When I was a kid, there were a number of things my mom and I did every year without fail. One of our annual traditions was going to JCPenney (JCP) every fall to buy new clothes for the upcoming school year. In fact, I know many families did the same thing, which garnered JCPenney a reputation for good quality items at a fair price. They offered great value and you could find decent clothing that would last. Often times this was the only store we’d shop at for back to school clothing and my Mom enjoyed it so much she even worked there part-time for a number of years.
As they were a solid company, JC Penney stock usually followed in tow and had generally been a decent stock to hold in one’s portfolio. Unless you’ve been living under a rock the past 18 months, you already know that JCPenney and JCPenney stock have not been a darling of Wall Street by any stretch of the imagination. What was first seen as hope when Ron Johnson, former Senior VP of Retail Operations at Apple, took the reins at JCPenney soon turned into dismay. As the company tinkered with its image, its sales revenue, and stock, tanked. This raises the question of what to do with a stock you’re holding when it goes south.
Where Did JC Penney go Wrong?
A sure fire way for a company to sour relations with customers, and investors for that matter, is to drastically alter the way they have always done business.
This has been the case for JCPenney, as they radically changed their pricing module and ultimately upset their customer base. For the most part, people shop at JCPenney because they believe they can score decent products at a good price. When Johnson joined JCPenney, they changed their pricing scheme several times which ultimately impacted sales drastically.
Change can be good, but unwieldy change will generally result in driving customers away which will impact share price at the end of the day. This has been the case with JCPenney as they were not able to replace lost customers. In Ron Johnson’s reign at the helm, JCPenney stock saw its stock decline by upwards of 51% and is today in the $14 range. If you were holding JCP in your IRA then this could have a potentially significant impact on the overall performance of your retirement portfolio.
Watch Your Portfolio
You may be asking yourself what on earth the plight of JCPenney stock has to do with your portfolio. To answer that, it has quite a lot to do with your portfolio…especially in terms of retirement planning.
In my years of working with retail investors, the one thing that I saw every day, without fail, was a ‘set it and forget it’ mentality. Sure, buy and hold can be argued to be a good investing philosophy to follow, but when you forget about your investments you are destined to reap losses in the long run. I spoke to individuals on a weekly basis who had invested in stocks that they only looked at once every few years. On almost every occasion, these individuals lost a significant amount of their portfolio and often times that would be in their IRA. I would see this and just wonder what the state of their retirement planning was and what else they had working for them to help make up for this. This was the common case of buy high and sell low.
I am not suggesting going to the other extreme and checking your investment accounts multiple times a day, but simply finding a happy medium. Maybe that means you check your portfolio once a week, month or quarter. You’ll not always be able to avoid a stock going south, but at least this will help you be more aware of what’s going on in the stock market and how that is impacting your investments. It’s easy to think that a company (and its stock) will never falter; JCPenney proves that is not the case.
I would also add to this the need to rebalance your portfolio on some sort of regular basis, be it either semi-annually or annually in order to help mitigate against wild swings. Additionally, if you’re concerned about certain stocks in your portfolio then you can use a simple and convenient tool like a stop loss order to help try and keep your losses to an amount you’d be comfortable with. Ultimately, you are the one who is responsible for your investing so remember to handle it with the seriousness it requires.
Is JC Penney Stock Still Worth Holding?
Recent headlines show that JCPenney stock has not been getting any love and much of it is deserved. If they are going to be around much longer, they need to change and they need to do so quickly. They need to get back to basics and reconnect with their customers. A detailed look at who shops at JCPenney and why will help, to some extent, them win back their base.
With Ron Johnson’s exit, they have brought back his predecessor Myron Ullman. It is up to Ullman and the leadership at JCPenney to determine what they must do to bring back customers and become a leaner operation. This might help their stock and JCPenney, but it’s hard to tell in the long run. Sadly, JCPenney appears that it may be another in a long line of stocks that, over recent years, have turned south and ultimately died.
There was Circuit City, the old General Motors (MTLQQ) and Lehman Brothers, just to name a few that ended up being worth no more than the cost of the paper their stock certificates were printed on. There is always the potential they could be bought out and go private, which could help recover some of the stock losses, but that is anyone’s guess.
The point is that, as of right now, it’s too early to tell what may happen with JCPenney stock in the long run. What it does require is to be mindful of the risks associated with holding the stock as news can cause it to swing wildly from one day to the next. As someone who has seen investors hold on to stock only to see it become worthless as well as see it pay off, only you can answer that question in light of your portfolio. If you find yourself holding JCP currently, this is a great time to analyze your risk tolerance and your portfolio as a whole in order to ensure your peace of mind.
What’s your take on JCPenney stock? Which way do you see it turning?
John Schmoll is the founder of Frugal Rules, a Dad, husband and veteran of the financial services industry. He’s passionate about helping people learn how to make wise investing decisions so they can prepare for their futures and avoid the mistakes that he and so many others have made.