“Nike is a simply horrible name for a company that wants to be taken seriously. Let’s go with ‘Dimension Six.’"
–Phil Knight (before set straight by his team)
Get ready for a lot of McGough. Probably too much. It’s Black Friday…Hedgeye’s Retail Sector Head ain’t gonna shop, but he’s gonna type.
Anyone catch the parade yesterday? I’m going to bet that the ‘Macy’s Day Parade’ changes sponsors by 2024 (100th anniversary of Macy’s parade). Here’s a fact…the parade was actually started in Canada in 1905 by Eaton’s department store. Macy’s ripped off the idea. More useless trivia…
- It’s semi-common knowledge that the term Black Friday started after the Great Depression when retailers’ P&L statements went from Red to Black on the day after Thanksgiving. That’s not true.
- Others think that it started in 1961 when the press used to the term to describe the heavy and disruptive pedestrian and vehicle traffic in Philladephia that would occur on the day after Thanksgiving. True, but it’s not the origin of the phrase.
- If I want to make this really dark for you – which I natutally will – I’ll say that the first recorded use of the term “Black Friday” was applied not to holiday shopping but to the crash of the U.S. gold market on September 24, 1869. Let’s forget that one for now.
- I’m not too sure if ‘phrase origins’ matter much more for a day that is in a secular decline. Yes, you’re reading something written by a retail analyst that wont go within 20 miles of a mall today. Maybe I should…after all, now you can actually find parking unlike 5+ years ago.
Gear switch…conforming is for losers.
Back to the Retail Grind…
One thing you will never hear anyone who works with me say is “McGough is so damn conventional.” They’ll say a slew of other things – mostly embarrassing, sometimes sensationalistic, and almost certainly 90% correct about 100% of the time. But they’ll never use the word conventional.
For example, I always type in the first person – bc, well, why the heck not? It took all the strength I can muster to use the word ‘heck’ just then instead of some wickedly awesome and ill-placed word for which Anthony Parsio (Hedgeye’s Chief Compliance Officer) would have mandated I type a bunch of things like “$%#$%^!%!!!” instead, and/ then write a formal apology on Hedgeye letterhead to whoever created the Urban Dictionary.
BUT, one area where I am quite conventional is in sticking to our, and my, investment #process. I use both the words ‘our’ and ‘my’ because…
a) As readers of the Early Look – you know ‘our’ #process at Hedgeye like the back of your hand – bc it has been presented in the same consistently-evolving way – every day – for nearly a decade.
- That’s a decade since the founding Hedgeye members sat in Keith’s living room with a whiteboard while eating his wife’s peanut-butter cookies – and quite possibly a few dozen Canadian beers (maybe not as DJ was not in the room. His presence, as always, was very much unknown) – and mapping out what Hedgeye would look like.
- For the record, I was totally against the name ‘Hedgeye’. I forget why, but I was against it. I think I wanted some Spartan-esque/Leonidas-inspired name like Molon Labe (if you don’t know what that means…I implore you to use the good ‘ol Google machine and check it out). Note: PHK’s near miss with name gaffe above…
b) The usage of the term ‘my investment process’ as it is the result of developing, and then honing my own method of performing over the course of 24 years. Let’s be clear about a few things…
- I used to call this a job – and for the record, for the first 14-years that’s what it was. Because I conformed – I tried to do this job like everyone else.
- I was ranked #298 out of a 312 person graduating class at Monsignor Farrell High School in Staten Island. I was not a partier (that’s less-than true) – I simply conformed to how information was presented, and I subsequently failed (that part IS true).
- I had a 1.7 GPA in college because I did not learn like others did. Yep, I conformed. And I failed.
- Then I met my wife Regina (running on 23 years) who taught me to learn and process things my way. Screw the norms. Create new ones. Conforming sucks (sorry Anthony). Got 4.0 for the next three years after that pivot – pretty damn close to 4.0 in grad school – and have since made both an amazing living, and an even better life.
- When starting Hedgeye over the de-lish PB cookies, Keith said that “we’re going to take every standard for this profession and turn ‘em upside down." Yeah… I liked that. That’s when I signed up.
Hedgeye does not conform. Ever. Not in #process, and not in #product
Let me touch on product for a minute. Yes, I write research notes. Sparingly, but I do it when I have a notable opinion change. But my best two products represent what I’ll refer to as a ‘product barbell’ approach.
