The Container Store (An Update On The Short Stack Portfolio)

Short Stack Shove

I know you are all dying to hear how things are going with my latest stock trade in The Container Store (TCS).  That’s why you read this blog, right?  For the stock trading tips.

Well, I’m gonna tell you all about it anyways, because The Container Store reported earnings a few hours ago and I actually feel obligated to tell you the bad news.  Let’s get this over with.

First, a little background… I trade individual stocks with an insignificantly small portion of my family’s overall investment money in what I call The Short Stack Portfolio.  I try to “beat the market” (S&P 500 Index), which is very hard to do (I’ll illustrate that in vivid detail in a second).  It’s why I only trade with hundreds of dollars and for fun.

I came up with The Short Stack strategy to scratch my own stock trading itch.  And the only way I could come up with to really beat the market (besides day-trading with one of those really fast computers I don’t have access to) is to bet on one, maybe two, stocks I believe will rocket higher in the span of several months and get out when they do.

It worked for me with Angie’s List (ANGI) and then Etsy (ETSY).  I was feeling pretty good up until now.  Now, let’s go to the chart for The Container Store:

the-container-store-stock-chart

I got it right and bought in at a great time last August.  Unfortunately, one has to know when to get out too.  Turns out trading stocks is hard.

The day The Container Store hit its peak of $8.35 in early December, I thought long and hard about selling at that price.  It had taken just 3 months for the stock to rocket more than 50%.  Exactly what I wanted.  Instead of selling at $8.35, I put in a sell limit order at $8.57 to squeeze a little more juice out of that lemon.  I got greedy and got punished.  Needless to say the stock never got to $8.57 and it took less than 2 months for the stock to plummet back below where I bought it.

I’m still not entirely sure what happened on this roller coaster stock ride.  But I’ll do an amateur post-mortem anyways:

  • I think I was right when I bought the stock that sentiment had gotten way too negative.  The Q2 earnings report came out in November and it wasn’t awful.  It wasn’t great.  But it wasn’t awful either.
  • That caused lukewarm buying, because sellers were simply gassed.
  • That triggered a domino effect short-squeeze, because there were a ton of traders betting against the stock at $5.50.  When the stock started to stabilize and march up a little bit, short-sellers must have rushed to cover their positions.  That lit a fuse under the stock and it rocketed higher.
  • It overshot and topped out, running out of rocket fuel.  It slumped a little in that coming-down-to-earth moment, then started to level off.
  • Then retailers like Kohls and Macy’s announced poor holiday sales right after the new year.  The Container store tanked in sympathy and has been on a downward trend ever since.

I’ll get a better look at The Container Store’s Q3 earnings report over the next few days and decide what to do with the stock then.  It doesn’t look very good at first glance.  Disappointing revenue, declining same-store sales…  More than likely I’ll pull out of this trade soon, book the loss, and lick my wounds.  The Short Stack will live to play another day… after a little haircut.

It has been an interesting ride with The Container Store and I learned a very valuable lesson along the way.  DON’T GET GREEDY!  Especially not over a few pennies.  I was 22 cents too greedy and it cost me hundreds.

I am not an investment advisor.  These are my opinions.  As of writing this article, I own shares of TCS and ETSY.  Do your own research before investing in any individual stock.  

follow me on Twitter @cabbageblog

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