Why I Love Amazon.com but Won’t Buy It

You should look at your portfolio and want to throw up a little — this is how one value manager described what a true, die-hard value investor’s portfolio should look like. The two stocks I wrote about in my latest article — American Eagle and Aéropostale — have a tendency to elicit that unpleasant reflex in many investors today.

I’m not writing this article as a pitch for those stocks (though, to be clear, my firm does own them) but to reinforce the lesson I have learned from past indecisions. If you want to buy a retailer selling clothes and shoes — items that are subject to fashion and weather risks — you want to buy them when they have missed their latest trend, when their financials look ugly and when the risks have already played out. One thing I like about these apparel retailers is that teens will shop there for just a few years. If a retailer screws up with one crop of kids, they get a second chance, because there is another crop coming right along. (The JCPenney crowd is not as forgiving. See “What I Learned from the JC Penney Fiasco.”)

Also, unlike for the Best Buys and RadioShacks of the world, the Internet is not a significant threat to teen clothing retailers. Parents get sick of their kids driving them crazy at home on weekends — plus, let’s be honest, when your kids get to be teenagers, you are definitely not cool anymore. There is, however, an amicable solution: Drop the kids off at the shopping mall — a large, relatively secure enclosed space with video cameras and security personnel, with a movie theater, inexpensive fast food and a lot of retailers.

Continue reading on Institutional Investor….