Chipotle lost its CEO to Starbucks - but gained a wave of retail stock-market investors

By Gordon Gottsegen

The fast-casual chain's executive sudden shakeup fueled dip-buying and news-selling behaviors among individual investors

On Tuesday, news broke that Brian Niccol was leaving his job as chief executive of Chipotle Mexican Grill Inc. in order to take up the same gig at coffee giant Starbucks Corp.

But while Niccol - a restaurant-industry veteran who oversaw a 773% gain in Chipotle's stock price during his tenure - announced that he was going from one popular chain to the other, retail investors made the opposite move. As Chipotle's stock (CMG) fell 7.5% on the day of the news for its worst one-day drop in over a year, and Starbucks shares (SBUX) climbed 24.5% for their biggest single-session gain on record, retail investors flocked to buy the dip in Chipotle while selling the news for Starbucks.

The charts above show retail investor inflows in dollars, and compare them to the prices of the two stocks. Individuals buying Chipotle stock hit a record following the CEO departure, making the retail activity over the past five years look minuscule. Meanwhile, individuals sold Starbucks shares at record levels.

See also: Chipotle's stock is S&P 500's worst performer as CEO's exit triggers 'rock star' jitters

Vanda Research, which sent out the two charts on Wednesday, noted that Starbucks is usually a more popular choice for retail investors to have in their portfolios. But the 24.5% jump in the company's share price Tuesday was big enough that many people were convinced to trim those positions and take profits.

On the flip side, Chipotle may be a less popular stock to hold, but it's seen significant returns over the past several years - and people perceived the drop as a buying opportunity.

Through the years, retail investors have shown an affinity for buying the dip - and this is especially true among stocks, and companies, that retail investors know and love. Meanwhile, data show that retail investors are more than happy to take profits when they get ahead. The Chipotle-Starbucks executive shakeup gave us the opportunity to see these two trends play out neatly in line with expectations.

It is interesting to see retail investors - who, perhaps unfairly, are often saddled with the "dumb money" nickname - take the opposite side of a trade compared with what's prevailing in markets. It could show that many retail traders don't shy away during volatile market swings, and are opportunistic with their buying and selling.

Time will tell whether that bet pays off.

Both stocks gained on Thursday, as the stock-market benchmark S&P 500 surged 1.6%/

Read on: Chipotle's stock sold off on CEO exit, but this analyst says it's time to buy

-Gordon Gottsegen

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08-16-24 0716ET

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