Mastering the Art of Pre-Suasion

“The elementary part of psychology—the psychology of misjudgment, as I call it—is a terribly important thing to learn. There are about 20 little principles. And they interact, so it gets slightly complicated. But the guts of it is unbelievably important.” 

— Charlie Munger in a speech to the USC Business School in 1994.

Charlie Munger has long been a strong advocate of viewing the world through a multi-disciplinary mindset.  Many readers are familiar with Poor Charlie’s Almanack which is the best way to get acquainted with Mr. Munger’s life and philosophy.  On a number of occasions, Mr. Munger has recommended that those who wish to become more familiar with psychology should read the work of Robert Cialdini.  Dr. Cialdini is best known for Influence:  The Psychology of Persuasion, a landmark book that has become standard reading for marketing professionals in recent decades.  Mr. Munger has been known to give copies of this book to friends and relatives and felt so strongly about the value the book has brought to the world that he gave Dr. Cialdini a gift of one Berkshire Class A share in appreciation.

The attraction of Influence for Charlie Munger was not primarily related to applying the techniques in a marketing setting.  Instead, Mr. Munger valued the book because it provided deep insights into the psychology of human misjudgment.  One of the very first articles to ever appear on The Rational Walk applied a few of Dr. Cialdini’s insights to the mystery of how Bernard Madoff was somehow able to use his weapons of influence to steal money from so many intelligent people for many decades.

Pre-SuasionIn Dr. Cialdini’s new book, Pre-Suasion:  A Revolutionary Way to Influence and Persuade, a key insight is provided that could change how marketing professionals approach persuasion.  Dr. Cialdini reveals that the major factor that separates extraordinary persuaders from average ones involves the key moment before a message is delivered.  By setting up a “privileged moment” prior to delivering a message, a persuader can materially increase the odds of a positive outcome.  What is a “privileged moment”?  Dr. Cialdini describes an approach called channeled attention that does not require the persuader to actually alter a person’s beliefs but only to alter what is prominent in a person’s mind at the time they are making a decision.  This is a major departure from the traditional view that it is necessary to change a person’s beliefs by persuading them regarding the merits of a proposal.  Instead, one must only pre-suade through channeled attention.

Human beings typically assume that whatever we are focusing on at a given moment deserves heightened attention.  Dr. Cialdini contends that the human mind can only really hold one thing in conscious awareness at any given point in time and that the cost of that heightened attention is a momentary loss of focused attention on everything else.  One striking example in the book involves a study of consumers who were in the market for a new sofa and were reviewing choices online.  Prior to viewing the sofas, individuals were either shown a background of fluffy white clouds or images of pennies.  Controlling for other factors, the individuals who were subliminally led to focus on clouds placed a higher priority on comfort while those who saw the pennies were more concerned with price.

The implications of this basic thesis are both fascinating and terrifying.  The individuals involved in the sofa study refused to believe that the background images of clouds or pennies had any influence whatsoever but their behavior said otherwise.  Essentially, persuaders – whether they are salespeople, politicians, or journalists – have the power to dramatically influence the actions of their targets merely by directing people’s attention toward what they want them to think about.  These techniques have also been used by police interrogators to persuade individuals to confess to crimes that they did not commit typically leading to convictions even when the individuals later renounce the false confession.

Assuming we buy into the primary thesis of “pre-suasion” via focused attention and channeling, the question naturally flows to the nuts and bolts of how one might command attention and direct it toward the desired objective.  Once the attention has been directed to the right place, it must be held there for long enough to produce the desired decision.  Dr. Cialdini provides a number of guidelines and potential roadmaps to follow.  As one reads through these concepts, it is tempting to think of these techniques as ones that would only work on “other people” – we cannot believe that we are subject to such persuasive techniques but, of course, almost all of us are!

What does this have to do with investing?  Well, perhaps it has a great deal to do with it when we look at our research process objectively.  Although Dr. Cialdini does not discuss the influence CEOs have on shareholders, surely the same principles of pre-suasion apply.  CEOs can focus our attention to certain facts and figures or even use subliminal suggestions in presentations to get us to focus on certain metrics while overlooking others.  For this reason, it seems prudent to immunize ourselves against this risk by avoiding any contact with management prior to an objective review of documents that are more fact based.