- The Black Book: First, as I hope you know -- Black Books are the hallmark ‘deep dive’ edgy investment decks/presentations at Hedgeye. It’s my view that my team (among other Hedgeye’s) mastered the intersection of both art and science in creating no fewer than six Black Books per quarter. I present them in Hedgeye’s studio (as my Sector Head colleagues do with their own), and the energy I derive from being in that room is simply awesome for me.
- Hedgeye RetailDirect: My more important product is something called Hedgeye RetailDirect (or HRD). Simply put, it is a Retail/Consumer version of this Early Look. It is the cumulative context of my team opening up our investment process in the preceding 24 hours (96 hours actually – through the lenses of four killer analysts). We look at every consumer company, globally, contextualize what matters, what the read throughs are to our top investment ideas – and even discuss why something initially looked like a potentially meaty idea, but we subsequently booted off our vetting pyramid. Full transparency as names go up and down our 6-level vetting pyramid. It’s how we generate ideas. Without this process, my kids would be eating ramen every night (which they do when it’s my turn to cook).
- If you don’t read Hedgeye RetailDirect each morning, I’m (self-servingly) promoting that you do. I know that sounds like I’m walking into a party and saying ‘hey everyone – I’m really funny!” Dude, don’t tell me you’re funny…just tell me a damn joke and make me laugh. But seriously, you should give it a good look. Since the birth of Hedgeye, I now consider waking up every day and doing what I do to be a vocation. And though it’s oftentimes painful to be typing Hedgeye RetailDirect at 6am every day consistently (450 days straight – even when on vacay), I still do it, and love every minute. And again, for the record – this is coming from a guy that gets bursts of inspiration and energy between 1am and 4am at least 3 nights a week. Let’s just say that my work week and sleep cycles are unconventional as well.
Every sector head at Hedgeye has his/her own processes…some similar…some not…but most are very effective. My own process is to live in the TAIL – which we define as 3-years of less. My little interpretation as a fundamental analyst is this…
- TRADE: As a CEO doing one-on-ones at conferences…they pretty much know their number for the quarter – unless they have horrible forecast accuracy like HBI does. This is not my shtick.
- TREND: That CEO probably knows his 2-3 quarter out number with 80-90% certainty. Tough for me to compete with that. My team will…and they are great at it where I am simply not (i.e. hire people that are better than you in areas where you’re deficient).
- TAIL: This is where I live. That CEO – 95% of them, I’d argue – lack the investment and planning processes to see how the competitive cross currents of vendors, competitors and consumers will affect one another, and ultimately allow the CEO to appropriately plan around it. If I think I know more than a CEO about how the cross currents will hit their respective business in a way that they don’t – I’ll make a big call there any day. In fact, If I don’t have that edge, with numbers to match – then I will not make a call. (Check out my current Idea List below.)
But it’s not all about Brian. I like to think it is, but it is 100% not. We each have our best research calls – and it’s our job to find the ones that are powerful enough where the TAIL, TREND, and TRADE all line up with the Macro Team’s process (Keith, Darius, Drake and Ryan) from top down, and sectors bottom up. I can speak for myself in saying I’ve had a few stinkers, but rarely are they steamers when they align with Keith’s Macro factors. When the top meets the bottom – that’s where we find all the self-professed (and oft validated) awesomeness.
Oh, and by the way, Hedgeye covers more stocks than 90% of #oldwall firms out there. Our analysts are empowered to pick the best of the best ideas in entire sectors – globally – up and down the supply chain. We have 12 verticals (and counting). I have 300-400 tickers alone in my arsenal at Hedgeye (I’ve vetted over 200 of them – so far). Let’s say the average stomping ground per sector is 200 tickers at Hedgeye. There’s roughly 2,400 tickers for you. The average analyst at #oldwall covers 16, with an average of 30-35 verticals (per wiki) – there’s 528 stocks.
#winning
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.31-2.42% (bullish)
SPX 2 (bullish)
NASDAQ 6 (bullish)
VIX 9.17-13.00 (bearish)
USD 93.00-94.75 (neutral)
AAPL 167.91-176.88 (bullish)
AMZN 1119-1166 (bullish)
Make it a great one…
Brian McGough
Retail Sector Head
