Chipotle Stock – Sweet and Sour

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It’s been awhile since I posted anything about our investments. Why? Because we have been busy working on another big project and it takes a lot of effort to manage your own portfolio! That is why it makes so much more sense for the typical person to simply invest in index mutual funds, contribute regularly and stop thinking about it. but for those of us who love the world of finance and find investing to be fascinating it can be fun.

So what about Chipotle? As you know the company has had its struggles lately. The stock has dropped off a few hundred points from its high and that makes anyone nervous. But as a business and finance professor, I took a different approach.

First, the market always overreacts. There are many reasons for this including more individual investors, increased technology and automatically triggered trades.

Second, I care more about how a company handles a crisis than whether or not they have one. The fact that Chipotle took this crisis seriously, made some significant bold moves and changes indicates to me that they have a strong management team.

Third, I looked at market behavior… not the stock market, but the Chipotle market. Anecdotally, one of my students works as a server at a Chipotle and tells me that the lines are still steady with customers pouring in… and this is after all that has happened. I also have another student who eats at Chipotle. She tells me that she went to one location and they undercooked her food. When I asked what she will do now she said she now goes to a different Chipotle location. “How is their food?” I asked. “Well, they overcooked my lunch yesterday,” she replies. So I inquire, “Will you go back to Chipotle after all of this?” Her response? “Of course!!” That’s the kind of customer base you want!
Eco target

Fourth, there is no real competition for Chipotle. There are certainly substitute goods (you can eat at Subway or grab a burger somewhere or even Mexican food). But there is no direct competition really at the national level.

So I bought Chipotle (CMG) stock. Not a lot of stock since I started last year with just a $1,000 investment. I purchased 2 shares of Chipotle while holding onto 3 shares of Ligand Pharmaceuticals (LGND). After seeing my Chipotle stock increase by $80 per share, I sold it. Of course, after I sold it it continued to rise another $20 per share. But here is another lesson. Don’t try to catch something at the very bottom and sell at the very top. The chances are so slim of being that exact that the only conclusion for that strategy is that you are being greedy. And they like to say on Wall Street, “Pigs get fed; hogs get slaughtered.” You want to purchase near the bottom and sell near the top, but don’t worry if you don’t get it right exactly. If you are making money you are doing well. Yes, you did leave money on the table, so-to-speak, but who cares? You managed to grab a good bit off the table and in this market that is just not bad.

So what did I do after selling CMG? I bought 12 more shares of LGND. It was around $88 per share. I still think that LGND will get to $100 again soon, so I will probably hang on to it until I see it around $97. But here is the great part. I started with around 11 shares of LGND. Without adding any money to the account, I have made a few careful maneuvers and I now have 15 shares of the same stock. In a little less than one year my portfolio return is 35% AFTER accounting for trade fees. If trade fees were $0 per trade instead of $10 per trade, I would have $1,430 or a 43% return.

So what do I think about Chipotle? It stays on my watchlist. I still think it has a huge upside potential, but the market makes me nervous at the moment. I have also added Alphabet (GOOG), LinkedIn (LNKD) and Facebook (FB) to my watchlist. Don’t be surprised if I end up with Chipotle (CMG) shares again, despite the fact that I don’t personally eat there.

Our current position is $1,350.19. We are holding 15 shares of LGND and a whopping $2.59 in cash. This is after 11 months of investing with a $1,000.00 initial deposit.

(Disclosure: Stocks listed in this post are based on the research of the author but DO NOT constitute investment advice. They are simply the personal opinions of the author based on independent research. Some of the stocks listed may be owned by the author and by The Money Professors. Neither The Money Professors or the individual author of this post are licensed security advisors or brokers.)

(This post is part of a series of posts about being an investor newbie)

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The three authors, Bill Pratt, Mark C. Weitzel, and Len Rhodes, are industry leaders in personal financial education. Together, they have a combined 75 years of experience in banking, economics, and entrepreneurship. Now, they teach thousands of students personal finance concepts and decision making skills, author textbooks and public press books on personal finance, and help schools develop innovative personal finance literacy programs. Recently, they were instrumental in developing a personal financial management certification program for leaders in higher education. The other books in The Money Professor series include The Graduate’s Guide to Life and Money and Extra Credit: The 7 Things Every College Student Needs to Know about Credit, Debt & Ca$h. Their books, lectures, and programs give students, parents, and educators the tools and knowledge to make good financial decisions all their lives.