Starbucks Latte Index

We’d love to introduce you to some of our other favorite types of indices.

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At Tarbox, we love indices.  A financial index is the value of a “basket” of stocks that tracks large, small, or international companies, to name a few.  Index investing, in essence, is about getting market returns.  We’ve been employing this investment strategy for decades, and it works!  We’d love to introduce you to some of our other favorite types of indices.

Back in the 1986 (one year after Laura founded Tarbox, we might add), The Economist released the “Big Mac” Index, which uses the price of McDonald’s Big Mac hamburgers across the world as a proxy to compare the valuation of different currencies.  The rationale behind the metric is that two currencies should naturally adjust to meet the relative costs of goods and services within their respective countries.  The indices are a more digestible metric for currency valuation and purchasing-power parity, or relative buying power.

There have been many spin-off versions of the original Big Mac index, including a Tarbox favorite, the Starbucks Tall Latte Index, using a Starbucks Grande Latte as the proxy.   Upon comparing the purchasing power parity of the two Starbucks Lattes, one can then compare this to the actual exchange rate and determine currency valuation.  Of course, a Tarbox latte is always free!

(For those of you interested, there is also a “Domino’s Medium Pepperoni Pizza Index” and the “Nobu Black Cod with Miso Index,” among others.)

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