Although investors will vary in their research process, ideas typically flow from many initial sources – newspapers, magazines, blogs, newsletters, and more.  What is the first step one should take when investigating further?  Should we dive into the 10-K directly or perhaps review the latest quarterly conference call and slide deck?  Which would be less of a mental challenge?  Well, obviously it would be a lot easier to listen to the conference call while flipping through a slide deck.  However, by doing so, we are allowing management to pre-suade us!  The material that is presented, the order in which it is presented, and even the subtle hints in the presenter’s language can all have an influence on us whether we accept it or not.

How about skipping the presentations but diving right into an annual report?  That’s probably not a great idea if management provides a glossy annual report with a lot of marketing material in it.  It seems much more prudent to focus on the 10-K.  Obviously, even a 10-K can pre-suade us in various ways based on how the company is described and the areas that are emphasized, but we probably stand a better chance of remaining objective if we are in a text based format without visual imagery to exert any influence.  Then, by documenting what we, as investors, view to be the critical factors, it will be possible to resist potential attempts at redirecting our attention when we later review the conference calls, presentations, and glossy annual reports.

The applicability of Dr. Cialdini’s insights are endless and span multiple disciplines.  This is no doubt why Mr. Munger has given away so many copies of Influence over the years and felt strongly enough to give Dr. Cialdini one Berkshire Class A share to thank him.  There is some evidence that the influence has gone in both directions.  Dr. Cialdini thanks Mr. Munger for reviewing the manuscript prior to publication and there are several pages describing how Warren Buffett uses the concept of unity as a persuasive tool that has contributed to the unique loyalty Berkshire shareholders feel toward management.

Readers may wonder whether they should read Influence before Pre-Suasion.  It seems like doing so will increase comprehension of the topics discussed in the new book although each book can stand alone in terms of providing value.  It should be noted that both books come with extensive end notes.  In Pre-Suasion in particular, it is important to read the end notes along with the text.  In some cases, quite a bit would be lost without consulting the notes.

Click on these links to purchase a copy of Influence:  The Psychology of Persuasion and Pre-Suasion:  A Revolutionary Way to Influence and Persuade. Dr. Cialdini refers to Daniel Kahneman’s book, Thinking, Fast and Slow, which is an excellent resource for those who are interested in a more extensive tour of the mind.

Disclosure:  The Rational Walk LLC was not provided with a review copy of Pre-Suasion and purchased a copy of the book.

The Virtue of Being Merely Average

Are you merely average?

MediocreIf you are reading this article, chances are that you will instinctively recoil when asked this question.  People do not like to think of themselves as merely average and this is even more true for individuals who have selected careers in business.  We live in a hyper-competitive world where professional identity and self esteem depends on having above average insights and achieving superior results. The cognitive bias known as illusory superiority is behind the tendency of individuals to overestimate their ranking relative to peers.  This phenomenon has been shown to be true in ordinary activities like driving and it certainly seems to extend to investing.

Active investing requires the recognition of certain fundamental realities.  The world is full of intelligent people who have access to the same information at the same time, and this has only been accentuated by the internet.  Additionally, there are plenty of people who might have special insights due to longtime involvement in an industry or familiarity with key decision makers at a company.  This doesn’t necessarily imply illegal inside information although it would be naive to think that one isn’t competing against people with access to such information and willingness to act on it.  If we are going to rationally choose to be active investors, we must believe that we have some type of edge over other market participants.  Merely reading SEC filings and newspapers is not enough to provide such an edge.

The Rise of Passive Investing

The Wall Street Journal is running a series this week exploring the rise of passive investing.  Passive investing has been a viable option for the past four decades ever since Jack Bogle created the first index fund accessible to ordinary investors.  The idea of indexing is to match the performance of the broad stock market (or whatever sector is being indexed) rather than to make any attempt whatsoever to pick winners and avoid losers.  This could be done at much lower cost even in the 1970s and the advantage of passive indexing has only grown more pronounced over the years as assets under management increased dramatically allowing for progressively lower management fees.  The Vanguard Group, which became the dominant player in indexing under Mr. Bogle’s leadership, has been joined by many other firms eager to capitalize on this trend.  Indexing has become the default choice in many company retirement plans.  As the following graph from The Wall Street Journal illustrates, indexing has outperformed the vast majority of active fund managers.

Indexing Advantage

Index funds incur low fees and index fund managers have no psychological impulses to deal with.  They simply own all stocks in a given index in an effort to be average.  Obviously, some actively managed funds have demonstrated that they can outperform but outperformance during a period in the past does not necessarily allow us to predict whether such returns will continue into the future.

