratcheted up so high that the Company could just not deliver and the stock was “rewarded” with a 20% sell-off on the day.

There is a larger issue beyond the fickle nature of teen shoppers at work here. We’ve noticed that, in the last two weeks, the content of CNBC’s daily tripe has morphed from the daily dalliances of our narcissistic Commander-in-Chief and his Cabinet to actual, old-style reporting on companies and their earnings. Combined with the single data point from HOTT, this is important as it signals to us that the Market might finally be focusing on fundamentals rather than trading in knee-jerk fashion on every tidbit of news emanating from Washington. We hope so as this will favor stock picking over sector bets going forward. Of course, how many times have we heard a self-serving portfolio manager on TV declare a “stock picker’s market?” Just like a broken watch, perhaps this time the talking heads will be right. Hang onto your voodoo dolls…