Continuation from yesterday……(Rules For Trading Tenbaggers).
RULE #7: Buy Fast Growing Companies After Market Corrections
If we look at all of the above companies and try to identify one trait that worked 95-100% of the time, this would it. Every one of our stocks sold off during bear market legs of 2000-2002 and 2007-2009. Most of the time at X multiple to the market. Meaning, their declines were at times more, sometimes a lot more than the overall market. Suggesting that their eventual bounces would be more significant as well.
Further, once the market corrections were over, it was time to buy. Most of our stocks had their largest 500-2,000% run ups during bull legs of 2002-2007 and 2009-2014. Or right after bear market legs terminated at their respective bottoms. Perhaps Warren Buffett had said it best, “Be fearful when others are greedy and greedy when others are fearful.” Buy at the bottom.
Clue #7: This strategy is about as foolproof as it can get. By buying at the bottom of a bear cycle, you ensure good entry points and subsequent massive gains in your potential Tenbaggers.
RULE #8: Secular Bull or Bear Markets are Not Very Relevant:
All of the stocks above had their massive run ups during a secular bear market of 2000-2017. Proving, without a shadow of a doubt, that individual stocks can increase in value even in the hardest of times. Assuming their underlying businesses are performing well. And while it is helpful and more profitable to have a bull market at your back, it is not a requirement. There will be many stocks that go up 10X or more under all market conditions.
With that said and as was suggested above, all investors must be on a lookout for fast developing bear market legs that tend to appear in secular bear markets. For instance, 2000-2002, 2007-2009 and 2014-2017. It is at this time that most stocks go though their corrections. Giving us an opportunity to 1. Liquidate our long positions. 2. Go short and 3. Load up on multiple Tenbaggers at give away prices at the bottom of the decline.
Clue #8: Don’t pay attention to bull or bear markets. Instead, concentrate on avoiding bear market legs in secular bear markets. Load up on your favorite Tenbagger stocks when selloffs terminate.
RULE #9: At Least Some Diversification is Required.
While the Tenbaggers in this book offer a high rate of return, it comes with a side of extra risk associated with new product introductions, restructurings, growth, etc…. As such, it would be prudent not to bet all of your chips on one or two potential Tenbaggers. Yet, a wide diversification here is impossible since you will not be able to find many stocks that satisfy all of your Tenbagger requirements. You can go about solving this issue in one of two ways.
First, simple add Tenbaggers to your overall well diversified portfolio. While they will have a net positive impact, they impact might not be as great is if you were concentrating on Tenbaggers alone. Which brings us to option number two. In this case you would develop a portfolio of no more than 10 Tenbaggers while concentrating your attention entirely on overseeing their progress.
Clue #9: Do not bet all of your money on 1-2 potential Tenbaggers as such stocks are inherently more risky and unpredictable. Instead, concentrate on developing one of two diversification strategies that appeal to you the most.
To Be Continued On Monday……
