I’ve been writing about the horrendous financial state of J.C. Penney & Co., Inc. (JCP) all year, telling investors to sell their shares before their investments become worthless.
On February 28, we reported on Ransom Notes Radio that J.C. Penney’s “inventory is falling and accounts payable are rising, indicating cash flow problems,” and that the company was expected to take annual losses through fiscal 2014. On March 5, we reported that Vornado Realty Trust (VNO) sold ten million shares of JCP. On March 8, we reported that the company intended to lay off another 2200 employees, on top of the 19,000 employees released in the previous year.
On April 9, we reported, “J.C. Penney Co. has fired problematic Silicon Valley superstar and current CEO Ron Johnson, replacing him with the lackluster former CEO Myron Ullman.” At that point, the company was projected to lose money for each of the next three years.
On May 17, we warned investors that JCP’s cash flow situation was dire. “J.C. Penney was on the verge of bankruptcy this spring, when additional financing became available, but 70% of the new credit lines have already been used up.”
Finally, on August 12, we warned investors of the share price damage that could be caused if hedge fund manager and Board member Bill Ackman, of Pershing Square Capital Management, sold his 39 million shares of JCP stock, saying, “There is no honor in going down with this sinking ship.” Mr. Ackman resigned from the J.C. Penney board of directors the next day, and sold his shares on August 27, resulting in a portfolio loss of approximately $480 million.
Today KLOVE, the national Christian radio station, reported that J.C. Penney ranks number one on a list of products/companies that might not be around next year.
If KLOVE radio knows that J.C. Penney is about to disappear from the retail landscape, how is it that an investment portfolio manager (Bill Ackman), who manages billions of dollars for investors, somehow couldn’t see the forest for the trees, and didn’t sell his shares until two weeks ago? Do people really want a guy like that managing their money?!
Bloomberg Businessweek comments that Pershing Square Capital Management “invests in value stocks of companies by employing fundamental analysis.” Really? I beg to differ. There’s a difference between looking at numbers and “employing fundamental analysis”. The implication to investors is supposed to be that the money manager looked at the numbers and proceeded to make wise investment decisions based on the financial health of the company.
To paraphrase Sen. Lloyd Bentsen, “I work with fundamental analysis. I know fundamental analysis. Bill Ackman does not use fundamental analysis.”
When using fundamental analysis, the portfolio manager is supposed to select financially healthy companies so that his investors will more likely achieve their goal of capital gains. But Bill Ackman didn’t do that. Instead, he threw good money after bad. Here’s a tip for you Bill: when investing to achieve profits, look for profitabe companies.
In the case of J.C. Penney, if I may paraphrase God, “The portfolio manager saw all the numbers, and they were very bad.”
Sept. 9, 2013
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