DGI Adventure – 11-05-2015 Shares Purchased – Whole Foods Market Inc. (WFM) – $28.80/share

LOE – Limit Order
Executed…sort of

Recently I had outlined the investment
thesis for WFM on 10-26-15
. The closing price that day was $30.70/share.
Unlike most investment theses, I hadn’t come up with a limit order price. The
main reason I hadn’t specified a target purchase price was because this was my
wife’s investment in her ROTH IRA. Whole Foods, as an investment, was her idea,
and she had asked me to “crunch the numbers” on the company to see if her intuition
was confirmed by the quantitative analysis. Since it wasn’t my investment, it
wasn’t my place to try to come up with the limit order price. After I gave her
the thesis she apparently put in a limit order for 52 shares at $29.00/share.

WFM announced their quarterly earnings after the
market closed on Wednesday November 4th, and Mr. Market kind of
freaked out. A 5 day chart:

image

5 Day Chart of WFM Monday 11/2 – Friday 11/6 – From Yahoo
Finance

I’m not really sure who trades after hours, but it’s a small
subset of the investing population. Bid/Ask spreads tend to be very wide and
crazy things sometimes happen. The sort of crazy things that you would expect
to happen if you gave trading robots crack.

I probably shouldn’t speculate about why there was such a
reaction to the earnings report. But I can’t help but wonder what the hell
happened. I suspect it might have been connected to the fact that actual GAAP
adjusted earnings were $0.16/share compared to analysts’ average estimate of
$0.35/share. That number included about $0.14/share of one-time costs so the
real number was more like $0.30/share. The robots on crack might have missed
that bit. But even $0.30/share was still a “miss” compared to estimates, so there
were probably some humans on crack contributing to the chaos as well.

Regardless of the reason why there was such a reaction, boy
was there a reaction…but it was mostly limited to after hours. My wife’s limit
order, it turned out, was set at just about the perfect price. When the market
finally opened on Thursday morning the robots were in the corner talking to
themselves and twitching. Shares opened at $28.79 and almost instantly shot up.
“Almost instantly” being the key phrase there. My wife’s limit order was sitting
there with its gaff hook ready. I’m not sure if this is a standard practice or
if it’s unique to Sharebuilder, our brokerage, but if the market price is below
your “buy” limit order, the order is executed at the market price. Seems like
that’s the way it ought to be, but how rarely do the little quirks in market
making procedures actually work out in the investor’s favor?

Anyway, all I can say is, Wow! That’s nice. I’m kind of
jealous it happened in my wife’s account. She got 52 shares at $28.80/share for
a total investment of $1,504.55 (including $6.95 trade commission). WFM closed
Friday at $31.11/share. The difference is about 13 basis points more invested
yield over the current market yield.

Oh yeah, and WFM announced a 4%
increase to their dividend and a $1B share buyback program
. I would have
liked to see a bigger bump to the dividend, but they could still raise it again
this year, and even if they don’t, I understand they need capital to roll out
their new 365 store format. Their cash flow is still very strong, and this is
kind of a hybrid dividend/capital growth investment anyway.  

The next ex-dividend date isn’t until January, so it’s
certainly possible that the share price could dip back below $29.00/share in that
time frame. Time will tell if this was a perfectly executed purchase or not,
but for now it looks pretty damn good, and we’re happy.

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