Riding Starbucks' Stock Wave with 'Grande Expectations'

For Those of Us Lacking Street Smarts, a Book That Finally Simplifies All That Stock Talk

By Published on .

No, sifting through two-year-old coffee grinds will not make you any better at divining the whims of Wall Street. But Karen Blumenthal's "Grande Expectations: A Year in the Life of Starbucks' Stock" will provide some guidance for those who've read the phrase "same-store sales" 6,000 times but still have trouble explaining its meaning -- and, more importantly, its significance to the ups and downs of stock prices.

Blumenthal, a financial reporter for nearly 25 years, admits the stock market still mystifies her. And why shouldn't it? As she points out, more often than not, stocks seem to move "quite independently of any rational reasoning." How many of you, after watching a coworker day-trade in the office or footage of traders yammering on the floor of the NYSE, find it highly suspect that any of them made their buying or selling decisions based on "news out of Iraq" or fluctuations on anything other than their moods at the time?

Of course, there are methods to the madness. Stockland has rituals, if not an actual science, and Blumenthal proves to be an entertaining tour guide to concepts such as price-to-earnings ratios, same-store sales, short selling, analysts meetings and the like. To do so, she transports us back to 2005 and takes a month-by-month look at Starbucks.

The first trading day of that year, if you'll remember, finds SBUX stock dropping $1 -- to $61.14. Yes, that's more than double what the stock is at these days, but in October of "Grande Expectations," you'll not only learn that Starbucks split its stock for the fifth time, but why that matters.

That is the beauty of this book. If you're at all like me (i.e., a bit challenged in the math/quantitative departments), this tour through Stockland will shed some light on a very foreign territory. During the first couple of profiled months, you may very well find yourself muttering "I still don't get it." But Blumenthal does an excellent job of breaking things down simply, and it isn't long before you understand the meaning of same-store sales, how they came about, who thinks they're important, who thinks they're too important and how and why some companies (not Starbucks, mind you) game the system to keep those numbers up.

Blumenthal also introduces the reader to analysts (November), traders (July), ultra-paranoid short-sellers (June) and other inhabitants of Stockland, explaining what they do, how they do it and, as much as she can, why they do it. (To be completely honest, I still don't get short selling and I get the feeling that if Blumenthal can't get it through my thick skull, no one will.)

"Grande Expectations" also delivers a fascinating history of Starbucks from local bean-seller to global phenomenon. In serving the reader that particular history, Blumenthal touches on a few hot-button issues of recent years, including the tech bubble (yes, Starbucks was in on that), globalization, cross-branding and the importance of China. (You can't outsource baristas, but you can outsource growth!) Particularly fascinating, considering Chairman Howard Schultz's recent memo bemoaning the loss of the true Starbucks experience, is witnessing his 2005 version of beating the drums of break-neck expansion. In a 12-month period, for example, Starbucks opened an average of four stores a day.

Equally compelling is a look at how stock-trading in general has been fundamentally altered by high-powered, networked computers that cut out the middleman (and, in some cases, man in general).

The book obviously has its limits. Obsessed SBUX fans and experienced investors aren't going to find that much new information here. But this book wasn't written for them.

It was written for armchair investors and those just looking to get their learn on -- people trying to get a grasp of what "really" moves the Street. And perhaps I'm guilty of projection in this, but those readers will be left wanting more. But that's really no fault of Blumenthal's. Perhaps her greatest service to the non-professional is reinforcing the suspicion that, for all its computers and numbers and accountants, in Stockland, "as in religion, there were multiple approaches and answers, and people tended to be faithful to their own ways."

In other words those seeking the one right way (or the path to riches) will find "Grande Expectations" as disappointing as I find Starbucks' coffee. But to those looking for an entertaining and educational read, skip four trips to Starbucks and invest in this book.

Most Popular