Filed Under:
Tickers in this Article: VLCM, RSH, OMX, MW, LTM, CHS, CMG, DLTR
The stock price for women's retailer Chico's FAS (NYSE:CHS) is down close to 20% in the last year despite its business improving dramatically. But Tiger Consumer Management LLC owns 2.4% of Chico's shares and that had me checking out the rest of the hedge fund's portfolio. Run by Patrick McCormack, an alumnus of Julian Robertson's Tiger Management hedge fund, it invests primarily in service and consumer-related stocks, just five of which were in the portfolio when it began back in 2006.

IN PICTURES: 9 Simple Investing Ratios You Need To Know

Tiger Consumer Management LLC Holdings - Then and Now

Company
Shares Held
Dec. 29, 2006
Shares Held
Sept. 30, 2010
Volcom (Nasdaq:VLCM)
467,350
430,140
RadioShack (NYSE:RSH)
997,382
2,005,057
OfficeMax (NYSE:OMX)
204,645
3,116,792
Men\'s Wearhouse (NYSE:MW)
363,699
1,723,970
Life Time Fitness (NYSE:LTM)
344,199
751,978


Trading Frenzy
With the exception of Volcom, McCormack's fund accumulated much larger positions in each of the stocks by buying at lower prices. However, like many hedge fund managers, the positions didn't remain static. For instance, its Life Time Fitness holdings grew from 344,199 shares in late 2006 to 659,780 by June 2007 and then dropped back down to 394,992 by the end of September 2007. If you look at a chart, it appears the fund probably pocketed $2.6 million or about $10 a share in profit over that summer.

When the stock price dropped by 34% in February 2008, McCormack bought heavily, accumulating 1.1 million shares somewhere between $29 and $44. By the end of June 2008, the fund's holdings in Life Time were cut by half and then completely sold off by the fall. It's a good thing too, because Life Time's stock dropped from $31 to $19 in October 2008. By the end of 2008, Tiger Consumer was back in with 915,739 shares. McCormack obviously believes in Life Time's business model.

Consistency
McCormick is a frenetic trader, which is common among hedge fund managers. However, despite the pace of his buying and selling, the number of stocks in the fund remains around 35 despite the fund growing in size from $357 million at the end of 2006 to $1 billion in September 2010. You'd think with such a small number of stocks that he'd go with his 35 best ideas, buying the stocks when prices are low, but that's not the case here.

It appears the fund goes with the best 35 ideas at any given point in time, chosen from a larger group of 100 or so possible candidates, much like a sports team. Those not performing are sold off and replaced by potential winners. Just look at the five held today that were also present at inception. Only one, Life Time Fitness, has been held with any consistency and it too was eliminated from the holdings in 2008. Buy and hold investors should probably ignore the fund because almost nothing it does is based on fundamentals except perhaps the overarching theme of betting on the price movement of well-known consumer brands.

Buy and Hold
If the initial 25 holdings from McCormack's fund back in 2006 had simply been held the stocks without making any further trades, what would the outcome have been? Of the 25, just four no longer trade and only one (Circuit City) lost all of its value over the last four years. Just eight made money but those that did, did so in a big way with Chipotle Mexican Grill (NYSE:CMG) and Dollar Tree (Nasdaq:DLTR) up 350% and 175% respectively. At the end of the day, McCormack's fund would have lost 7.4% by doing nothing compared to a loss of 16% for the S&P 500.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center