A Wall Street Genius's Final Investment Playbook-Chapter 76

"First, justify the sale of Harbor Lobster by claiming that the brand is outdated. Emphasize that the new trend shaking up the industry is fast casual, and that Harbor Lobster is now a fading horse."

This summarizes Ha Si-heon's strategy. He explains that Harbor Lobster was sold because it was outdated.

Pierce frowned immediately. It was a sloppy suggestion for Ha Si-heon.

‘There's something… I don't know what his intention is, but it's clear that Ha Si-heon is pushing Whitmer to go ahead with a reckless election.’

Pierce started with a mild counter-argument.

"Such a pretext won't be enough for the shareholders to forgive the directors. It's not yet time to definitively say the trend has changed."

"The report cards for fast casual brands are already out."

"That data is insufficient."

Then Pierce turned to Whitmer. It was time to logically and objectively refute Ha Si-heon's proposal.

"Changing trends cannot be a valid reason for sale. Most shareholders believe Harbor Lobster can withstand this. Remember the time when smartphones were taking over the market. Shareholders of feature phone manufacturers believed the two types of devices would coexist for a long time. It's the same now."

Brands that dominated the market tended to ignore the switch in trends. It was because of their belief that they would never collapse, nostalgia for their glorious past, and hope that such glory would be restored someday.

Epicura's shareholders were also unlikely to easily accept the downfall of Harbor Lobster. It was essentially a matter of faith, not data.

Pierce's gaze returned to Ha Si-heon.

"Our shareholders know that Harbor Lobster is a champion of the past. But they are not expecting a victory. They just expect it to stay in the middle ranks, given its class. The board, however, argues that it would end up last, so they sold it prematurely without knowing the future performance."

"That's correct."

Ha Si-heon surprisingly agreed quickly with Pierce's argument and shrugged.

"The performance is unknown, and that's why betting exists. In a situation where the outcome is unknown, someone has to bet on ‘winning,' and someone on ‘losing.'"

Ha Si-heon was still confident. What could possibly be in his mind?

"Admit honestly to the shareholders that currently Harbor Lobster could either fail or survive. The odds are fifty-fifty, and we bet on it failing and took action first."

Ha Si-heon even went further, demanding that the CEO and the board publicly declare the bet.

It was an incomprehensible argument. What could they possibly gain from this?

"Those leading a company should move based on the most objective grounds possible. If they say they incurred massive losses by betting on an uncertain outcome, the backlash and distrust from the shareholders will only grow."

"That's correct."

Ha Si-heon agreed readily again. Then, with a smile, he continued.

"That's why we need one more measure. Use the sale proceeds from Harbor Lobster to acquire a new fast casual chain."

Silence fell in the meeting room momentarily. Ha Si-heon's argument was so preposterous.

Epicura was already sitting on a significant amount of debt. And now, after disposing of their main brand at a bargain price, they were supposed to squander even that money immediately? And somehow, that was supposed to win them the election? What kind of nonsensical talk was this?

***

In the silent meeting room, Pierce and Whitmer looked at me as if I were insane. After a few seconds, the two opened their mouths.

"Epicura is already in considerable debt. Many shareholders criticize the excessive acquisitions, and you suggest acquiring another brand?"

"That's right."

"If we go on a corporate shopping spree again, the shareholders' anger will shoot through the roof. We barely have enough to appease them…"

They still didn't understand what I was saying.

I looked them straight in the eye and said,

"You are both too caught up in reason right now."

Both frowned.

What absurd thing am I talking about? They've heard of being ‘caught up in emotions,' but never the opposite.

"Defending management rights should naturally approach the issue rationally and logically."

"That only holds if the voting shareholders are rational and logical. But currently, Epicura's shareholders have lost their reason due to heavy losses."

People consider investing a rational act, but in reality, it's an activity that heavily drains emotions. Losses are incredibly painful.

Every time such losses occur, shareholders naturally become dominated by emotions.

"The very fact that shareholders are angry means they are caught in emotions. No amount of rational arguments can soothe their anger."

Whitmer's face showed doubt as he listened to my words.

He wanted to find an alternative desperately and listened to my opinion, but it seemed all my words sounded like sophistry to him.

"That will be enough for now. We don't have much time."

Seeing Whitmer's expression, Pierce tried to interject.

But I couldn't back down now.

