Starbucks: A Hot Mess

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 awhile 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 u,p 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.

Comments

[MartinLowenthal]

Agreed!! But for problems there are ALWAYS solutions. See my post titled 'Welcome back Howard, we have a solution' of Jan 8 at www.lompie.blogspot.co...