DGI Adventure – 09-30-2015 Limit Order Executed – Gap Inc (GPS) – $28.00/share

LOE – Limit Order
Executed – Sort Of….

Me last night: Ho
hum let’s check the S&P Futures to see if there’s going to be any craziness
in the morning at the opening bell. The headlines read something like this:

US Stock futures are
on the rise because stocks in other countries rose. (AP 10:45pm EDT)

Me last night:
Great. Probably not going to be a great buying day.

Me this morning: Better
check again. I need something to do while I poop. Similar headlines…new
explanation:

More jobs added in the
private sector is apparently good for stocks today, even though more jobs is
connected to a possible rate hike, which may or may not be bad, but we fit the
analysis to match the result not to make any sense. (USAToday 8:00am EDT)

Okay…so I added a little editorial flare there. Still though.
Looking like one of those days I can expect lots of green. Not promising.

Me this morning
(still pooping):
I wonder how much GPS is going to be up. I hope not too
much…time is running out before it goes ex-dividend. Hmm let’s see here…WTF?!:

Old Navy chief leaving
to go to Ralf Lauren. Gap down sharply in premarket trading. Ralph Lauren (RL)
up sharply.

Gap Inc. (GPS) shares
are getting hammered because some jackass analyst you’ve never heard of just
downgraded GPS to “underperform” and lowered their price target to $26/share
from who knows what it was before, because the chief of Old Navy is leaving to
go to work for Ralf Lauren.

Okay…this is interesting. Now on Monday of this week (9/28)
I had talked myself into buying GPS, and I had intended to place a narrow limit
order at $29.50/share (It was trading around $30-$31). I didn’t place that
order yesterday, because I didn’t have any cash in my brokerage account, and I
was close to my limit of transfers from my war chest envelope (max of 6
withdrawls in a calendar month from a savings account). This is one of the downsides
of Budgeting in Crazy Town. But still I had one more transfer, and it’s the end
of the month so I should have done it. I just hadn’t gotten to it yet. It’s one
of the reasons I was checking early because if there wasn’t any major price
action I could just wait till tomorrow when I have a fresh batch of transfers
at my disposal.

So GPS opened at $27.95 which would have been WAY below that
hypothetical limit order I set. My first instinct was to immediately transfer
that money into my brokerage account and try to frantically figure out a new
limit order amount.

One of the things I like about setting limit orders well in
advance is it takes away this kind of frantic chaos at 6:30 in the morning. The
first 15 minutes of market opening have huge spreads between buy and ask and
who knows which way things are going. But if you want to truly gaff fish, you
have to jump into that chaos. A preset limit order might get triggered a lot
higher than the bottom of a big dip like this. It’s a tricky balance that gaff
fishing.

I ended up putting in a limit order for 54 shares at
$28.00/share for a total investment of $1,518.95 (including $6.95 trade
commission). At the time it had bounced up into the $28.20 range but was going
down again. The order executed pretty shortly after I placed it as the stock
dipped back into the high $27s for a while.

I have to admit that there was part of me who thought…maybe
I don’t want to buy GPS now. Old Navy is the one line out of the big three (GAP
and Banana Republic being the other two) that has been posting solid same store
growth numbers.

But then I said to myself, “Self, did you mention Stefan
Larsson in your investment thesis? Was the stellar talent in the corner office
of Old Navy the thing that made you want to buy GPS?”

The answer was of course no. Buying GPS is a bet on strong
US consumer trends as the economy and jobs situation improves. It’s a vote of
confidence in management’s decision to focus on growth in Asia as China
transitions to a consumer based economy. It’s a belief that basic bitches will
buy yoga pants and lots of them from the 4th up and coming brand
line, Athleta. And it’s because the stock sports a very healthy dividend that
has had a tendency to grow a lot over the last decade because 40% of the shares
are held by insiders and they want to pay themselves.

Stefan Larsson owns zero shares of GPS, and hasn’t owned any
since 2014. Just sayin…

This news doesn’t change my investment thesis. Frantic
selling at the opening bell is rarely about investment theses anyway. It is a
lot more about robots throwing around millions of dollars, which is a pretty
scary concept. If you can keep your head amid the chaos sometimes you can pick
up some good deals in the early morning.

As the day wore on a little bit of the edge wore off. The
share price ended up closing at $28.50 which is oddly right at one of the
support levels I mentioned in my LOL (limit order logic) on Monday. Probably
just a coincidence, but I’ll pat myself on the back anyway.

Apparently this does change a few people’s investment
thesis. Like by a lot.

http://www.marketwatch.com/story/analysts-cool-toward-gap-after-old-navy-presidents-departure-for-ralph-lauren-2015-09-30?siteid=yhoof2

Like most online financial “news” articles, that whole
article is pretty meaningless, but the last sentenced jumped out of my smart
phone screen when I read it earlier today:

“UBS downgraded Gap to sell from neutral and lowered its price
target to $25 from $40.” Seriously, UBS?!? Seriously? Hmmm. Let’s break
that down real quick.

Issue #1) Why was your rating neutral if your price target
was $40? GPS hasn’t sold for $40/share since April. A stock selling for
$31/share is only “neutral” even though you’re claiming you think it’s going to
$40/share? A 30% upside is neutral? WTF?

Issue #2) You just reduced your target price by over 37%
because of one dude. Overnight. Really?

At $40/share the company’s market capitalization would be
roughly $16.3B. At $25/share the market cap is only $10.2B. You’re telling me
that Gap Inc. is worth $6B less because Stefan Larsson isn’t going to work
there anymore? $6B? Let me spell that out for you: $6,000,000,000.00. Because
of this one dude?

Larsson started at Gap in 2012, his annual salary in 2014
was $2.78M…and he doesn’t own any shares (he sold what shares he had in
December of 2014…This guy was obviously not in it for the long haul. He was
supposed to set up the equation for success and then move on to bigger and
better things. According to GAP insiders and at least a few of the analysts who
didn’t shit their pants this morning, that’s exactly what he did and is doing.

Works for me. Sorry but this headline doesn’t wipe out $6B
worth of value for me. It actually doesn’t wipe out any value for me. My fair
value estimate was $36.80, and it remains $36.80.

This headline did increase the yield, however and I am all
for that. And it still goes ex-dividend on Monday 10/5. Looks like I’ll have 54
shares instead of 51 for the next pay day.

Thanks, UBS. Your retarded rating system and knee-jerk,
sensationalist “analysis” probably just helped me buy 3 more shares than I
would have otherwise.

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