Popeyes’ new chicken Sandwich went viral in August and prompted the “Chicken Wars.” This battle was fought between the fast food purveyor of fried chicken. Popeyes, and its competitors in the chicken sandwich space, Chick-fil-A and perpetual Twitter heavyweight-champion Wendy’s (Nasdaq: WEN). The viral sensation can offer some powerful investing lessons for the savvy stock trader.
Contrarian investing is the investment strategy that involves going against the Wall Street herd mentality. When everyone else zigs, the contrarian investor zags. When the crowd goes left, the contrarian goes right. And when the masses are buying like it’s a Macy’s “One Day Sale” the week before Christmas, the contrarian sells like a hot dog and beer vendor at the last baseball park on Earth.
Why do contrarian investors behave this way? Because, quite simply, the “wisdom of the crowd” can be very wrong. If conventional Wall Street wisdom were correct all of the time, most people would be millionaires and no one would lose their shirts in stock market crashes.
So what does all of this have to do with a viral chicken sandwich from Popeyes? Let’s take a step back and look at what actually happened recently in the Chicken Sandwich Wars for a clue.
Popeyes and The Chicken Sandwich Wars
It all started when Popeyes introduced its new chicken sandwiches in direct competition with already established poultry heavyweights like Chick-fil-A and Wendy’s. Then came the chicken-tweet heard around the world.
Chick-fil-A’s original tweet posted on August 19th at 8:15 am. It simply said:
Bun + Chicken + Pickles = all the for the original.
And it could have been left at that, but no. Popeye’s decided to respond in kind, realizing the dig was meant for them:
… y’all good? https://t.co/lPaTFXfnyP
— Popeyes Chicken (@PopeyesChicken) August 19, 2019
As you can see, the Twitter clapback generated a tasty 86,447 retweets, 323k,334 likes and more than 5,000 comments. The virality of this one response suddenly led to the kind of problem a fast food restaurant might like to have: Popeyes’ chicken sandwich was in such high demand that they ran out of their supply of chicken breasts.
Chicken was already America’s most popular meat, but the popularity of this particular sandwich was unprecedented. Popeyes was only able to restock the sandwich this past Sunday. Of course, Chick-fil-A is famously closed on Sundays, so Popeyes resumed selling their prized item with this accompanying advertisement:
And true story: two of my colleagues attempted to bring back Popeyes chicken sandwiches for the Investment U team yesterday at lunch. I asked them to bring me back a spicy sandwich. I was super excited for this.
My colleagues failed me and the team.
After seeing a line that would have them waiting about an hour, making the total travel time an hour and forty-five minutes, My colleagues aborted mission. Like Darth Vader fleeing a rebel advance while seeking a Kyber crystal on the two-sunned planet of Tatooine.
I was hungry. I was sad. I ate a soggy tuna sandwich instead.
Clearly, the Popeyes chicken sensation is still going strong. Bruno Cardinali, Popeyes Head of Marketing for North America, promises, “We plan to offer it to our guests for a long time… We are confident that we’ll be able to meet the demand.”
OK, that’s great. But what we really have here is a case of extreme hype and short term returns for Popeyes so far. Now, what does all this mean? It means that it’s time to be a chicken contrarian.
Wendy’s Chicken Sandwiches Still Taste Great
I am a longtime fan of Wendy’s spicy chicken sandwiches. They taste delicious and have just the right crunch and spice combined with mayo. I eat them far more often than I should.
Wendy’s chicken sandwiches tasted delicious before, during and after the Popeyes’ sandwich went viral. And I’m kind of craving chicken for lunch. Now, like my colleagues, I could go to Popeyes and decide to wait for an hour in line.
Or, I could go to Wendy’s and wait about three minutes.
Is the Popeyes sandwich better than the Wendy’s version? It’s very possible. But is it so much better that it’s worth me waiting an hour or more in line, being late to get back to work, and feeling hassled, stressed and grumpy?
No, not at all. In fact, the happiness I’ll receive from the Popeyes sandwich is at best probably only slightly higher than the dopamine hit I’ll get from the delicious Wendy’s sandwich. For a much lower cost in time and stress..
And the Wendy’s item will certainly satisfy my rumbling stomach an equal amount. In a few months, I bet the lines at Popeyes will begin to return to equilibrium. Their new sandwich will still taste awesome, but I’ll only have to wait in a tiny line.
Same high reward. Much less cost. Now, that’s a better investment.
The problem with jumping on virality or the hottest topic when you’re an investor is that you are often too late. Trades are executed in microseconds now. By the time you hop on to ride the wave, it’s already crashed into the shore.
And just like this week isn’t the best time for me to go run out and grab a Popeyes sandwich, jumping on hottest stock trend of the day just as it goes viral is really bad timing.
And this brings us back to the notion of contrarian investing.
What do Popeyes Chicken Sandwiches Have To Do with Contrarian Investing?
Sometimes, following the crowd is a bad idea. Much of the history of western philosophy from the ancient Socrates to the early modern Hume to Danish Christian thinker Søren Kierkegaard argued that the crowd is often unwise.
You could follow the masses today into Popeyes and wait a stressful hour. Or you could find a much easier alternative.
The contrarian goes against the grain. And when it comes to investing, the contrarian investor takes profits over public opinion.
As famed contrarian investor Marc Faber once said, “Follow the course opposite to custom and you will almost always be right.” Another way to think about this is to buy when everyone else is selling and sell when everyone else is buying. That doctrine can be applied to both individual stocks and the market as a whole.
This isn’t a law of nature or a rule to follow 100% of the time. If a company is probably going bankrupt and everyone knows it, you shouldn’t get in on the stock. Likewise, if the economy is in great fundamental shape and very profitable, it may still be a good investment despite the large gains already made.
But in between the two extreme cases there is a lot of unwise middle. Investors who buy into stocks when they’ve already topped out and then sell after the big decline. Traders who bought high in a market that had skyrocketed for years and then sold after the inevitable crash.
The contrarian investor avoids these damaging traps. And they make a whole lot of money while doing it. So, how can you take a page from the wise chicken sandwich buyers and apply it to your personal investment opportunities?
Contrarian Investing Strategy
When investing in the stock market and buying a stock, there are two things you need to pay attention to: the state of the economy as a whole and the health of the particular company you are trading.
The best time to buy a stock is when both the economy and the stock are undervalued. The best time to sell is when they are both overvalued. That’s how you build real wealth using the markets.
In order to do so, you need to study the fundamentals as well as the market trends. A market that has been bullish for years does not mean a bear market is imminent. But if enough economic warning signs of a slowdown or recession are flashing, it may be time to get out.
Similarly, a stock can fly high and continue to climb higher. But how are its fundamentals? Is the company growing revenues? Decreasing costs with increased efficiencies? Is it turning healthy profits quarter after quarter? If not, the stock may be in for big trouble on the horizon.
The right time to buy a stock is when nobody else notices how strong the company is. When the company is unfairly maligned and not overhyped. When the stock has taken a beating but is poised for a huge comeback.
That’s contrarian investing in a nutshell… or on a brioche bun. And that’s a winning strategy.
– Brian M. Reiser
Investment U contributing writer
The post Popeyes Viral Chicken Sandwiches Offer an Investing Lesson appeared first on Investment U.