There are a fair number of billionaire geniuses out there running companies, but few who started the company that made them billionaires and in the process made them geniuses at running their own companies. Here are a few: Warren Buffett, arguably the greatest investor of all time, of Berkshire Hathaway; Howard Schultz, who built Starbucks; and Larry Ellison from Oracle. If you bet against these billionaire geniuses over the long term, chances are you'll lose money. And although I haven't exactly lost money betting against Larry Ellison and Howard Schultz, I have, nevertheless, failed to make as much profit as I could have if I hadn't underestimated them, which I suppose is a wordy euphemism for losing money betting against them.
I started buying Starbucks (SBUX) in 2007 when it traded down to $30 from $40, after founding CEO Howard Schultz had stepped down and someone less talented had taken over for a while. It was my style of trade. A quick few points, a revision to the mean of $39 or $40, and I would be out. Then, of course, financial Armageddon and the Lehman-Bear-Citi-AIG unpleasantness occurred, and the stock bottomed at about $10 in March 2009. Now forced to consider SBUX a long-term trade, rather than a six-month trip to the cash machine, I lied to myself (and my wife) that I had always considered SBUX a long-term holding.
The negativity against Starbucks descended during the throes of the recession. The financial media claimed that, despite Howard Schultz's return to the CEO post, no one would ever be able to afford a coffee at Starbucks again. The claim was that McDonald's McCafe would drive the SBUX shares down even lower. Yet, the stock rose off its lows, despite the taste tests in which journalists swore that McDonald's coffee was better than Starbucks', various surveys claiming the American populace agreed with the journalists, and interviews with government bureaucrats talking about a $5 cup of coffee as emblematic of American profligacy. Had Americans really mortgaged their homes to buy venti half-caf lattes?
The stock started to climb back to the mid-teens a few months after the March 2009 capitulation in the stock market. I began adding to my $30 position with new layers of SBUX shares around $18 and $19, enough to get an average purchase price in the low twenties. And consumers like me started going back to Starbucks, slowly at first, then more steadily while Howard Schultz stopped the over-expansion of stores and tried to purify what had become a diluted brand. I sold all of my SBUX shares at about $25 a little while later, thinking the quick rebound in the stock had been a little premature and hoping to take some profits and then buy again on a pull-back in a few months; however, the sell-off in the shares never came, and now, even after this summer's market swoon, SBUX shares are trading, as of Friday's close, at $37.35. What was my trading mistake? I listened to the financial media and underestimated a billionaire genius.
I am proposing a stock purchase not of Starbucks but of Oracle (ORCL). My history with ORCL shares is much shorter. (Whew!, says the weary reader.) I bought them at $18 and sold them at around $24, underestimating Larry Ellison, the billionaire founder of Oracle. The stock rose to $36 about a year after I sold them. Recently I bought Oracle again at $34. Thursday after the market closed, Oracle reported solid earnings, but the stock tanked after hours because sales of high-end computer hardware were worse than expected and because of the violent Greek crisis, etc. The stock closed at $31.14 Friday. I plan to buy it this week under $31, or, even better, with a 29-handle, if I can.
Also, I would buy Starbucks on a significant pullback, say to a price under $30, but I may be making the same mistake again by underestimating Howard Schultz in assuming such a big pullback in the shares is even plausible.
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