But none of this applies to most of us, right?  As value investors following the principles of Benjamin Graham, Warren Buffett, and Charlie Munger, aren’t we immune to the folly that makes the majority of active managers fail?  Unfortunately, this is not necessarily the case.  For one thing, the number of “value investors” competing for ideas is hardly small.  Mr. Buffett’s record and the simplicity that seems to underpin his success leads many people to seek to emulate the approach.  Few will come anywhere close to succeeding both because the actual process is not simple and because the temperament required to succeed is rare.

As we argued last year, individual investors have many important advantages over professional investors.  In particular, with no outside constituency to manage, individuals can exploit timeframe arbitrage to their advantage provided that they themselves have the temperament required to do so.  However, it is worth questioning whether the typical individual investor should attempt to outperform even if he or she has the skills and temperament required to do so.

Settle For Average?

From a purely mathematical standpoint, it takes a relatively large portfolio and/or a significant degree of outperformance to logically induce an individual investor to seek to outperform an index fund.  Let’s consider a simple example.  A 50 year old marketing executive has a $1 million 401(k) account accumulated through diligent payroll deductions and compounded investment returns over a period of 20 years.  The money has been invested in a selection of the mutual funds offered by his employer and individual security selections were not permitted.  Let’s say that this investor leaves his company for a better opportunity within the field of marketing and rolls the 401(k) into a self directed IRA.  He will not need to draw any funds from this account until reaching the age of 70.  Should he actively manage that $1 million portfolio or index it?

Obviously the answer to this question is not simple.  Does this individual have a special circle of competence in one or more areas that could provide a discernible edge over other market participants?  Does he have adequate time to devote to research and the inclination to spend his time on research outside of his normal day job?  Does he have the appropriate psychological temperament to view his investments as long term commitments or will he start to actively trade at precisely the wrong time?  If all goes well, what is the margin of outperformance that he expects to achieve?

For one thing, it is probably not possible to answer many of these questions unless the individual has an existing track record outside his $1 million self directed IRA.  If he does not, he almost certainly should index. However, let’s assume that the investor has managed a smaller account successfully over the past decade and has achieved returns 1.5 percent greater than the S&P 500 index.  Let’s further assume that he read Poor Charlie’s Almanack in 2006, started attending Berkshire Hathaway annual meetings, and has ever since made an effort to expand his circle of competence through a multi-disciplinary framework.  He enjoys reading and is eager to spend around 500 hours per year on intellectual pursuits including the selection of investments for his portfolio.

The Temptation

Our investor appears to be a candidate for active investing but is it worthwhile?  Let us assume that the S&P 500 will average 6 percent total returns over the next two decades given the fact that valuations are hardly at bargain levels today.  If an investor expects a 1.5 percent outperformance, then that would imply returns of 7.5 percent.  Keep in mind that this small margin is actually a very significant difference that few professionals can hope to achieve even working on a full time basis.  However, our investor feels confident that he can achieve this margin by devoting 500 hours per year to the endeavor.

Based on these assumptions, and with the obviously incorrect assumption that returns will be smooth, the expected result would look something like this:

Active vs. Passive

If you look at the expected account value in the early years, the difference is fairly small but eventually compounding does its magic and the end result of active management, given our oversimplified assumptions, will be about $1 million over what is delivered by the index fund.  Looking at the difference in early years shows that the effort expended in achieving the outperformance might be questionable:  In year one, for example, the 1.5 percent margin of outperformance results in a dollar difference of only $15,000 in exchange for 500 hours of effort which works out to $30 per hour, far below the value our investor attaches to his time, both in his day job and for leisure.  However, a sustained effort will eventually lead to a material difference in the final account value.

Simple Assumptions Are NOT Reality

The rather naive assumptions and smooth curve of outperformance shown above is far from reality.  Instead of a smooth curve, the natural volatility of the stock market will result in a much more variable picture from year to year.  The chart below shows exactly the same endpoint for the active and passive strategies but with a more plausible variation of annual returns:

Active vs Passive Realistic

So our hypothetical investor begins by falling short of the index for four years before pulling ahead until year fourteen when his investments are suddenly viewed unfavorably by Mr. Market.  Diligence and a steady temperament pays off in the subsequent years, however, and we end up with the same $1 million margin over the index at the end of the twenty year period.

