Forensic Investing: Why We Were Long on JCP

The principles of forensic investing is knowing more than what is on the company's financial statement. Forensic investing is experiencing what the company offers. For example, if you think Starbucks is a great company to buy, maybe you should go to a few locations, buy a few products and experience for yourself whether this company has a future. This method of analysis is absolutely valid for backing-up your fundamental analysis. If you are fed-up with the long lines at Walmart or tired of cold McDonald's Big Macs, chances are, other people are too. Keep in mind though, it is important to increase the sample size in your exploration to avoid the misleading of an outlier. Chances are, outliers are more prone to sway investors for larger corporations, especially those like Starbucks that can be found on any street corner in the world.

The point of this is to explain the importance in knowing the company's operations, so when company news events are published, it will seem viable to you. This morning, JCPenney released earnings that shocked many it opened nearly 8% higher than yesterday's close. While the company is not in great shape, many investors believed it was worse than it truly is. Run of The Bull did forensic investigating, which entailed a "customer experience" at the department store. We noticed that the store's inventory was turning, lines at the checkout were rather long and the store itself was recently redone. Comparing it then to Macy's and Nordstrom and even other JCPenneys, we were confident that Wall Street was undervaluing the company's ability to perform. Of course, the company has had turbulent trading days with news on CEO Bill Ackman stepping down, but the forensic investing that went into our analysis ignored the hype on this event and focused more closely on how the company would continue to perform.

Summary: Forensic investing is key for analyzing a company when fundamentals cannot be trusted and technical analysis is misleading.

-Renner