Jim Cramer worries that declines in these stocks could lead you to a very wrong conclusion.
If you follow Coach, you're probably all too aware that shares are down 36 percent, year to date. And if you watch Lululemon, you're looking at a 30 percent loss, year to date. Combine that with Ralph Lauren, which is down 8 percent, year to date, and Cramer thinks you may be inclined to conclude the high-end consumer is feeling squeezed.
And the thesis would seem to be confirmed by sharp declines in Whole Foods, a gourmet market that appeals to affluent shoppers as well as weakness in Panera, a sandwich shop that also targets a comfortable clientele.
Concluding that the rich have become more frugal would seem perfectly logical. However, the "Mad Money" host also says it would be dead wrong. And he doesn't want you fall into this trap.
Largely, Cramer became keenly aware of the phenomenon and the potentially erroneous conclusion, because each and every one of the stocks mentioned above is a component of something he calls "The Gatsby Index," an amalgamation of a dozen stocks or so, first introduced on "Mad Money" in 2013, and intended to track the tier of the economy that serves the wealthy.
"Yet, year-to-date, my Gatsby Index has declined by 7 percent while the S&P is up about the same amount," Cramer said.
The knee-jerk reaction is to think there's a broad issue dragging down the category; perhaps the economic malaise, to which the rich were thought to be immune. However, the price action in other luxury stocks denies the thesis.
"Nordstrom, Tiffany, and Michael Kors have all outperformed the S&P 500. (They too are part of Cramer's "Gatsby Index."). Also Cramer added that according to the Boston Consulting Group, "the total number of millionaire households on earth increased by 2.6 million, and 1.1 million of that increase was right here in the United States."
Given the returns in KORS, TIF and JWN as well as the increase in millionaire households, Cramer says the accurate conclusion isn't the rich are struggling; it's Coach, Lululemon, Ralph Lauren, Whole Foods and Panera are struggling.
And digging down into each and every decline, Cramer has found company specific headwinds, each and every time.
"Lululemon is struggling with slowing growth. Coach has a leadership problem that's only gotten worse since long-time CEO Lew Frankfort stepped down back in January. Panera Bread has been losing traffic to rivals. And although this isn't the company's fault, Whole Foods might as well have a target painted on its back because nearly every supermarket in the country is out to poach their customers," Cramer said.
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Given these circumstances, Cramer thought it worthwhile to remind that when you buy and sell stocks, "you're not just betting on a theme or industry, you're buying a tiny piece of a company and if the company isn't well run, no matter how dynamic the theme may be, the stock won't advance."
Although that concept may seem basic, sometimes market developments demand a return to basics. "Remember, execution matters," Cramer added. "when picking stocks, long-term themes provide a valuable starting point but it's just that, a starting point. In these cases, weakness in a group of stocks isn't sending one broad message. It's sending a lot of specific ones."
*Editor's note: The insights contained in this post were first introduced on Mad Money on Tuesday July 1, 2014
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