The practices of the most successful stock traders can also teach you how to manage your inventory, says Abe Sherman.I lIKE TO READ. My favorites are books on management (Good to Great and Winning), marketing (anything from Reis and Trout), the Internet and globalization (The Lexus and the Olive Tree and The World is Flat), and what makes consumers tick (Why We Buy and The Clustered World), to name those I always recommend. But today, I’d like to recommend another book, in a completely different field; investing.
I’ve been watching Jim Cramer since he was on the CNBC show Kudlow & Cramer, and now I try to watch him daily on his new show, Mad Money. Jim is what some would describe as passionate about getting individuals to invest in the stock market. It’s not that he’s angry … he’s just nuts about stocks.
Even if you have no interest in the market, you should really check out his show at least once, just to experience his energy. And then go out and buy his new book: Sane Investing in an Insane World.
Cramer is the antithesis of the traditional investment advisor. Where every book or article I’ve read extols the virtues of the ?buy and hold? philosophy, Cramer actually teaches his readers how to trade stocks. He once ran a hedge fund for investors who wanted a larger return than market averages. And the only way he could do that was to find the right stocks to buy, get into them early, and get out of them once the rest of the marketplace recognized their value. While this process can be very rewarding financially, it’s also very time-consuming ? and definitely not suited for someone who regards stocks as a ?hobby?, like myself. I simply wouldn’t be able to dedicate the kind of research and ongoing maintenance Cramer recommends in his book. But I’m not recommending that you read this book to learn more about the stock market. Instead, I’m suggesting you read it as way to manage your inventory.
When Cramer discusses how most people handle stocks (the paper kind), it’s fascinating how closely most jewelers mirror it with their stock (the metal and gemstone kind)!
For the most part, we are an industry of ?buy and hold?. We invest in inventory and just sit on it, frequently for years, without ever thinking much about its performance.
On the other hand, we buy ?positions? in merchandise that turns quickly and often can’t replace those goods (or don’t even try to replace those goods), until we have cash to spend! But, sadly, the cash is tied up in the stinkers that sit. The traders who can pick good value stocks, get in and get out, make huge amounts of money. The buyers who hold onto their inventory for decades, while getting respectable returns, don’t outperform the market. The reason jewelers are against getting out of non-performing inventory is the same reason most people can’t stand selling stocks at a loss ? they hate to lose money! So they wait … and wait … and wait.
After reading Cramer’s book, I think you’ll have a different viewpoint about your largest investment, your store’s inventory.
Most of us think, incorrectly, that the trading price of stocks has much to do with the performance of the company they represent. Cramer explains that the stock is just paper that is effected by myriad conditions, often having little to do with how the company is doing. Surprising, but it makes sense when you think about it. You’re better off remaining emotionally detached from your inventory and looking at the cold reality of its performance (measured primarily by GMROI). Then simply decide if you’re in or out of those goods, as Cramer suggests you should be when buying and selling stocks. Find good stock, ride the wave as its popularity (and price) increases. Continue to increase your position, then just as it starts to slow down, back off and look for the next opportunity. Think of each vendor and each department as individual stocks in your portfolio ? making sure you are diversified, but with strong positions in a few areas. I get my inspiration from many places and I believe this is one of those places for all of us to look. When we look at our inventory as cash and not things, we can think more clearly about its performance-like stocks.