Saturday, January 05, 2008

Grande Expectations

Grande Expectations by Karen Blumenthal

Have you ever watched a particular stock go up and down in value in the market and had trouble understanding the rational behind why it moved as it did? In Grande Expectations Blumenthal, a former long time writer for the Wall Street Journal, examines the historically "hot" stock of Starbucks. In it, she examines varying players in the buying and selling of a stock and spends time with each of them to understand why they choose to buy, sell, or hold Starbucks stock. The company had their Initial Public Offering of stock in 1992 and since that time has rocketed in growth.

One clever stylistic portion of the book is the text on the first page of each chapter is tapered in the form of a coffee cup. The chapters are divided by months and Blumenthal examines different things which affected the stock price. One example is an examination of how a price increase in coffee or the introduction of seasonal products affect sales and consequently the stock price. The book is not only a chronological account of the stock's price over the year of 2005 but also delves into the roles of analysts, mutual funds, hedge funds, investment clubs, individuals and varying other investors.

She attends the shareholder company meeting, which is put on as an entertaining spectacle and huge pep rally for shareholders. Additionally, she speaks with CEO Howard Shultz and a number of other executives to understand company strategy and why they do what they do. She also talks with local Starbucks owners and learns about the company's purpose in sometimes having multiple stores within close proximity such as directly across the street.

The stock market prices stocks based on expectations and potential for growth. It rewards companies which consistently produce strong growth and punishes companies when numbers slip even slightly from what its high expectations are. This can be seen in high growth companies who report solid earnings and yet the stock price takes a hit. The market has come to expect extraordinary results and prices the stock as such so when results are simply good and not extraordinary the stock price can fall.

It would have been nice to have seen the stock followed during 2006 so more recent history could have been followed but having a record of the stock's actions during 2005 was also educational. At times the technique of using months as chapter breaks did not seem to work from a literary standpoint. To some degree, we revisited the same characters whether individual investors, analysts, or investment clubs but I would like to have maintained the same cast and visited with them more frequently during the year to better grasp their thinking on actions with the stock. At the same time, the book tried to dig down to understand the various elements involved in why a stock price moves. The book felt like a journalistic style of interview, background, and research which provided a good end product but perhaps could have excelled more if it focused either on the story of how the individuals interacted with the stock or more strictly on the various components of why the stock moves.

Regardless of the aforementioned suggestions, the book provides a great historical and relatively current look at what is becoming a classic company recognized worldwide as well as insight into why a stock price moves as it does. Whether you're a coffee lover, stock market buff, or financial nerd, this book provides good reading material and lessons along the way.

If you found this review beneficial, please let Amazon know at this link.

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