Starbucks, Inflation, and Is It Time to Buy the Dip?
Dealing with stock market pullbacks
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Hi everyone,
My new business breakdown on Starbucks is ready! Excited to share this analysis with you because Starbucks was my first multi-bagger and it taught me the beauty of looking at companies that have the capabilities to compound my wealth for years to come.
The lessons learned from this investment set me up well to buy into Facebook and Google when prices were depressed, both of which have become multi-baggers for me as well.
In this premium breakdown, I look to cover:
Starbucks Business Model
Management Growth and Capital Allocation Plans
Moat
Deep Brew (Artificial Intelligence) and Americas Trade Area Transformation
Strategies in China (e.g. 飞快 “feikuai”)
Valuations
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I. Inflation Causing the Market to Tank?
'I remember the $0.05 hamburger and a $0.40 per hour minimum wage, so I've seen a tremendous amount of inflation in my lifetime. Did it ruin the investment climate? I think not.' —Charlie Munger
Markets move up and down all the time, there’s no need to find reasons for a false sense of security. When dealing with inflation, the best solution is to own companies that are able to pass on the price increases to consumers, and are able to increase their sales without much need for additional capital investment (e.g., buying machinery etc., which would be susceptible to inflation).
II. Buy The Dip?
In March and more recently, investors who are invested in growth stocks probably seen their stock prices plunged hard. Our limbic system and our amygdala which sits within (colloquially known as the Lizard brain) will hijack our mental capacities.
It’s important for us to understand the role of the amygdala, it plays a crucial role in steering our emotions such as fear and anxiety, which is what keeps us alive when we run into dangerous situations.
The problem is it gives out the same response when the stock market is tanking, which causes us to panic even though most of these companies have crushed earnings this season.
There’re three things I do to prepare myself for volatility like this:
Write out my investment thesis, journal my emotions and perform conservative valuations before making an investment. You can only be emotionally ready by preparing beforehand, and by developing the conviction for your companies based on conservative assumptions.
Ensure that I have emergency funds, insurance, and that I only invest money that I do not need for the next 5 to 10 years. This gives me the holding power necessary to ride out the volatility.
Don’t read the news. News are in the business of getting your attention, and the best way to do it is to make everything sound like doomsday.
If you’d like to know how I perform valuations for these fast-growing companies, consider subscribing to my premium membership for my report on Twilio. More importantly, it is crucial to understand how durable the business is, and I spend a lot of time in my in-depth report covering these aspects.
III. Tracking Super Investors
The 13-F season is here again, and many hedge fund managers will be publishing their quarterly letters during this period.
Apart from Charlie Munger, Mohnish Pabrai, Tom Russo, and Akre Capital Management have established a position in Alibaba.
Give this post a like if you would like me to do a run-down on Alibaba!