Buying what you can get for free
Today's Financial News - Posted January 6, 2009
Borders (NYSE:BGP) may be headed down a path towards bankruptcy, but it sure is doing better than my local library. Th retail book industry’s gains this week can teach investors a very important lesson.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore—(TFN): I have never been a fan of paying for something I could get for free. That means I was far from happy when I stopped by the local library last night and the lights were off and the doors were dead-bolted.
It turns out, the library plans to remain closed two days a week and drastically reduce its offerings for the foreseeable future. The county’s library system blamed the economic weakness on a decline in revenues and a strong increase in expenses.
Apparently, demand at the library was simply not high enough to warrant keeping open seven days a week.
The theory made sense. That is, however, until I checked out the action at Borders (NYSE:BGP) and Barnes and Noble (NYSE:BKS). During the same week my local source of free reading material is locking me out, these guys are seeing their share prices soar.
Today alone, Borders is up by more than 15%. And Barnes and Noble has handed its investors gains of over 30% in the last five days.
I could not believe the charts, so I had to dig into the situation. What I found was incredible. We are in one of the worst economic periods in the nation’s history and people are actually spending more money for books this year than they did twelve months ago.
As a nation, we cannot afford our mortgage payments, but we can afford to shell out twenty bucks for a book we could read for free at our local library. If that is not a surefire sign of a nation gone crazy, I do not know what is.
Trading library cards for credit cards
As an author, I should be happy that people are buying my book instead of borrowing it. But as an American, the phenomenon makes me want to rip my hair out.
But as an investor, I cannot let my emotions get the best of me. It bothers me that we would rather buy than borrow, but that does not mean we cannot embrace the situation and make some money off of it.
What is happening is Americans, with their shaky incomes and investment losses, are no longer willing to jump into big-ticket items. But they still have the need to satiate their spending addiction created over the past five years. That means they are buying low-priced items like books, coffee and all that inexpensive stuff we import from China.
This is exactly why companies like McDonalds (NYSE:MCD), Wal-Mart (NYSE:WMT) and Dollar Tree (NASDAQ:DLTR) have weathered the recession so well. They sell the products Americans can still afford.
Looking forward, this will be an important lesson to remember. As consumer spending begins to increase these are the companies that will feel it first. You could say they are the leading indicators of the equities markets.
The mere fact that they are getting investor attention should be all the proof you need to begin making investments in other select sectors. So far this week, at Hot Stock Confidential we have seen triple-digit gains from the trucking industry and strong double-digit gains from the “green” sector and the energy industry. It has been a fantastic start to the year.
Pay attention to the indicators around you and the profit potential will become obvious. The local library may not be doing so well, but in this “spread-the-wealth” economy, I am sure it will get the bailout it needs any day now.
Next Article: Be prepared for horrid quarterly reports
3 Responses to “Buying what you can get for free”
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January 6th, 2009 at 5:20 pm
FYI – Borders’ stock is by no means “soaring”. It is down about 96% this year and at this point a $.10 increase would be about 16%. It is hardly fair to make it seem that Borders is doing well financially.
January 6th, 2009 at 7:01 pm
This is a crazy and thoughtless article. To describe a stock that has been under one dollar for over a month as ’soaring’ when it goes up a few cents after a CEO shake-up, is weird. Then he says this: ” We are in one of the worst economic periods in the nation’s history and people are actually spending more money for books this year than they did twelve months ago.” Excuse me but where do you get your numbers? People are spending far less than they did a year ago, on books and pretty much everything else. In late August consumer spending crashed to an abrupt halt and now that the holiday season is over the damage is about to be everywhere. What is the point of an article like this where nothing asserted is true?
January 7th, 2009 at 12:20 am
umm… i think one library in Baltimore is hardly speaking for the nation…