Phil Pearlman's Blog

 

Starbucks did the same thing to the coffee house that McDonalds did to hamburger joints.

It took a fragmented food and beverage vertical and consolidated it by refining operational efficiency, quality controls, predictability and calculability in order to scale.

Starbucks McDonaldized the coffee house.

The Starbucks move to buy La Boulange is also reminiscent of a more recent McDonalds play.

In 1998, Chipotle Mexican Grill had 16 restaurants all in a confined geographical region (Colorado) when $MCD came in and invested.

$MCD infused similar properties mentioned above (efficiency, controls etc) and scaled Chipotle by over 30 fold from 16 to 500 storefronts across the US in just 8 years from 1998 to 2006 before spinning the business back out again as a public company.

Home run and amazing work that Henry Ford himself would have been proud of.

Presently, La Boulange has 19 stores all in a confined geographical location (California) and I am sure Schultz and co. have a similar plan.

They will apply their own McDonaldization expertise and scale the brand profitably taking it from under 20 locations to several hundred in less than ten years.

In some ways its even better than the $MCD – $CMG play because, while there was zero complementarity between burgers and burritos, coffee and pastry go together splendidly. This will spur cross pollination and product marketing possibilities along the way.

The McDonaldization concept was originally modeled by  sociologist George Ritzer in the early 90s and his book The McDonaldization of Society is an important read. For this post, I did not get into the less flattering social implications of Dr Ritzer’s work.

Buddy Media is getting bought by $CRM for 651m. I am elated for Michael and Kass.

Michael, especially, has been an inspiration to me (not even sure he knows it).

He’s just an awesome guy and conducts business in a way that I love and admire.  He’s also fearless…

He dropped this vid this morning on YouTube and I put it on my blog so that I can come back to it again and again…

 

The ten year yield is making crazy record low yields ($TNX) this morning…

Here’s what I have been doing whether we are in a super low interest rate environment or not but this is especially powerful I think during such periods…

When it comes to trading, my pal @Fibline likes to say, “keep it simple stupid.”

I think of long term investing the same way and its so simple and so classic that I think many gloss it over in search of more complex strategies that are too smart by half.

I buy the best dividend stocks or ETF baskets of them like $SDY and $XLU.

This is my execution strategy which I usually tweet in real time as I add, reduce and sell premium:

1. I follow closely the stocks and ETFs I want and track fundamentals, price and near dated options pricing daily.

At present, I have been and remain long in some form in retirement and children’s accounts $SDY, $XLU, $GIS, $INTC, $COST, $KRE, $COP and $XOM.

2. Every year there are usually 2 or 3 corrections whether we are in a bull market or not. We have been having one recently as the $SPX gave up 8% or so between April 3 and May 19.

When these corrections occur, I buy the stock or sell near dated out or near money puts. I sometimes do this in partials as well during smaller pull backs depending on the dynamics of the specific name.

I am playing for the long term in these accounts and am happy to miss opportunities but earn yield if the stocks close above the strike price at expiration as I know there will be more opportunities to buy during the next correction.

3. When the market rallies or the specific names I am in do, I sell call premium. Again, if the stock gets called I don’t really care as I know there will be another opportunity soon either in the name or somewhere else.

I also sometimes only sell calls in portions of the position, usually a third to half.

4. I do this gradually across my positions and am never fully invested much less on margin.

5. As you can see from the list of stocks, I do this with high quality names or ETFs which diffuse single name risk a bit.

My guess is that sometime before I retire or my kids reach adulthood, interests rates will rise and may even overshoot. Because I am handling these positions in this way and never get fully invested, I am not too worried about it but could lighten this strategy in favor of another one although I don’t think so.

Related: General Mills: People Will Always Eat Cheerios

The Economist’s recent obituary of children’s author Maurice Sendak got me thinking about parenting.

J.F. writes,

His books are often called dark; they are not, or not deliberately so. They are instead faithful to the powerlessness and terror that comes with being a child, with having to figure out the rules as you go, and with being entirely subject to the whims not merely of the world, as we all are, but to the imperfect people who raise you. In a conversationwith Art Spiegelman—like Mr Sendak, an artist profoundly marked by the Holocaust—Mr Sendak mocks people who sentimentalise childhood. “Childhood is cannibals and psychotics vomiting in your mouth!” He ends the conversation by telling Mr Spiegelman that he knew things as a child—terrible things, but he could never let adults know that knew them, or “it would scare them.”

The world is a terribly difficult place to navigate. We are all faced with the limitations of reality – rules, failure, death and the like.

And yet, amid the harsh environment, we have opportunities to experience rich relationships which deepen over time, the joys of our own accomplishments as well as the ones of those we love, the creative process, etc.

JF captures a critical element in Sendak’s work especially relevant to American culture that seems to, more and more, foster entitlement, the avoidance of loss and suffering and denial of limitations and mortality.

