Category: Invest with Alex

Continuation from yesterday…..(How You Could Have Doubled Your Chipotle’s ROI)

Summary & Conclusion

Throughout the book we have looked at 5 different Multi-Baggers, ranging from 14 Bags to 264 Bags, in order to ascertain what they have had in common.  We have tried to understand what attributes have led to their success and if we would have been able to make an investment before their impressive run ups. Most importantly, we have tried to develop a system that would allow us to identify such “Tenbaggers” today.

During this process we have looked at the Tenbaggers in question from 3 different analytical view points. Fundamental, technical and mathematical/timing.  From the very early on it became evident that a singular analytical framework would not allow us to identify such Tenbaggers with any degree of certainty. Yet, when we proceed to combine them, our chances for success increase dramatically. Giving us the ability to pick out 3 out of 5 Tenbaggers with a high degree of certainty.

Finally, the analytical system above presents us with a number of benchmarks we can use today to pick out the Tenbaggers of tomorrow.

So, what are they?

General Undervaluation:

All but one of our Tenbaggers were severely undervalued at the time of their respective bottoms or prior to their massive run ups. Yet, perhaps “undervaluation” is not a correct term to use here since valuations can be interpreted or misinterpreted in many different ways. As you very well know, something undervalued can become even more undervalued if the business does not work.  Perhaps, “Oversold –or- Selling Below Potential Value” would be a much more appropriate term.

• Keurig Green Mountain (GMCR):  Stock was selling at a 60% discount to its IPO price just a few years prior at the time its run up has initiated.
• Apple, Inc (AAPL): Stock was trading at the same price it was trading 20 years earlier after the Nasdaq had collapsed in 2000-2002.
• Best Buy Inc (BBY): Stock was selling at a 75% discount to its price just two years prior at the time its run up has initiated.
• Bally Technologies Inc (BYI):  Stock fell so far that it was about to be delisted from the Nasdaq.
• Chipotles Mexican Grill (CMG):  Stock was selling at over 60% discount to its price just 10 months prior.

In other words, all of our Tenbaggers were sitting at the bottoms of their respective trading ranges when our original investment in them should have occurred. And that is our clue number one.

Clue #1:  Seek out and research companies whose stock prices are selling at least 50% below their prior years or months values.  From our work above, discounts of 60-80% from prior years tops are optimal. It is highly probable that we will find most of our Tenbaggers there.

To Be Continued Tomorrow

Continuation From Friday……(How You Could Have Squeezed An Additional 1,100% ROI From Apple Inc)

As per our earlier analysis, we would have initiated our original long position in Chipotle’s stock in November of 2008 at $42.20. A bear market of 2007-2009 was coming to an end and any potential investor in the stock should have been watching for a trend reversal and a possible entry point. A down trending resistance line was broken to the upside in November of 2008 and a long position should have been initiated at that time.

CMG Trade #1:   Buy CMG at $42.20 in November of 2008.

From its 2008 bottom, Chipotle’s stock pushed higher unabated until reaching its interim top of $440 in April of 2012. Thereafter, the stock price proceeded to collapse 45% in 6 months. As with our Apple analysis above, there was no way to anticipate this particular collapse. Outside of a few fundamental and technical warning signs, there was nothing to suggest that Chipotle’s stock was about to go through a substantial decline. Nevertheless, any investor in the stock at the time should have been concerned with technical development between April and June of 2012.

The actual breakdown in Chipotle’s stock had occurred in early July of 2012 at around $380 a share. A trader should have liquidated his long position at the time and gone short.

CMG Trade #2: Sell CMG at $380 and go short at the same time/price. Net realized gain from the previous entry point…..$338 or 800%.

The stock price proceeded to quickly collapse to $242 by October of 2012. Throughout this collapse an analyst following the stock should have been watching for signs of a bottom.  Since the overall bull market of 2009-2014 was still intact, it was prudent to assume that the stock would bounce as soon as the bottom was reached. And that is exactly what happened in December of 2012 when the technical picture reversed and the stock price pushed above higher high at $270 a share. A short position should have been covered at the time and a long position should have been re-entered.

CMG Trade #2: Cover our CMG short position at $270 in December of 2012 and go long at the same time. Net realized gain from the previous entry point…..$110 or 29%. Overall gain $448 or 1,061%.

Subsequently, Chipotle’s stock price quickly recovered to around $675, where it remains today. Yielding a total gain of $853 or 2,021% vs. our original gain of 1,465%. Proving, once again, the validity of the strategy.

Yet, just as with the Apple Inc example above, investors in Chipotle’s stock today (8/20/2014) should be on a heightened state of alert. Based on the stock’s extreme overvaluation levels and the upcoming bear market of 2014-2017. In essence, investors in Chipotle’s stock should be watching the stock very carefully for any signs of a technical breakdown. Ready to reverse position and go short at a moment’s notice. Buying the stock back later on and at a bear market bottom.

To Be Continued Tomorrow……

How You Could Have Doubled Your Chipotle’s ROI Google

Continuation from yesterday……Turning our original 75 bagger into an 86 bagger. While not a significant increase, still, it is a substantial improvement from our original investment.  Particularly, when you realize that the Nasdaq remains in the negative territory since its March of 2000 top. It is also important to note that much better entry and exit points are possible when an analyst or an investor is working closely with the underlying stock. Most of the entry and exit points above were based on higher highs or lower lows on the long-term chart to illustrate the validity of the concept. When actual trades are executed it is possible to be just a few points or a few days away from the actual tops/bottoms. Supercharging our performance even more.

Finally, while it is likely capital gains taxes will minimize the overall impact of the additional 1,100% ROI, this remains a strategy worth perusing. Particularly in today’s secular bear market. For instance, right now (August 2014) would be an excellent time to start thinking about liquidating a long Apple position in preparation for an upcoming bear market of 2014-2017. If nothing else, any investor in Apple’s stock should be on a heightened state of alert. Ready to sell his long position and go short at a moment’s notice.

As the upcoming bear market leg develops, it is highly probable that Apple’s stock will decline significantly due to its general overvaluation and a substantial bubble in the overall stock market. Triggering a decline similar, in both magnitude and duration, to the one sustained between 2007 top and 2009 bottom. Any investor executing the strategy above should be able to protect his gains, profit on the downside and re-enter his position at a much lower price when the foresaid bear market ends.  Pushing his or her overall returns even higher.

To Be Continued On Monday…….

How You Could Have Squeezed An Additional 1,100% ROI From Apple Inc Google