Doug said Wow Thats the sixth time it hit this Floor in five months Somebody

Doug said wow thats the sixth time it hit this floor

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Doug said, “Wow. That’s the sixth time it hit this Floor in five months. Somebody Big is buying and that Floor is rock-solid.” Susan said, “Let’s do the last $10 grand now.”
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Buy #4 @ $50 . (See graph below.) And as it bounced to $50, they stockpiled the final $10,000 worth—200 shares. They now owned 815 shares. They had about $40,000 invested in CMG. The Connellys valued the 815 shares at $121 per share—about $100,000. A Note on Diversification If the Connellys are only buying two businesses, shouldn’t they at least be in different industries, especially after their experience with CAKE? It depends on the investor’s willingness to get very good at an industry. There is no safety in buying into an industry you don’t understand well. Remember, diversification is for the ignorant. If you know you don’t know, you must diversify. The best investors stick to their knitting, focusing their capital on the parts of the market they understand well. The Connelleys are becoming experts in the restaurant industry and feel there is less risk buying two wonderful restaurant businesses that will be paid off in under nine years than diversifying into an industry they do not know well. Be Wild. Stockpiling Buffalo Wild Wings
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While they were stockpiling Chipotle, they were also stockpiling Buffalo Wild Wings. To see their FACs charts on BWLD and to see when and at what prices they decided to make their BWLD purchases, go to PaybackTimeBook.com . PLAYING WITH HOUSE MONEY As Chipotle sales and earnings grew through the end of 2006 and early 2007, the price continued to go up. Doug and Susan had $40,000 invested in CMG, plus they continued to save $1,000 per month in their Berky (the next chapter will go into full detail about the Berky—the account through which you do your stockpiling). At $55, Doug wanted to buy another $5,000, because CMG numbers were very positive and he thought Mr. Market was starting to love CMG and was going to push the price up; he was afraid that by being too conservative they were missing the boat. Susan said, “Be patient, dear. I think it’s going to test that $49 Floor again.” So of course it didn’t, and over the course of 2007, the price shot straight up to $151. By the end of 2007, Doug started to think Mr. Market had gotten so manic about Chipotle, its price was getting out of line with its value in the other direction. The CMG Growth-Rate numbers were huge for the year, so there was some justification for the high price. Susan did a quick Rule #1 Valuation. Here were her numbers based on Chipotle’s September 2007 financial statements: 1. TTM EPS: $2 2. Growth Rate: 24 percent 3. PE: 42 4. MARR: 15 percent Her December 2007 Rule #1 Valuation on CMG came out at $180, which meant that a 50 percent Margin of Safety price was $90. The stock was trading at $151, making it unbuyable by strict Rule #1 standards. But since Susan and Doug felt very confident about this industry and Chipotle in particular, they could consider buying in as high as 80 percent of value. That meant a price of $144. Susan said,
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“Hon, if the price drops to $144, should we maybe buy more?” Doug played with some numbers and said, “Suz, check out the Payback Time.” Doug showed her the 80 percent MOS Market Cap of
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