How Dele Alli Interview & Next plc Can Teach Us All An Important Lesson

I was out for dinner recently with a friend of mine, talking about investing in stocks. A lot of the chats I have with people tend to fall into the mindset subject. Working out the right way to think about investing is just as important as picking the right stocks. Even stock selection is a mindset discussion. You might substitute the word mindset for philosophy maybe. Perhaps that’s a better word to describe it. But ultimately, an investors philosophy will shape their stock selection criteria, their strategy, their ability to control their emotions and it will also influence their decision making in crucial moments.

I rarely talk about investing outside of my office. I always assume it bores people and the last thing they want to hear is my opinion on the subject. But it seems it doesn’t matter who i’m with, somehow the subject of my work comes up and they have lots of questions. As I say, we always seem to end up on the topic of ‘philosophy’ or ‘mindset’. 

The subject of HOW, WHO and WHY, rather than WHEN, which is arguably more of a technical investing discussion, although still somewhat under the umbrella of philosophy.

This friend of mine began asking about Retail and the current state of the typical high street store. She believed that the high street was dying. She felt no one was coming to the stores anymore, that people didn’t like to go shopping anymore. She claimed that every town you go to had the same shops. All chain stores. No one wanted to travel into town, to look around chain shops that only had a limited selection compared to the breadth of options you could get online. Why limit yourself, and go to the trouble of travelling into town to do it. She believed the word of retail was changing. 

And there was a lot of visual evidence of these ideas. That day we had witnessed many stores being boarded up. Many shops had gone and become food outlets or coffee shops now. Although many of these food outlets were bustling with people I might add.

And there was a lot of truth to the things she was saying. 

Later on, as we were walking through the town, we walked past a Next plc store. 

“They’ll be gone next” she said. Really? You think so? I asked. What makes you think that?

“They are closing stores, my local store in my small town at home just closed. That’s not a good sign. And now if I buy anything from them online and it doesn’t fit, I cant take it back to my local store. I have to send it back. It’s a major faff. I think that’s going to ruin them. People aren’t going to use them anymore. I know I never go into their stores anymore. I haven’t for years”. 

And whilst i’m sure her opinion has some merit, and there are probably others who feel the same way as her, I happened to find myself somewhat knowledgeable about the stock and the underlying business.

  • The closure of stores was not a decision made due to poor financial performance, nor was the focus on reducing costs, although that was certainly a by-product of the decision. The decision was borne from the strategy of allowing unprofitable stores leases to lapse, and instead of opening new stores they are focusing more on their very successful online brand. They are also consolidating their store real estate down into more superstores, encompassing their home and furniture products as well as clothing and some other experimental offerings all in one place. Fewer stores but bigger stores. They are also looking at opening smaller cheaper drop off hubs in the towns where their stores are closing to act solely as returns and refund hubs.
  • Active customer numbers have been rising steadily every single year, especially in the last 3 years. 4.7m customers in 2017, now 8.7m in 2023.
  • Revenue/Sales are rising every single year which is the best evidence that the strategy is not only working, but it’s making them more money and more customers
  • They regularly keep 15% of all revenue as surplus profit. Thats after ALL costs, wages, taxes, debts, everything. That 15% is spent on paying dividends and re-investing into their own continued growth.
  • Other than 2021, due to covid lockdowns of stores, they have finished the year with over £500m in surplus profit every year over the last 10 years.
  • The big move forward for Next is their Total Platform solutions, a sort-of white label online home-delivery platform for clothing brands that don’t have their own setup. They use Next’s software platform and delivery infrastructure and get an instant ability to offer a fully operational next-day home delivery service. In 2023, Jojo Bebe, Made, Joules, Reiss, GAP, Bath & Body Works USA have all joined the platform. Instead of competing with smaller independent clothing brands, Next are joining forces with them, making their huge delivery system a sellable asset. Next are moving into the home delivery infrastructure provider sector.

It’s incredibly easy to make quick judgements on people, but often we don’t know the truth behind the situation. Take the recent interview with the professional footballer Dele Alli with Gary Neville. Everyone was writing the ex-England international football off, saying he’s lost his way and his attitude stinks. People said his heart wasn’t in the game etc. Truth be told, I thought the same thing. Then he famously came onto Gary’s podcast and explained that he’d been finally getting therapy after carrying the weight of his sexual abuse all his life and also having survived being hung from a bridge as a child. And suddenly, having been given a glimpse of what was going on under the bonnet, the whole footballing community instantly changed their opinion of him. Talksport hosts who had posted articles slating him and calling him “the problem” suddenly took the articles down off the broadcasters website. Everyone backtracked to offer their support and condolences and championed him for stepping up, being brave and now they are all cheering him on. 

It’s a similar concept to our opinions on stocks. The moral here being don’t be too quick to assume that you know what’s going on based on your own opinions. Or the opinions of others. Search for the facts. Do the research or use the research I am doing by joining the membership program.

It works both ways as well. Some people discount a great stock because of their pre-conceived ideas about a business not being any good, and miss an opportunity to invest in a wonderful business. But more common is investors assuming a business is great and not realising they’re in trouble. I’ve seen this again and again.

I always tell people, it’s okay to have opinions on stocks and on businesses, but before you decide, check whether your opinion matches the underlying facts. I’ve had people tell me that they think an alternative energy stock is going to explode and do great and at 21p a share its a bargain. But when i’ve looked at the numbers i’ve seen a loss making business with increasing debts and no way to pay those debts down and a share price that reflects the myriad of problems it’s going to soon have. I’ve had people in 2018 telling me to look at cannabis stocks as they’re going to be the next big thing, only to find none of them making any profit and 4-5 years later many are no longer existing. So much for them being the next big thing. Now people are telling me Lithium related stocks are going to fly because of the rise in Electric Vehicles. Show me a Lithium stock that’s making superb profits and reinvesting in it’s own growth and has a growth strategy that makes perfect sense, and is priced right relative to its underlying business value and i’ll consider it. But until then, i’m not interested.

As I say, it’s okay to have an opinion or to have ideas. But wait until the facts and evidence support those ideas. Don’t act upon opinion alone.