Like millions of people, I followed the headlines associated with the 3.5 million-strong Women's March protests closely. Only I wasn't interested in the identity politics being played out on an international stage.
I was watching because protests about important issues like those the Women's March represent herald tremendous profit potential.
Admittedly, that sounds cold, but that's very deliberate on my part. In my capacity as Chief Investment Strategist, I don't have the luxury of taking sides. It's my job to help you make money by navigating the events that shape our world.
That's, after all, why we're here.
Most people don't think of civil unrest this way and, not surprisingly, their emotions get the better of them as a result. So they have no idea when an event like the Women's March is a threat or an opportunity.
My goal today is to teach you how to tell the difference between simple dissent and potentially profitable anger.
Are They Burning Beatles Records – or Hitting Companies Where It Counts?
When millions of people were up in arms over John Lennon's infamous comments on religion in 1966, his bandmate George Harrison flipped through newspapers filled with graphic images of people burning Beatles records and had one wry comment to deliver…
… If you want to burn the records, first you've got to buy them!
Sure enough, there's no evidence that these protests hurt the Beatles' bottom lines, nor that of their producing company, Northern Songs. "Sgt. Pepper's," in fact, became the group's top-selling album a year later… including subsequently holding the top spot in the charts for 15 weeks straight in the United States.
A lot of protests today fall into that category. Feel-good marches, impressive speeches, lots of social media validation, and absolutely no impact on a company's bottom line, much less its stock price.
On the other hand, protests that do the unexpected are what you want to focus on. They're the ones that matter because it's the unexpected that makes stock prices move.
Good or bad, it really doesn't matter. If "it" catches traders by surprise, prices move.
Take Target Corp. (NYSE: TGT), for example.
Last May, I noted Target was under enormous pressure over its then recently announced transgender bathroom policy.
More than 1.2 million people had reportedly signed a petition to boycott the store. At $65 a person, that represented a potential $78 million revenue hit directed straight to the company's bottom line over the next few quarters.
Management, of course, downplayed the impact. CEO Brian Cornell noted at the time during a media call that the company was tracking data carefully and had not "seen a material nor measureable impact on [its] business."
I disagreed, and said as much during an appearance on FOX Business Network as the brouhaha gathered strength.
Sure enough, Target stock is down 6% since, while the Dow's returned more than 13%, to give you some context for the lost opportunity.
NIKE Inc. (NYSE: NKE), too, thought itself above the fray when it came under fire for employing child labor in 1996. That illusion was shattered as the stock got hammered when activists waged a front-page campaign accusing the company of exploiting child labor.
A 2006 BYU study of protest coverage in The New York Times found that stock prices drop an average of 1/10 of 1% for every paragraph printed. Similarly, a Cornell University study covering 28 years of protests found that they caused a drop of 0.4% to 1%, with most of the drop happening the day of the protest and the day immediately following the protest.
Like many things the digital age has changed, those numbers may be double or even triple that today thanks to social media, the Internet, and the relentless 24-hour news cycle.
So the next time you see dissent brewing, don't just throw up your hands or rush out to join the fracas, if you're so inclined. Instead, think about what the movement really represents and which direction the money's going to flow as a result.
Four Tell-Tale Signs a Protest Has Teeth
Here's a four-part checklist that can help you sort out the money from the madness:
- Is the protest or petition about social issues or tied to a specific agenda, company, or even a specific brand? The more specific you can be, the more investable "it" is.
- Is the movement unexpected, or is it anticipated? Traders hate uncertainty, so your biggest opportunities are going to come from things that rock their version of reality. Keep in mind that good news can be just as unexpected as bad news.
- Is the story about the protest or civil unrest driven by information, or an immediate financial threat? Understand that companies can handle financial threats and executives like Target's CEO Cornell, for example, are well versed in doing so. What they cannot handle no control is crowd psychology when it gets rolling. Strength in numbers overrides logic every time.
- Is the anger directed at the right place? Dissent is the currency of change but it has to be properly applied to make a difference and create the opening you're looking for.
Then, make your move.
If you're an investor, wait until the storm blows over and buy at a discount. That way you have both the time and luxury of picking an entry point and a price that matches your individual risk tolerance and investment objectives. Nike, for example, fell more than 25% in the immediate wake of the child labor squabble.
Yet today the company has a solid 48% market share of athletic brands in the United States and annual sales of $29 billion. That's not too shabby for a company valued at just $8 billion the year before the scandal broke.
What's more, had you bought Nike in 1996, just before the scandal led to protesters wreaking havoc with the company's stock price, you'd be sitting on 568.20% returns today. That's enough to have turned every $10,000 into $53,920.
The closest equivalent to Nike in 1996 today might be Amazon.com Inc. (Nasdaq: AMZN). The company isn't under threat of a similar scandal, but it has the unenviable position of being the target for boycotts on both the right and the left, with thousands of Trump supporters promising to boycott because Bezos' media arm, The Washington Post, has been critical of him. Thousands of left-leaning consumers, meanwhile, have vowed to boycott Amazon because it carries some of Ivanka Trump's products.
The two-pronged boycott is at least partially responsible for gains of only 3% gains during this historic post-election rally – and that's your opening, or at least part of it.
If you're not confident you can pick the bottom, that's okay. Try using one of our favorite Total Wealth Tactics: dollar-cost averaging to edge your way in as an alternative. Lowball orders work well here, too.
If you're a trader with the proper skills and risk management, consider shorting any company that activists have targeted. But move quickly when the headlines break and be prepared to exit the trade when executives counter or take steps in the interest of survival that could cause prices to ricochet higher.
As long as emotion mixes with ideology, there's plenty of profit potential.
Until next time,
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.