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The Village Idiot: Cosi

The village idiot in strict terms is a person locally known for ignorance or stupidity(Wikipedia). Cosi, throughout its twenty years existence, has excelled in both categories. If stupidity were an Olympic discipline, Cosi would win gold.

The village idiot usually develops a fan base composed of people who likes to root for the underdog. I have been rooting for Cosi since it appeared in Manhattan in the late 90s.

I've always paid attention to the company and its stock price. As a deep value investor, I'm attracted to the potential of highly distressed situations. I've passed on the investment many times in the past seeing no potential in the village idiot.

That changed two years ago when RJ Dourney, a successful Cosi franchisee operating Hearthstone out of Boston, became its CEO.

I was super excited by this development and I decided to invest.

RJ sounded really, really good until he announced publicly that New York location upgrades would be completed by the second week of July 2015. I decided to organize a visit of the New York locations with eight Cosi investors. It was a disaster. The locations looked like shit, the customer experience was shit. It was embarrassing and maddening as none of the narrative had materialized. Our spirit was deflated.

That's when I became obsessively focused on analyzing the delta between management's narrative and the customers experience at the store level. Holy crap, those two things were on two different planets: management stories were fictional and could not be substantiated by customer experience. Was that a wrong move to have trusted the narrative of RJ?

I decided to sell my position on the pop to $.90 a few months ago. I unloaded only half of my position as the stock started to drop hard to $.17.

About a week ago I went to Boston and decided to bring my family to COSI located at MIT. For the first time ever I felt like a proud owner of the COSI business. The customer experience and the food were awesome. My youngest son agreed. He has been negative on COSI since day 1. The Pork Belly Ban-Mhi sandwich turned him off completely. What a stupid dish! The Mac n Cheese with the Buffalo Blue topping on the other hand ... 

We've been fooled many times by the village idiot so we decided to visit another location. Our visit to Cosi Plainview was also fantastic. What a change from previous visits during which I almost popped a few cerebral veins many times.

Maybe our whining, screaming, and bitching, are starting to bear fruits. We don't know yet. But at its current valuation and based on these limited number of visits I decided to increase our Cosi position to 1.5 million shares and keep the pressure on the company to unlock its potential.

Don't go out and buy the stock. A village idiot is still a village idiot until proven otherwise. Cosi is in a tight financial spot and it will most likely fail unless it raises more money. The Cosi Board must be restructured and management must be augmented by managers who are obsessive about the customer experience and innovative marketing, not cheer-leading.

Michael Bigger. Follow me on Twitter and StockTwits. 

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