The Daily Dose: Why I Ignore Geopolitics

 | Aug 22, 2014 | 8:30 AM EDT
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Investors awoke to news that 90 Russian convoy trucks have illegally entered Ukraine. I have to be honest. I laughed when I read this.

The reasons are simple. It's impossible to keep track of all the headlines from a country we will never visit and the headlines make it sound as if the world is ending amid the invasion of zombies, aliens and a gigantic unidentified flying object spewing Ebola. 

Listen, these geopolitical tensions are something that you will always have to deal with when seeking to build wealth in the stock market. In a way, it stinks that technological advancement has brought us to a point where developments in faraway lands are easily brought to life and it impacts the value of holdings, both up and down. Identifying fundamentally winning companies from fundamentally losing companies remains the chief thing you should be doing day in and day out.

The fact is that once geopolitical tensions ease, as they usually do, the fundamentals of the businesses you own will drive the value of the portfolio higher or lower.  Choose wisely and you could make a few bucks in the market. Load up with stocks that are tailored to the headlines of the day and chances are, over time, you will lose as new headlines surface. 

While on this topic of fundamentals, let me provide an overview of what classifies as a fundamental loser. For this exercise I use Sears (SHLD), which in my view is headed for big financial problems starting in 2017.

Check out the comparisons beings made here.

Sears has the lowest capex as a percentage of revenue in the department store industry. The amount invested in Kmart the past five years is embarrassingly low and it shows in continued dreadful financial performance and store closures that are never-ending. The stores are uninviting. The facades of the store are unwelcoming, very different compared to newly-designed Macy's (M) locations with large windows out front.

The company is using its vast store network as a fast-cash ATM machine. More store closures, more liquidation sales of merchandise, fewer people and fewer fixed costs. The liquidation of Sears Holdings could be easily seen with a simple weekly Google search.

Sears is nowhere near fundamentally equipped to roll out a national same-day delivery program. Macy's, in my view, is about to announce a big expansion in its same-day delivery services, merchandise delivered within hours. Macy's recently upgraded all of its store registers to handle its new online capabilities, Sears is still using outdated relics.

I have covered Sears for nine years and remember the merger with Kmart being announced as if it were yesterday. What we are witnessing with this company is a national tragedy of epic proportions. Eddie Lampert should be ashamed. I will say this. Once all the stores are closed, there will be tons of new businesses borne, likely the next great American retailer, restaurant or healthcare facility.

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