Light Bulbs: Is a Long Overlooked Sector Ready For Its Close-Up?
Candles and the dirty little secrets the industry is trying so desperately to hide.
Editor's Note: Relax, it's only money.
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While investors are wringing their hands over where oil and natural gas are going, I'm sleeping like a baby.
Friends, I'm long on light bulbs. The Saudis have nothing to do with light bulb production, there's no drilling involved, and, until nighttime is legislated out of existence, the demand will always be there. But there's a bigger issue behind the dollar signs. Candle makers don't only have artificially-colored wax on their hands. They have blood on them.
The Wall Street Journal reported that officials in the candle industry are weighing new labeling requirements for their products and that the National Fire Protection Association is ratcheting up its campaign to warn the public about the myriad dangers associated with candle use.
This archaic, hazardous technology has been endangering human lives ever since the ancient Egyptians set reeds soaked in molten tallow on fire.
The Candle Industry's Dark, Dirty Secret
I began my investigation into the dark recesses of the candle industry with a call to Yankee Candle's spider hole in South Deerfield, Massachusetts. I spoke to a man with a deep, bassy voice named Debra, whom I later discovered to be a woman with a vicious cold. Debra (who, hamstrung by company policy, couldn't-or wouldn't-reveal her last name for "security purposes") told me in no uncertain terms that Yankee Candle (YCC) has "no plans to stop" manufacturing its seemingly benign, yet deadly wares. (Never judge a book by its cover-remember, sarin gas reportedly smells like fresh apples.)
"So, what about people who don't know how to use candles?" I asked. Unleashing these pretty little fire hazards on an innocent public just seems a lot like McDonald's (MCD) replacing the toy and the juice in a Happy Meal with a loaded gun (Smith & Wesson (SWHC), Sturm, Ruger & Co (RGR)) and a pint of bourbon (Brown-Forman (BF), Diageo (DEO)).
"Sir, every candle we sell comes with instructions and our 800 number is available 24/7 for any questions a customer might have."
24/7? If I wanted boilerplate corporate-speak like this, I'd read an annual report.
After another few minutes of off-the-rack babble about "safety being our biggest concern" and nothing about instituting a training program or licensing process for people who want to buy candles, I asked one last question.
"How many people call each day who are having trouble figuring out how to use their candles?"
"Off the top of my head, I'd say about fifty."
Fifty people a day actually pick up the phone and dial an 800 number to find out how to use a candle. Allow me to repeat that: fifty people a day find it necessary to ask for instructions on candle usage.
That's 18,250 people a year. And that's just people calling Yankee Candle. Indulge me while I repeat that figure: 18,250 Americans can't figure out how to light a candle. God help the USA.
The National Candle Association: Industry Group? Or Naked Apologist?
Next, I placed a call to the National Candle Association, an industry group representing these merchants of death not unlike, say, the National Heroin Dealers Association.
A spokeswoman for the NCA had the audacity to blame consumers for the 23,600 residential fires caused each year by improper candle use, resulting in 1525 injuries (Hospital Corporation of America (HCA)), 165 deaths (Dignity Memorial Services (SCI)), and $390 million in property damage (Allstate (ALL)).
"People look at candles as calming and pretty and forget that they're dealing with open flames."
"Rule number one is: be attentive. Always, always keep a candle within your sight."
Okay, so no moving between rooms while a candle's burning.
"If you get up to go somewhere, blow out the candle and relight it when you return."
"Never put a candle on the windowsill."
"Some people put candles on bookshelves. That's not safe."
Neither are French Fries. Can I live my life the way I please, please?
"Remember, your typical candle flame burns at approximately 2500 degrees."
One candle website I visited warned against using candles to look for anything in one's home during a power outage. Makes sense. I'd rather use my highly-developed sense of sonar, anyway.
Sounds like we'd all be safer setting a mood with a small nuclear device in the living room than with a candle waiting to render us homeless.
So, now that any semblance of relaxation you'd get from a candle has been completely wiped out and the nice warm glow of, say, a vanilla-scented pillar will likely cause far more stress than it will relieve, here are a few additional safety tips I'd like to add, in the interest of, um, safety:
1) Notify your local fire department before attempting to light a candle.
2) Notify your local fire department if your candle seems to be burning unevenly.
3) Notify your local fire department if your candle begins to tilt or lean.
4) Notify your local fire department if the scent of your scented candle does not smell exactly like the scent advertised on the label.
5) Notify your local fire department if your candle burns either more quickly or more slowly than you would normally expect.
And always remember to have safety equipment handy-a Pyrogen self-generated Aerosol Fire Extinguishing Agent should be adequate if your candle were to ever get knocked over.
The Investment and Trading Implications
Now, here comes the hard part. Suppose we have done our homework and performed our due diligence and... OK, well, maybe we haven't really performed "due diligence" or even started on our homework... so suppose we just have a hunch, a gut feeling, a wrenching, burning sensation deep inside, totally unrelated to any dietary abnormalities, and that we want to be long light bulb-related companies and short candle companies.
How do we take advantage of this bright idea? I posed this question to Minyanville Professor Kevin Depew, who admitted he was impressed. "I admit it, I'm impressed," he said. So I asked Kevin how a Minyan might construct a trade around the Fear Candles/Love Light Bulbs thesis.
"First, you want to make a list of light bulb-related companies," he told me.
I explained that I already did that and that the top three on my list are General Electric (GE), Philips (LPL), and Sylvania.
"That's good," he said, "but instead, I would focus on three big-name players in the light bulb arena, such as General Electric (GE), Philips (LPL), and Sylvania."
That's weird, I just told him those names I thought, but decided to let it slide and press on. "So what next?" I asked.
"Then you need to find a candle company."
I told him about Yankee Candle Company (YCC), about the interview with Debra and the horrifying candle burn casualties.
"What about Yankee Candle Company (YCC)?," he volunteered.
"I just said Yankee Candle Company," I noted.
"Don't mention it," he replied.
"Don't mention what? That I just mentioned Yankee Candle Company before you?"
"Justin, I find it best to avoid these types of semantic discussions before, during and after market hours," he said. "We always want to keep the big picture in mind, and in this case the big picture is that we want to be long a light bulb company like General Electric (GE), Philips (LPL), or Sylvania and short Yankee Candle Company as part of the Fear Candles/Love Light Bulbs thematic approach to investing idea that I came up with."
"But I came up with the idea," I protested.
"Are you a professional trader?"
"No," I admitted.
"Right," he said. "And let me ask you this, if I needed hip replacement surgery and you were just some random guy off the street who happened to have a scalpel, would we even be having this discussion right now?"
I blacked out for a second.
"Of course not," he said. "It is critical to keep the medical and financial worlds separate. You may be a good doctor, my friend, but we wouldn't want some hotshot doctor sailing the boat just because we've had a little too much to drink, would we? It's called a pairs trade," he added.
After a long pause I finally said, "you lost me."
"A pairs trade is simply a trade where one speculates that one side of the pair will outperform the other regardless of absolute direction," he explained.
Finally, something that made sense.
"In this case we would be betting that the light bulb stock outperforms the candle company and the way we do that is to go long the light bulb company and short the candle company," he continued. "This minimizes the effect of the market and emphasizes the performance of one or more stocks over another."
Get that? I'm not sure I do either, but then it strikes me that perhaps candles and even trading are a bit like art. Maybe it's a personal thing. Still, I'm throwing away my candles.
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