Our great challenge as parents is in finding the dialectic balance between illusion and reality.

On the one hand, nourishing our children’s illusions of endless possibilities, and on the other, instilling in them sober reality testing so they are equipped to navigate for themselves as they grow up, become adults and have children of their own.

This is made much more challenging due to this American cultural skew towards the illusion and away from the reality mentioned above.

Its easy for us to do the illusion part, building our children up and singing their praise, but more difficult pulling them back down into reality, with all of its discomforts, and assisting them in internalizing the permanence of it.

Sendak seemed to sense the American imbalance towards illusion and lent a hand to parents by modelling the dialectic for us and sharing it in a way that manages to delight children and parents.

For those interested in reading more about the dialectic, see Mitchell’s brilliant work entitled The Wings of Icarus.

I snapped this photo on an Amtrak train early yesterday morning. Its a billboard next to the train door advertising a new tv show on VH1.

There is nothing less spontaneous, real time or social than posting a hashtag on a billboard.

Effective social marketing begins when you share something awesome on the stream and then those you have shared it with share it moments later because they loved it or laughed and the content takes on a life of its own.

If your show sucks, and this one looks like it might, there is no and will be no effective social marketing because people will not share it and amplify.

Definitely not trending….

This morning we launched two new Social Signals on StockTwits.

Social Stocks Signals allow members to analyze larger trends related to changes in the discussion volume for individual stocks as well as industries. We call this social momentum.

While the features are still hot off the presses, I am already finding provocative trends.

For instance, the velocity of interest in biotech stocks, healtcare and the Drug Related Products Industry has been astounding.

Six of the top ten stocks with the largest percentage increases in message volume over the last 90 days fall into this biotech/healthcare bucket and are in the Drug Related Products Industry including $ARNA, $HLF, $AMRN, $KERX, $PLX and $VVUS.

Here is a screenshot of the Unusual Social Volume Module:

The upshot here is that more and more investors and traders are focusing on and discussing these stocks in this industry now which gets me excited about:

1) Comparing the moves in these stocks to the increases in message volume.

2) Researching more about those stocks in which the message volume acceleration correlates with volatility in the stocks and

3) Finding similar stocks in this industry that are not yet on the 90 Day screen but are on the 7 Day screen with a hypothesis that these newer names might be even earlier in their social momentum cycles.

Facebook has been a public company for 2 trading days and with the amount of ink spilled and judgments passed, one would think this stock was the next Enron.

Did the deal get done above fair value? Sure.

Are the bankers pigs? Duh.

Did some investors make an ungodly amount of money? Ya.

Did others get hosed? Yep.

Was the first day of trading fakakta? Of course….

None of this is so far outside the range of normality its just happening on a bigger and more scrutinized scale.

Meanwhile, $FB will have quarters and years to execute (or not) and prove itself or fail.

 

On Tuesday, I wrote a post recommending that you not hang around too long if you are attempting to arbitrage the noise around the Facebook IPO and trade the proxies such as $GSVC and $ZNGA.

I wrote:

The smartest guys got in last Friday, the second smartest guys got in yesterday and the third smartest guys are getting in today.

You do not want to be the fifth or sixth smartest guys 

There will be a sell off into these names as the smartest noise trade arbitrageurs who bought last week take profits so don’t get in late or stay too long.

Indeed, all these proxy stocks are getting killed today and this should come as no surprise but I am seeing people out there who are getting dinged. Here’s $GSVC which ran Monday and Tuesday and has gotten crushed since.

We saw a similar thing with the Hunger Games $LGF trade. The movie was released on March 21st which was the high print after a big run up into the hype.

The upshot is this: There is a rhythm to the event trade and a knowledge set and discipline that comes with anticipating and exploiting the noise which I call Noise trader arbitrage.

If you are not well versed in it then just stay away. You can learn how to trade them, if that is your wish, by studying these and other episodes extremely closely and then employing it for the next big event that will inevitably occur.

 

Earlier this week, we added Facebook to the StockTwits Social Heatmap. This is symbol $FB and it truly is the Human Ticker.

Over the last 72 hours, I have observed the social momentum on the heatmap building. The investment community is simply riveted.

You can catch the Facebook stream here, watch what the world is saying and join in if you like.

When the markets are going nuts and participants are frenzied and confused, I want to take the other side of the trade.

Emotions are running red hot with high energy across the full spectrum from excitement over the $FB IPO to angst over Europe and the $SPY price correction, I am doing very little here and remaining dispassionate by taking a mid afternoon run and listening to Brazilian music.

I want to stay far from the maddening crowd and let everyone else spin their wheels and run roughshod over each other.

Facebook will be a zoo tomorrow but you don’t have to trade it so unless you have a quantified and unemotional edge, just take a break.