The Long Bet: How Starbucks has rewarded long-term investors

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Picking individual stocks can be a hard investment strategy. That’s why the popularity of broad based mutual funds and ETFs have boomed in popularity.

But sometimes, selecting stocks on business fundamentals, leadership and mission, can really pay off…especially if you stick with them over the long term.

If you made the long bet on Starbucks, that’s exactly what happened.

It’s not a technology stock that invented a new way of doing business. It’s just a coffee company with a product that people love. And investors have been handsomely rewarded.

If you invested when the company had it’s IPO in 1992 — when it already had 165 stores across the western United States — you would have seen a compounded annual growth rate of more than 22 percent a year (that’s about double the total return for the S&P 500 over the same time period).

Even after Starbucks was a household name — like when the company was mentioned in “Austin Powers: The Spy Who Shagged Me” in 1999 — gains have been strong. Since “Number Two” suggested that Dr. Evil invest in Starbucks, the stock has returned 15 percent a year.

That’s despite some serious bumps in the road. The company’s stock lost more than 75 percent of it’s value from 2006 until the end of 2008 as it both over-expanded and ran into competition from McDonald’s, which burst into the coffee business.

But if you held your nose, or even bought more during those years, you would have been successful. Howard Shultz returned to run Starbucks in 2008, and got the company back on track. He cut costs by closing hundreds of locations, revamped the technology in stores, overhauled its supply chain and re-focused on coffee. Today the company has more than 28,000 stores worldwide.

Now, Shultz has retired from the company, and the stock has seen underwhelming performance over the last 3 years (even as the rest of the market has boomed). It’s unclear if the company can continue such growth.

Of course, past results can’t dictate the future. But lessons learned from past investments in iconic American companies can help you find the next one.

What is today’s long bet?

Watch the video above to relive the ups and downs in Starbucks stock over the years.

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