In 2004, I won my fifth grade class' paper stock trading competition with Starbucks (SBUX 0.09%). My prize was a candy bar. Had I invested money into actual Starbucks shares during 2004, my birthday present this year would be seeing that money double.
Warren Buffett has said one of his investment regrets is that he didn't start earlier (he started at age 11). While I didn't start investing until age 20 -- last year -- I'm in it for the long haul. Here are three reasons why I'm buying Starbucks shares for my 21st birthday.
Reason 1: The sky's not falling
Raise your hand if you think the market's crashing soon. No matter when I ask this question, some investors will raise their hands. The sky's always falling in someone's opinion. During overhyped markets like ours, value investments become harder to find amid the pundits' din.
Warren Buffett says he's greedy when others are fearful and fearful when others are greedy. Today's market exudes greed in the tech sector, as evidenced by Facebook's $19 billion WhatsApp acquisition in February and Twitter's meteoric IPO last November. But market bubbles, by their very nature, ignore better-valued investments around the bend.
Starbucks appears to be one such ignored investment. While the stock has seen stellar year-long gains of 31.27%, beating the S&P's projection-shattering 20% gains during the same period, Starbucks shares have stagnated over the past six months at -2.29%. What's gone wrong?
Nothing. Starbucks' fundamentals remain strong and its future smells delicious: Explosive Asian market growth, profitable digital innovation, and serving La Boulange pastries all present exciting long-term growth opportunities for the world's most famous coffeehouse.
But in the short term, Arabica coffee bean prices are up, so Chicken Little investors sell Starbucks like the sky's falling. A fellow Fool knows better: "In a worst-case scenario -- and absent any other cost-cutting or price offsets -- Starbucks' gross margin would fall just 2 percentage points if it had to pay $2 per pound for a years' supply of coffee."
Now may be ripe for Foolish investors to buy SBUX greedily.
Reason 2: Leadership lattes
Did you know that Starbucks' CEO Howard Schultz grew up in a public housing project? From these humble origins, Schultz went on to attain a personal net worth of $2.1 billion. Yet it's clear that Schultz doesn't lead Starbucks for the money: He's been driven by a vision to serve the world's coffee since borrowing money to finance the first six Starbucks stores in 1987.
Private equity manager Will Thorndike, who's achieved market-beating 20-25% yearly returns through two market crashes since 1987, spends 30-50% of his investment time researching companies' leaders. Leaders tell us much about their companies' investment potential.
Did the CEO found the company? How does the CEO treat employees and customers? What makes the CEO wake up every morning? In Schultz's case, these answers bode well for Starbucks. Not only has Schultz led Starbucks from humble origins, he also invests in Starbucks employees by instilling managerial respect and intensive job training for them.
Leaders like Shultz endure in value, no matter what the market's condition.
Reason 3: We're all experts
Warren Buffett eats junk food, so he invests in Dairy Queen. The Motley Fool co-founder David Gardner plays videogames, so he invests in Activision. Can investing be so simple?
While there's more to investing than one's familiarity with a company or industry, that's a good start. The 2000s dot-com crash came about partly because investors with no e-commerce experience pumped money into companies built on that business model.
We're all investment experts in certain areas. I drink coffee every day, and even as a fifth-grader I grasped Starbucks' business model. Now I study food economics and China's growth, and have confidence that I can analyze Starbucks stock on par with Wall Street "experts."
Whatever your job, hobby, or college major, apply it to investing.
Reason 4: Grande sauvignon
Starbucks must know it's my 21st birthday: Recently the company announced that they'll be serving alcohol and classy evening snacks, like Malbec and bacon-wrapped dates, in thousands of stores over the next several years. Starbucks is truly living up to its European coffeehouse origins with this move, and high-margin booze will bolster profits while inducing more food sales.
A Fool's birthday
While I'll likely wake up to a hangover after my 21st birthday, my headache won't be due to buying Starbucks stock. Applying investment lessons I've learned from The Motley Fool, Warren Buffett, and life, I believe Starbucks stock will remain a gift for years to come.