How 'Counting Cars' Became a Market Edge
The 'parking lot signal'... How Sam Walton used it to build a retail empire... How Wall Street took it to a different level... Main Street's disadvantage... Leveling the playing field... 422 winning trades flagged since 2017...
Editor's note: We continue to weigh the market risks from the war in Iran...
As of this writing, the public discourse includes everything from the idea of a 45-day ceasefire to President Donald Trump's threat to "blow up the entire country" of Iran if a deal with the U.S. to "open" the Strait of Hormuz isn't reached by Tuesday night.
Which one is it? Is the war coming to an end "soon," or will the U.S. send Iran "to the Stone Age," as Trump has said simultaneously over the past week? "I can't tell you," Trump said at a White House press briefing today. "It depends what they do. This is a critical period."
In the meantime, oil prices moved higher some today... West Texas Intermediate and Brent crude, the international benchmark, topped $113 and $110 per barrel, respectively. Yet the major U.S. stock indexes were slightly higher. Go figure.
While all that unfolds, the world mercifully is still turning... And as I (Corey McLaughlin) wrote about in the Masters Series over the weekend here and here, we're looking ahead to an exciting investing event that one of our in-house experts is debuting tomorrow morning.
What he's going to discuss has virtually nothing to do with war in Iran, or any market data, indicator, or trend you've likely heard about. And that's the point... to find an investing edge by looking where few, if any, other people are.
Tomorrow, you'll have the chance to hear the details. If you haven't already, you can register for this free event now to ensure you don't miss anything.
And, in today's Digest, we continue our special series about the value of using this kind of alternative data to outperform the market... beginning with a look at a secret of success behind one of the most significant American businesses and CEOs of all-time.
Sam Walton loved looking at parking lots...
From the air.
As early as the 1950s, when he was in his 30s and looking to expand his small chain of Walton's five-and-dime stores in Arkansas and Missouri, he took his research to the skies.
Always ambitious and often impatient about selling affordable goods to Americans, Walton didn't want to waste time driving from town to town while scouting new locations. He bought a two-seat plane for $1,850 and flew above the traffic, following highways by air.
Walton used this strategy to eventually open hundreds of Walmart discount stores. And even after Walmart became a dominant retailer, he stuck to the strategy – but in an upgraded plane and for another reason.
Walton began flying over stores from competitor Kmart, tilting his wings, so he could count the cars in the lots... And then he'd do the same with the nearest Walmarts.
If the local Kmart lot had more cars, it told Walton that the store was falling short. If one area's customers were picking Kmart instead, he wanted to find out why.
Walton's longtime right-hand man Tommy Smith recalled these "research" flights in a podcast interview...
God bless the manager who had less cars than Kmart because [Sam] was stopping and going to go visit that store...
If we delivered the quality service and quality products at a lower price every single day with smiling faces and you spoke to the customers, there was no reason they would go anywhere else.
So, if you had a store that had less cars than your competition, there was a problem and [Sam] would stop and fix that problem.
It was an unconventional management strategy... But it worked. Walton was essentially looking at data that nobody else saw to strike fear into store managers and keep firsthand tabs on his business.
"The airplane was one of his many competitive advantages," Smith said. When Walton died in 1992 at age 74, he'd spent time as the richest person in the U.S., and he left generational wealth to his family.
And today, Walmart (WMT) is worth $1 trillion.
Years later, a student brought this story up to his professor...
And it inspired a fascinating study...
In 2018, a UC-Berkeley accounting professor was teaching his Financial Information Analysis course and discussing Walmart when someone brought up the history about Sam Walton's airplane...
The comment ultimately stirred a thought in Professor Panos Patatoukas' mind about something in the markets.
He'd known that Wall Street hedge funds had begun studying retailers' performance using exactly the kind of strategy Walton did decades earlier, but even faster...
In the present-day, these hedge funds were (and still are) using data not seen by one man on his private airplane, but from distant satellites tracking all kinds of information on Earth. Several companies "owned" this data and sold it to interested parties.
In 2010, wealth management firm UBS revealed that an analyst had been looking at satellite data of Walmart parking lots, provided by a small research firm. He found enough of a correlation between empty parking lots and the company's quarterly earnings history that UBS incorporated the data into its earnings estimates.
Patatoukas decided to study how valuable this data could be. The professor acquired data from two firms: RS Metrics, an industry pioneer of parking-lot satellite image data, and Orbital Insight.
His study analyzed 4.8 million images of parking lots at 67,000 individual stores in the U.S. owned by 44 different major retailers, including Walmart. And it found a significant edge for investors. From the paper...
The portfolio returns from targeting retailers with satellite coverage are asymmetric on the long and the short side. We separate "good news" retailers that experience an abnormal increase in parking lot fill rates from "bad news" retailers that experience an abnormal decrease in parking lot fill rates during the quarter.
