March 19, 2016

On Friday, the S&P 500 rose 0.4% while Toronto fell 0.9%.

Decliners included Couche-Tard down 3.5%, Stantec down 3.2% and AutoCanada down 6.0% on its earnings report. I bought some AutoCanada for a an account owned by relatives of mine.

On Friday, Statistics Canada releases a report on retail sales that was viewed as very favorable and above expectations. New car sales were up 17% in January 2016 versus 2014. Used car sales were up 23% (driven I believe by exports tot he U.S to take advantage of our lower dollar). Furniture sales were up 12.9%. Shoe sales were up 15.2%.

Those are strong numbers. However, I would be a bit cautious given that the figures for any one month could be affected by weather and buy any number of data issues.

Listening to some commentary on this on BNN yesterday from a couple of guests I did not hear any reference to an obvious partial reason for the increase (I may have missed the reference). That would be price increases driven by the low dollar. I suspect that if shoe sales were up 15%, a good part of the reason is that those are almost all imported and the prices may have risen due to the low dollar.

Still, overall, this was a strong retail sales report.

Retailers have often been good investments. Consider that Walmart is one of the most valuable companies in the world. As is Amazon. In Canada, Canadian Tire and Couche-Tard have been excellent investments. Also Dollarama. Some retailers have relatively stable and predictable profits and growth. (Could anyone visiting a Costco doubt their ability to grow?) This predictability is in contrast to the many companies with unpredictable profits linked to commodity prices. Warren Buffett became the most successful investor in history in part by focusing resolutely on predictable companies. He does not mind annual volatility but, when buying, he absolutely insists on businesses in which he has high confidence that earnings will grow over the next decade or longer. Sometimes he is wrong, but he always has that expectation when buying. He famously eschewed technology companies because he was not confident in his ability to predict their earnings growth. For the most part he has avoided commodity-based companies. Some retailers, but certainly not all, may be suitably predictable. Speaking of focus, Buffett and Bill Gates both said that the one word that best described the reason for their success was “focus”.