I directly faced Whitmer and continued,

"If we do it this way, we can save the real estate."

His expression changed slightly.

"I know it sounds preposterous, but if we want to protect our real estate under the current circumstances, we need to take an unconventional approach."

Yes, put common sense aside for a moment.

If you want to protect that precious real estate.

After a brief silence, Whitmer seemed deep in thought, but I was sure he would soon respond with ‘continue speaking.'

But then,

"If you proceed with the acquisition as you suggest, repurchasing our own shares will be impossible."

Pierce spoke first.

He had found a flaw in my proposal.

"Repurchasing shares is a basic move. If we don't even do that, shareholders will think the company isn't even showing sincerity. Now is the time to at least soothe the shareholders' anger a bit."

Well, he isn't wrong.

But that won't work now.

"Even if we repurchase shares, it won't quell the shareholders' anger. If you've lost $1,000, would getting back just $10 feel any less painful?"

"Still better than $0."

"Logically, yes. But realistically, whether you give them $0 or $10, you'll be criticized just the same."

Right, it's useless.

Whether we repurchase shares or not, the shareholders' anger won't be appeased, and we will still be criticized, and the sale proceeds will be spent meaninglessly.

"Rather than that, it would be better to spend that money more meaningfully. Invest in the future."

After a short silence, Pierce countered again.

"It takes a long time for a new brand to establish itself. Even if it succeeds, it would be a long-term investment waiting at least 10 years for returns. From the shareholders' perspective, it's as if they've lost $1,000 and are now tying up another $1,000 for ten years. They wouldn't be pleased with that."

Pierce coldly drilled into my strategy.

But he was being too cold, missing the essence.

Then I had to tell him.

"That's not the case. As I said, this is a bet, look at it from a gambler's perspective."

The same situation can appear very different depending on the viewpoint.

If you look at it through a gambler's eyes, how would it seem?

"Simply selling is admitting defeat and cutting losses on a losing horse. But acquiring a new brand…"

"!"

"!"

"!"

Finally, they seemed to understand my point.

"That's right. Acquiring a new chain is like switching to a winning horse."

The pain of loss can't be alleviated with small change. In such times, pouring in new hope is the best solution.

Look at gamblers.

Why would they keep betting even after losing repeatedly?

Because of the hope that this time they might hit the jackpot.

So, let's stir up that hope and encourage a bit of gambling.

That was my argument.

However, Pierce didn't seem to agree at all.

"Such shallow tricks won't work. Most shareholders aren't gamblers. Viewing stocks as gambling is only a minority; most shareholders act as rational market participants, calculating profits and losses."

Well, he isn't wrong.

Stock investors are generally rational and logical, focusing on actual returns.

But still.

"Doesn't the market sometimes collectively lose its reason and turn into a gambling den?"

This wasn't just occasionally; it was quite frequent.

Recently there was Genesis, previously the dot-com bubble, and in the future, the AI frenzy.

What do they all have in common?

"People jump into gambling for one reason only: they believe that this one shot will recover all their past losses and more."

A surge that could completely transform their lives.

When such an opportunity approaches, even rational shareholders become gamblers overnight.

From then on, they discard any calculations of profit and loss and clutch the stock, driven only by expectations and desires.

What if my stock becomes the next Apple, the next Tesla, the next Nvidia?

Would you really sell it just because its price dropped temporarily?

Seriously?

"The key here is the jackpot. There's no reason to gamble for medium or small returns. A once-in-a-lifetime opportunity is needed, one big enough to erase past failures and write new history. But…"

"!"

"!"

"!"

Yes, they got it.

"Yes, as you probably know, there is such a jackpot opportunity in the restaurant industry. Leading the fast casual trend are Chipotle Burrito and Shake Shack."

Pierce and Whitmer, both knew these industry-leading brands well.

But reviewing them again from a gambler's perspective couldn't hurt.

"Chipotle has seen its revenue jump 111.73% since 2009, just five years. During the same period, its stock price soared from $88 to $500, an unprecedented level of growth in the restaurant industry. Following suit, Shake Shack has also shown a 43.8% annual growth in revenue this year. Although not yet public, it's expected to perform on a par with Chipotle once it goes public."

Packaging the acquisition of a new brand as a jackpot opportunity wasn't hard.

Especially when there were two insanely skyrocketing stocks in the industry.

Why hold back on such good news?