The absolute magnitude of returns is nearly twice as large for the portfolio of bad news retailers relative to the good news portfolio.
Over the three-day window around quarterly earnings announcements, the good news portfolio outperforms the market by +1.6% while the bad news portfolio underperforms by nearly –3%, net of stock loan fees.
As Patatoukas said of the research results that "the informational advantage yields 4% to 5% in the three days around quarterly earnings announcements, which is a significant return over such a short window. If you annualize it, the number is staggering."
Using satellite data could let someone outperform the market by 20% in a year.
That's not just an advantage for hedge-funds...
It's also a disadvantage for individual investors...
Patatoukas said...
What we found is that it's a gain for large, sophisticated investors who can afford the substantial costs of acquiring and processing big alternative data at the expense of Main Street investors.
If it was just a transfer of wealth between hedge funds, that would be a different story, but it's small individual investors who tend to be on the other side of the trade.
Especially with short positions, hedge funds were typically shorting the same stocks that individuals were buying... since only the hedge funds could tell from the sky which retailers were struggling.
If you're interested in all the findings and methodologies, you can read the original paper here. Today, throw AI into the equation, and you can see how hedge-funds can exploit these resources even more today...
Parking lots are just one example...
This sort of alternative data is part of the fabric of the market today...
Commodity traders famously used satellite imagery in 2019 to spot lumber flooding the market and bet on a falling lumber price to generate a killing.
I know a guy who has flown drones over Baltimore to observe automobile import trends in and around the port here, a major hub for U.S. activity, to glean insights on the economy...
And I recall Brendan Ahern, the chief investment officer at asset manager KraneShares, describing a satellite data company called SpaceKnow to Dan Ferris and me on the Stansberry Investor Hour a few years ago. Brendan said...
They fly satellites all over the world, taking photos of factories and train stations, parking lots, and malls. And so, you can go to them and say, "How many cars is Tesla going to build in Fremont versus Shanghai?" And they can do that based on how much steel and aluminum is sitting in the storage areas...
Brendan said the company and other unconventional data-collection methods help investors gauge what's really going on in the traditionally opaque Chinese economy. Near key ports in China, it hires people to observe how many containers are on each boat...
Things have really evolved from being like, "Yeah, I need the National Bureau of Statistics" to tell me what retail sales was every month. I knew that weeks ago, real time.
Today brought another example from Citrini Research, with an analyst making a firsthand trek to the Strait of Hormuz and finding the situation more nuanced than thinking about the key passage for oil being "open" or "closed."
The anonymous analyst behind the report, which made the rounds in investing circles and to CNBC, said that the conflict in Iran could escalate and commerce could continue at the same time... though at a reduced pace.
Countries like China, India, France, Japan, and Greece are negotiating directly with the Iranian government to keep tankers safely moving – for a fee, of course. And some additional ship traffic is happening that isn't being reported in public ship-tracking channels.
Tomorrow morning...
We're offering details on our new hedge-fund-caliber trading strategy for individual investors...
It comes courtesy of a former hedge-fund researcher, private investor, and longtime tech insider who has developed a trading strategy that puts the power of overlooked data to work to generate market outperformance.
And for the first time, he's showing small investors how they can catch up with the deep-pocketed Wall Street hotshots.
At 10 a.m. Eastern time tomorrow, you'll have the chance to hear about it. This system has flagged 422 winning trades since 2017, using a data set and indicators that few, if any other analysts, are using. It's not satellite information this time, but the data can be just as powerful.
The market, clearly, has undergone massive changes over the past several decades. It faces various technological advances, Wall Street hedge-fund trading algorithms, and, most recently, AI-driven disruption.
Unlike many of the services we offer at Stansberry Research, this approach isn't as simple as buying great companies and holding them for many years. His short-term, data-driven system identifies fast-moving winners and, just as importantly, shows when to exit positions before inevitable reversals arrive.
Be sure to join us for all the details tomorrow morning... In addition to learning more about this system, you'll also get two free stock recommendations – one to buy and one to avoid – just for tuning in.
Sign up here now to register and make sure you don't miss anything. (And a note for Stansberry Alliance members... Know that you already have access to this research, but feel free to tune in to this special event as well.)
New 52-week highs (as of 4/2/26): Altius Minerals (ALS.TO), Ciena (CIEN), FirstCash (FCFS), Lumentum (LITE), New York Times (NYT), USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund (SDCI), and Sempra (SRE).
In today's mailbag, feedback on last Thursday's Digest by Nick Koziol, which discussed SpaceX's upcoming IPO plans... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"I have no intention of buying the SpaceX IPO, BUT, SpaceX is NOT hype!!! It has singlehandedly saved NASA!!!" – Subscriber Dennis M.
All the best,