I got all kinds of stuff to read this week, people.
- First, DQYDJ kills it with two posts. The first is on the relationship between interest rates and home prices; the second is on the topic of killing algebra in the classroom. Read both; they’re awesome.
- Andrea rocks it in a post about freelancing and work/life balance.
- FinancialUproar asks about tipping inflation, and why we’ve been led to believe we should tip more for…well, pretty much everything.
- Thousandaire wrote about higher teacher salaries, and how they’re unlikely to improve education. I wrote my own post on the topic as a reply.
- Darwin asks about what you do with money from a big win at a casino.
Stuff I wrote Elsewhere
- A post on investing in tax liens at Darwin’s Money.
- An explanation of the wash sale rule at Investor Junkie.
- A post on bond market inefficiency and why active managers are going to rock passive indexes in the junk bond category at ETF Base.
- An analysis of timber ETFs – mostly Weyerhaeuser – at The College Investor.
Chipotle vs. Taco Bell
Last week’s round up had a blurb about stocks I would own if they were cheaper. Chipotle Mexican Grill was that one stock.
Fast forward one week, and it’s cheaper. Chipotle got “Einhorned” by well-known short-seller David Einhorn. At the Value Investing Congress, Einhorn made the case that Chipotle was overvalued. He also listed Taco Bell’s new menu as a competitive threat to Chipotle.
I think Taco Bell is a marginal threat, kind of in the same way McDonald’s coffee was a “threat” to Starbucks. Obviously Chipotle is tethered to a few products, which Taco Bell is copying and making cheaper. Seeing as a menu expansion by Taco Bell requires absolutely no new fixed costs, Taco Bell can compete with Chipotle and sell at a much lower cost. This is the value investing perspective here. All economics, yo! Einhorn’s research reveals 75% of people who eat at Chipotle also eat at Taco Bell. That would be convincing, but I would imagine that people who go to Starbucks also eat at McDonald’s.
Of course I still can’t get over my own perception of the two companies. Taco Bell is a place drunk people eat because they feel invincible. Chipotle is the place hungover people eat to feel better. There is a marked different in the product here – not just the tangible product, but the feeling you get from consuming the product. I know of few people who go to Taco Bell by choice. Usually, it’s a matter of convenience, price, or the fact it’s open late. In short, it’s a different provider than Chipotle, which has its loyal fans (including me.)
Luckily for me, Chipotle is an investment I have to pass on based solely on valuation, not competitive threats. Therefore, I get to watch competitive forces play out while I wait for Chipotle to become an investment with a sizable margin of safety.