If you're married and you have cable TV you know who this little dude is and that one of his phrases is hot mess. CNBC used this term to describe what is going on with Starbucks (SBUX).I had owned this stock for quite a while before selling it last summer in the $26's. Like many of the stocks I end up being wrong about the sale could have been better but it could have been much worse too.
In the time I held the stock I mentioned it several times in interviews as I believe (note the present tense) that people love the product, are willing to wait in line for it and that the company has created a destination that people want to go to.
I further believe that the stickiness of those attributes would allow it to weather an economic downturn better than other discretionary stocks.
It sounds good but somewhere in there the idea is wrong. This post is not about Starbucks. This post is about building a reasonable case around owning a stock, giving that case a chance to work, recognizing when you are wrong and taking action. I don't think why is as important as simply realizing when you are wrong, although it would be nice to know why.
During that CNBC segment they had an analyst on who they said has been bullish and still is bullish on the name. For all I know yesterday might be the bottom but that is not the point. The analyst laid out a case for owning the stock. Any bull case for Starbucks of late has been a forest for the trees thing.
Maybe the stock should have gone up but it has not and that is what matters. You will encounter this exact same thing with other stocks. If you come to realize you are wrong about a stock just sell it.
One more point to close out on would be just because a stock is down doesn't mean you are wrong. The financial sector, as measured by XLF, is down 30% from its 52 week high. If you have a financial stock that is down 25%, chances are you are not wrong. By the same token the staples sector, as measured by XLP, is down 5% from its high. If you have a staples stock that is down 15% you might be wrong.
8 comments:
Roger - thanks once again for all of the work you do with this blog. I personally find all of your insights very helpful, and while I don't invest using ETF's, most of what you write about is applicable to investing in general.
A few points:
Taking the ego out of the stock pick is a very hard thing to do - saying you were wrong and moving on is not in our basic human DNA.
Question the motives of most analysts when it comes to a recommendation. We all know there is a Chinese wall, but analysts for the most part aren't stupid when it comes to self preservation and may be recommending a stock or two because of other relationships.
If you are savvy enough, use the analyst report as a supplement to your own research rather than taking the blanket advice of buy, sell, or hold.
And finally, sometimes you get an emotional attachment to a stock - particularly if it was given to you as a gift or inheritance from someone who is not in your life. But ask yourself, would my grandfather, mom, dad, aunt, etc. want me to own a company that is a sinking ship - or take that money and invest it in a better opportunity?
who is that guy?
remember i said married and have cable, right?
he won Project Runway on Bravo. SNL made fun of him with Amy Poehler.
married with cable, maybe, but not married with cable & kids, 'cause we're in bed long before SNL airs - LOL!
It's interesting what a difference a month makes, in general sentiment. I do not believe the SBUX is any kind of an anomaly, here and the next move down in the S&P will not be lead by financials, this time.
Maybe its just me, but for the last week, or so, having been periodically recalling Keyne's dictum "The market can stay irrational longer than you can stay solvent".
I know "they" say the markets look forward, but they must be using a telescope, imho...*G*.
Jan
Roger,
It's interesting how different the thought process is for top-down stock selection versus bottom-up.
I'm more of a bottom-up value investor. From my point of view, the qualitative logic you give for investing in SBUX (i.e., "people love the product ... willing to wait in line for it ...") is missing a key piece of analysis: is the current market price for the business significantly lower than what it's really worth? It's quite possible for a great company to be a bad investment if the entry price is too high, and likewise it's quite possible for a mediocre company to be a great investment if the entry price is sufficiently low.
- Adam
Adam, top down is figuring the big picture, seeking out stocks that fit that picture and then looking at the numbers to make a decision.
like with pure bottoms up the product of the work will be right sometimes and wrong others. The goal is to be right a little more often than you are wrong.
A couple of things about SBUX: First, the business and the stock are not necessarily the same. The business is performing okay, the stock has been terrible.
In my opinion, the reason for this is that SBUX has been valued highly for the growth that it has produced. Now there is a sense that growth has leveled off. A low growth business has a lower valuation than a high growth business.
Typically, when the pendulum swings, it swings too far one way and then the other. Has it swung too far on SBUX? That's the key question.
My opinion is that it probably has, but that doesn't mean it won't keep going down.
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