How many investors, in reality, would stick with this more realistic scenario for the first four years?  How many would still stick with it after posting cumulative underperformance after fourteen years?  Would most people begin to question whether their circle of competence is real when faced with a brutal verdict from Mr. Market so many years into the process?

Ultimately, investors need to assess their ability to outperform, the level of effort required if one chooses to make the attempt, and the very real psychological pressures that could cause the effort to be abandoned during difficult times.  Anyone who cannot confidently claim to have the ability based on an actual track record should index.  Anyone who does not want to put in the level of effort required should index.  And unless one has been through difficult times in the past and acted with a steady hand, it is probably best to index.

We end up with something of a chicken vs. egg conundrum:  How can anyone know whether they have the ability to succeed without trying?  And how can we know how we will truly react to adversity without putting ourselves in situations that test our resolve?  The answer is that we cannot know the answers to these questions without putting ourselves out there in some way and making the attempt.  If there is a desire to engage in the process, which many investors truly enjoy, it seems prudent to enter the competition with a meaningful enough amount of money to test one’s ability and psychological tendencies, but to start out by indexing the rest.  It isn’t possible to test ourselves using a “paper account”.  We have to have actual “skin in the game” to see how we will react to the many psychological pressures that conspire to make even those with above average aptitude achieve only average results.

Ultimately, there is no shame in being merely “average” when it comes to investing but there would be cause for regret if one posts consistently inferior returns due to an overly optimistic self-assessment of skill or psychological makeup.

Chipotle Mexican Grill: Is the Brand Intact?

“All intelligent investing is value investing — acquiring more than you are paying for.” – Charlie Munger

There has long been a distinction in the investing community between companies that appear attractive based on “growth” stories versus those that are statistically cheap and supposedly represent “value”.  However, as Charlie Munger reminds us, all forms of investing must be centered on identifying value by acquiring assets that have an intrinsic value exceeding the purchase price.  Companies that are cheap based on current multiples of earnings or book value could very well represent values — or value traps.  At the same time, there are plenty of companies that are extremely expensive based on traditional metrics that could represent good value — assuming continued rapid growth.

Despite the flawed distinction between “growth” and “value”, many investors still self-identify as value or growth investors and seek opportunities within a universe of companies perceived to fit within their chosen category.  These distinctions, however, often fall away when a “growth” company experiences hard times.  Investors focusing on “value” then begin to take a look at these fallen angels and growth oriented investors may turn away given an interruption in their chosen narrative.

Chipotle Mexican GrillChipotle Mexican Grill is an interesting example to look at for a number of reasons.  The company had an unblemished growth story for many years and commanded a premium valuation.  In late 2015, Chipotle customers became ill due to an E. coli outbreak that affected a number of restaurants.  This prompted investigations by the U.S. Food and Drug Administration (FDA) and the Centers for Disease Control (CDC).  A total of 55 people from eleven states were affected by the outbreak resulting in the temporary closure of 43 restaurants.  Outbreaks of E. coli are not new or uncommon in the United States.  Chipotle took steps to address the situation and it appears that the problems have been resolved.

The situation at Chipotle received widespread media attention, both through the traditional print and television media and through social media platforms such as Facebook and Twitter.  The severity of the outbreak and the fact that the problem did not appear to be isolated to one geographic location gave the impression that Chipotle might have a systemic issue.  The company has long been known for fresh ingredients prepared at individual stores.  In contrast with fast food operators using frozen foods prepared in centralized facilities, Chipotle appears to have a higher risk business model.  Of course, the fresh ingredients sourced from local suppliers and prepared in front of customers has always been a major part of Chipotle’s brand identity.


Readers outside the United States are unlikely to be familiar with Chipotle because the company has very few international locations.  The company was founded in 1993 by Steve Ells at a single location in Colorado serving a simple menu focusing on Mexican cuisine.  Chipotle was one of the pioneers of the “fast casual” concept.  Through use of better ingredients and a more attractive restaurant design, Chipotle provided a higher quality experience than large fast food incumbents while still preparing foods to customer specifications in a short period of time.  McDonald’s became a major investor in Chipotle in 1998.  This investment facilitated an expansion to 573 locations by 2006 when Chipotle went public.  The company continued to expand after going public and had 2,124 locations as of June 30, 2016.  Chipotle owns and operates its restaurants and has not pursued franchising, in contrast with many fast food competitors.

