Incremental Insights #5

Starbucks’ Slow Demise

China is Starbucks’ biggest growth opportunity and its biggest source of risk. Starbucks’ strategy has always been premium coffee, at premium prices, served at premium locations. But has Starbucks’ current management misread the Chinese consumer allowing more aggressive competitors to win market share by offering better convenience and value? And has this put Starbucks in the corss haris of activist investors?

Can Chinese Customers Rescue Starbucks?

But should Starbucks compete on price and change the perception that they are a premium product?

The CEO Laxman Narasimhan was asked a couple of different ways during the recent investor call, how are they going to address this? He didn't propose a new strategy at all in China, and he said that they were not going to change what they do. He said, "We've been here for 25 years. We are a premium product." You don't react to this by cutting your prices because if you are perceived as a premium product and then you cut your prices, then you do damage to your brand.

A Momentum Crash Course

Momentum is one of the persistent factors that generate positive returns and a strategy of going long momentum winners and short momentum losers has generated strong returns. But they’re susceptible to “momentum crashes”, mean reversion trades, during strong market rebounds that drag down their overall performance. Verdad Research has found that high-yield credit spreads can help predict when momentum crashes are more likely and portfolio managers can take steps to minimize their effects.

When Fear Is a Friend – US Multifamily in Focus

Why KKR sees a strong buying opportunity developing in multi-family real estate.

17th Annual Pershing Square Value Investing and Philanthropy Challenge

I was interested in the Short Pitch on Pool Corp. (POOL) a long-term winner and the Long Pitch on Valvoline (VVV), a name I’ve looked at several times over the year.