J.C. Penney Loss Proves You Bet The Horse, Not The Jockey

Analysts are selling stock and reporters don't know anything. These are important lessons to remember, because they can save you big money.

Anyone who had taken the time to walk into a mall would have seen the latest JC Penney (JCP) numbers coming. Malls are no longer where people shop. Malls are basically an entertainment destination. Most JC Penney stores are anchoring malls, and while some had traffic in the last quarter most simply did not.

Analysts and reporters sold investors a bill of goods about CEO Rob Johnson. He was a miracle man because he ran the Apple stores. The Apple stores succeeded because of the products inside them, not because of the genius bar. I warned in January that any turnaround would take years to develop, that it would start in the back of the store - with logistics - but everyone was surprised this week anyway.

Even if you believe Ron Johnson can turn JCP around, it's not going to happen all at once. It's a job that will take years, not months. And there is plenty of time to get into the stock. Today is not the most important day in retail for 25 years. That will be the day we wake up and see that, once again, J.C. Penney is a big-time brand.

When I say "bet the horse, not the jockey", I mean you take a company's results as the best indicator of its future success, piling in only once the cake is baked, not when it's being mixed. This is true in all cases. Journalists who point you to "superstars" are listening to PR people who are getting their orders from the CEOs in question, who in turn are looking for capital.

CEOs who are looking for capital are just like borrowers. They want to use your capital based on promises. If they're showing up on TV, if touts are talking them up on the afternoon shows for executive shut-ins, that should be a danger sign, not a buy signal.

If you want to know how a company will do, look for yourself. If it's a store go into it. If it's a product at least read the reviews. If it's a service talk to people who've tried it.

Can Penney survive, let alone thrive? You disappoint the street like this, the road gets harder. Johnson isn't just trying to turn around a store chain, but an entire channel - the shopping mall - that has taken a generation to turn from gold to tin.

Don't buy until you see the green of their sales.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.