The exhibit below provides an overview of the company’s rapid growth in restaurant count since 2006.

Chipotle Store Count Stats

Despite news of the E. coli outbreak in the fourth quarter of 2015, we can see that the growth story continued relatively unabated over the ten year period.  The restaurant count increased from 573 to 2,010 which represents an annual growth rate of nearly fifteen percent.  Effectively, the company doubled the restaurant count and then doubled it again.  At the same time, sales per restaurant grew at a healthy pace as well, advancing from $1.6 million in 2006 to $2.4 million in 2016.  This represents an annual growth rate of approximately 4.6 percent.  The financial crisis and recession of 2008-09 caused restaurant growth and sales to slow but growth picked up in 2010 and continued through 2015.  It is notable that restaurant expansion has continued in 2016 at a rate similar to prior years despite the E. coli crisis.

Attractive Expansion Economics

Since the company went public, restaurant expansion has been accomplished through reinvestment of free cash flow generated by the company’s established restaurant base.  The company has a debt free balance sheet.  Since 2006, approximately $1.8 billion has been invested in capital expenditures.  According the narrative provided by the company in annual reports, the vast majority of capital expenditures have been related to restaurant expansion rather than maintenance of existing facilities.  In 2015, the company had net income of $476 million, cash flow from operations of $683 million, and invested $257 million in capex, of which $180 million was associated with opening new restaurants.

Chipotle has very attractive economics when it comes to expansion.  In 2015, the company spent an average of $805,000 in development and construction costs per restaurant, net of landlord reimbursements.  Based on the company’s experience prior to the E. coli outbreak, each new restaurant could be expected to achieve revenue of approximately $2.5 million per year once established.  With an operating margin of 10.6 percent in 2015, each restaurant could be expected to produce operating income of about $265,000 and net income of $164,000.  This represents an excellent 20 percent return on incremental investment once a new restaurant is mature, and historically same store sales volume has grown at an attractive rate as well.

Despite the attractive economics of adding locations, Chipotle’s free cash flow has regularly exceeded the amount management felt comfortable investing in expansion.  The company has returned over $1.9 billion to shareholders via repurchases since 2006.  Repurchase activity has accelerated since the E. coli breakout as management chose to repurchase shares as the stock price declined.  $461 million was spent on repurchases in 2015.  The pace accelerated further during the first six months of 2016 as $700 million was spent on buybacks.

The exhibit below shows cash flow from operations, capital expenditures, and repurchases since 2006:

Chipotle Capex

Deteriorating Fundamentals:  Permanent or Temporary?

It helps to take a long term view of Chipotle’s economics to appreciate the company’s growth history and favorable economics.  As the company grew over the years, it appears that management was able to harness the benefits of increasing scale.  While revenue grew at a 20.8 percent annual rate from 2006 to 2015, management was able to increase margins substantially.  In particular, it appears that efficiencies were found to improve labor productivity and administrative costs fell as scale increased.  The exhibit below shows a summary of Chipotle’s income statement and associated metrics over the past decade (click on image to expand):

Chipotle Operating Metrics

The impact of the E. coli outbreak became apparent during the fourth quarter of 2015 but full year results did not reveal a huge deterioration.  However, during the first half of 2016, we can see that the company operated near break-even as margins collapsed.  Food costs increased as the company attempted to put in place procedures that reduce the probability of further outbreaks and some waste resulted in the transition to new procedures.  Labor costs were not reduced despite the significant drop in sales indicating that the company avoided cutbacks in what should be a variable cost, probably due to a desire to maintain morale.  Occupancy costs predictably rose as a percentage of diminished revenue.

The decline in comparable restaurant sales for the first half was 26.5 percent.  Overall revenue decreased by 19.9 percent, a smaller decline than comparable restaurant sales due to the opening of 114 restaurants during the period.  These are clearly staggering declines and have essentially eliminated the favorable economics that Chipotle enjoyed over the past decade.

The obvious question we must ask is whether the E. coli scare was a temporary phenomenon or has longer lasting permanent consequences.  It is useful to look at this from both a revenue and expense perspective.

