Watercolor "Workday is Over. (Denver, CO)" is by father Naum Katsenelson

I did a radio interview with Steve Pomeranz. He’s a terrific host, and we discussed my “What the …” article and compared mutual funds to hot dogs and individual stocks to steaks. It’s only 10 minutes long – listen to it here.

Here is my latest Institutional Investor article, on Tesco (TESO). I feel like I could have written a few pages discussing how the Tesco situation today is very similar to Carrefour’s (the largest French retailer) a few years ago. Or how stock reaction to the news is a bit exaggerated by the fact Tesco’s old shareholder base was holding the stock for the dividend. But the article is too long as is.

Enjoy it. Best, Vitaliy

Bad News at Tesco Could Be Good News for Investors

Sir John Templeton, father of international investing, coined the term “points of maximum pessimism” — you want to buy when the news flow is horrible, because the bad news is likely to be more than priced into the stock. This is where I feel Tesco is today, and this is why my firm recently added to our position in the U.K.-based retailer.

Although Tesco’s business is doing worse today than it was even six months ago, things are not as bad as you’d infer from the stock price or from reading the financial press. Almost every single piece of news coming from Tesco over the past few months could be put in one of two buckets: bad or horrible. Its same-store sales were down a few percentage points; it reduced its earnings guidance for 2014, fired its CEO and decreased its dividend. And to put a cherry on this sagging cake, Tesco found a £250 million ($400 million) accounting error in its earnings forecast. The cumulative effect of this news has sent the company’s shares to an 11-year low. Tesco went from being one of the most successful and respected retailers in the world — its previous CEO was knighted — to being a has-been in a matter of months, though it could be argued that this journey was long in the making.

I am writing all this not because I am masochistic but because I think this is how great investment opportunities are created. Every single article I’ve read about Tesco since the beginning of the year has been very negative, pointing out all the mistakes that Tesco has made.

Tesco’s problems stem from being too successful. It conquered the U.K. market and then started to look for new ones. Some of its international adventures were great successes: Tesco is the No. 1 or 2 market player in South Korea, Thailand and Malaysia. However, its trips to the U.S. and Japan were complete failures, and in China it had to merge its operations with a competitor to gain scale. Its Eastern European endeavor may still prove to be a winner, but it’s too early to tell. In 2013 the U.K. provided two thirds of Tesco profits; Asia (excluding China), about 20 percent; and Eastern Europe, about 10 percent.

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