In early July, I wrote that one of the hardest things an investor can do is separate a good product from a good stock. I used Lululemon Athletica as my case study. And I was wrong.
While I maintained that I loved their clothes, I considered the company a "cult stock." I didn't believe that its sky-high earnings multiples could be sustained.
I was bearish in July, and I remain so today. Looking at the stock chart, I see a company that has come too far, too fast for too long. If I were still in the business of buying and selling stocks, this would be one that I would short. And that is what I recommended, and I still feel the same way.
But what I should have suggested, and this reinforces what I learned in my JRO days, was to buy puts instead of shorting the stock. Using options to express my bearish views not only would have given me a leveraged bet to the downside, but it would also have defined my risk.
Christmas will be the ultimate test for this stock. People tend not to overpay for athletic wear when times are tough.
But if I'm wrong, I won't be wrong being short the stock, a trade that would expose me to unlimited losses.
I'll choose the better option and buy puts.
Programming note: "The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.
Gary Kaminsky does not hold any equity positions.
The content of this blog is published in the United States of America and persons who access it agree to do so in accordance with applicable U.S. law.
All opinions expressed in this blog are solely the opinions of Gary Kaminsky and do not reflect the opinions of CNBC, NBC UNIVERSAL or their parent company or affiliates, and may have been previously disseminated on television, radio, internet or another medium. You should not treat any opinion expressed by Mr. Kaminsky as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Mr. Kaminsky’s opinions are based upon information he considers reliable, but neither CNBC nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Kaminsky, CNBC, its affiliates and/or subsidiaries are not under any obligation to update or correct any information provided on this website. Mr. Kaminsky’s statements and opinions are subject to change without notice. No part of Mr. Kaminsky’s compensation from CNBC is related to the specific opinions he expresses.
Past performance is not indicative of future results. Neither Mr. Kaminsky nor CNBC guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed on this website or on the show. Strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested. Investments or strategies mentioned on this website or on the show may not be suitable for you. This material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned on this website or on the show. Before acting on information on this website or on the show, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.