From a revenue perspective, obviously the question is whether sales will return to levels that prevailed prior to the outbreak and, additionally, whether same restaurant sales can continue to grow at a rate faster than inflation.  Chipotle put in place a customer loyalty program called Chiptopia during the summer months and management has indicated that the program was starting to show promising results in July.  Chipotle’s CFO stated that “it’s very, very likely that we’ll have something to follow on when Chiptopia ends at the end of September.”  However, it did not appear that a new program has been launched as of early October based on a recent restaurant visit.

Historically, Chipotle has grown without the need for customer loyalty programs or heavy discounting promotions.  This has certainly helped the company achieve the margin expansion discussed above.  If a long term extension of Chiptopia is required to continue the sales recovery, this reflects pricing pressure and could impact margins.  Expenses are also likely to rise due to enhanced food safety procedures.  On a normalized basis, management expects that food safety initiatives will have a 2 percent impact as a percentage of revenues.

At this stage, it is very difficult to determine whether the deterioration of the first half of 2016 signals permanent impairment of the company’s fundamentals.  It seems fair to assume that operating margins will decrease by 2 percent even if sales recover to 2015 levels due to the higher operating costs identified by management.  If sales fail to recover fully, management will probably take steps to reduce variable costs that, thus far, have not been materially reduced (such as labor costs).  Operating margins were around 17 percent prior to the E. Coli outbreak and fell to zero during the first half.  It is probably safe to view 15 percent as a near term ceiling for operating margins even assuming a full sales recovery.  If sales only recover partially, the operating margin could easily settle at 10 percent or lower.  Third quarter results will be reported on October 25 and should provide some insight into these questions.

Is Chipotle Cheap Today?

Clearly Chipotle has significant problems and the outlook is still very cloudy.  Market participants dislike uncertainty. Chipotle’s stock price has declined 44 percent over the past year and currently trades at $420:

Chipotle Stock Price

Is the stock cheap?  Not by traditional (and simplistic) valuation metrics.  If earnings recover to 2015 levels next year, the stock is currently trading at nearly 28 times 2017 earnings and is obviously even more expensive if one assumes a more limited recovery.  However, if Chipotle’s brand is intact and the growth story resumes in 2017 and beyond, shares could be reasonably valued.

Chipotle has not slowed expansion in 2015 which shows a great deal of confidence by management.  In addition, $700 million of stock repurchases signals that management views the lower share price to be a bargain.  On September 6, Bill Ackman’s Pershing Square Capital Management revealed a 9.9 percent stake in Chipotle and indicated that the stock is “undervalued”.

The company appears to have a great deal of room to expand in the United States and has recently signaled that Europe will be a target for additional expansion.  Although 15 percent annualized growth in the restaurant base might be too optimistic, if the company can grow locations at a 10 percent rate, the restaurant count could reach 4,000 by 2022.  If revenue per restaurant recovers to $2,300 in 2017 (less than 2014-2015 levels) and then grows at 3.5 percent annually, revenue per restaurant could reach $2,700 by 2022.  Total revenue under this scenario might be around $11 billion and if we assume an operating margin of 15 percent and a tax rate of 38 percent, net income would be slightly over $1 billion.  Expansion opportunities would hardly be exhausted with a 4,000 restaurant count, especially internationally, and opportunities for reinvestment of free cash flow at attractive returns should exist.  Market participants might assign a P/E ratio of 25 leading to a valuation of $25 billion in 2022 compared to today’s $12 billion market capitalization.  For someone buying shares today, this would result in annualized returns of around 13 percent.

Obviously the scenario discussed above is not very rigorous and could be overly optimistic.  There are also speculative elements, such as the idea that market participants will value the company at 25 times earnings in 2022.  However, the bottom line is really whether one thinks that the Chipotle brand can recover fully.  If not, profitable expansion opportunities will be limited and the company’s “growth story” will be broken.  In addition to expectations of permanently lower operating results, investors will no longer be willing to pay a premium valuation.  Under an adverse scenario involving permanent brand impairment, it is easy to see how today’s valuation is much too high.

It is all too easy to come up with fancy models and spreadsheets to bring more “rigor” to a valuation, but doing so might not add much value and could actually create a false sense of overconfidence.  In the case of Chipotle, the investment thesis really boils down to whether one regards the brand as resilient or impaired.  Investors should start to get a better picture when third quarter results are released later this month but it is likely that a few years will have to pass before definitive conclusions can be drawn.  Of course, by then the share price will have already reacted to the developments – whether they are positive or negative.

Disclosure:  No position.