Investing Blog

Weather and Business by Jordan at Investing Blog

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Some say that stock picking is nothing more than a random walk down Wall Street, that investors are better off throwing darts than picking individual stocks themselves. Some have even written a book on the subject. ;) For some securities, they may just be right.

Weather and Seasonality

I try to avoid seasonal businesses because more-so than other companies they require luck. When a business has only a few months out of the year to make it or break it, there isn’t much room for the unexpected. For instance, the BP oil spill that lasted just over a sixth of the year absolutely decimated rental profits in Florida. Landlords in Florida have only a few months each year to clean up, if they don’t, they’re destined to incur huge losses later. BP’s oil spill came at the worst time imaginable for local landlords. (Pawnshop owners, on the other hand, might disagree.)

Take another example. We experienced a heat wave in my little corner of the United States. Miserably hot, crazy high humidity and absolutely not a drop of rain. Needless to say, you wouldn’t want to spend much time outside. One local business, a golf course, saw a decline of 25% in revenue from May-July from the previous year. In one year no new competitors had opened, and nothing had changed about the business or its pricing. But, due to a summer that was a few degrees higher than average, revenue dropped 25%. Profits were probably off somewhere in the 50% range.

Some Companies Prosper

As many companies do poorly in hot weather, some do spectacularly well. McDonald’s just released its August same store sales numbers that showed a 2.2% gain over last year. The kicker? Their $1 large soft drinks/teas and the newly introduced fruit smoothies. Not only were these products hot sellers, they’re also their highest profit margin products.

Bet on What You Know

I like Warren Buffett’s investment strategy…to buy what you know. You can’t possibly know how the weather will turn nor to what degree consumers will act.

As the summer season come to a close I’m sure the blogosphere is going to explode with posts about the “X Stocks that Soared in Summer.” I’ll bet almost anything that the stocks that had the best summer earnings were those that just got lucky. Bet on good companies, good names, and good business models. If you want to bet on the weather go start farm.

About Jordan

Jordan is the web master of www.investingblog.org, a site dedicated to skillful investing, news and recent trends. You can read the original article here.

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