Tag: 10 bagger

Continuation from yesterday…….An appropriate trading approach and a number of fixed trading rules is just as important, if not more so, than your overall technical, mathematical and fundamental analysis. In essence, by implementing strict trading rules and procedures you are able to take all of the guess work out of the equation. In other words, strict trading rules make sure you pull the trigger exactly where you should.

The rules below are based on a simple strategy of getting in and out of various stocks at the right price and time.

Avoid Low Priced Stocks:  While it is possible to make large amounts of money with such stocks, for the most part, cheap stocks remain at low levels for extended periods of time.  At times forever.

Avoid Slow Trading Markets and/or Stocks:  These are the financial instruments that are stuck in a trading range.  Do not invest in them until and unless the trend is broken, either to the upside or to the downside.

Concentrate On Fast Moving Markets and/or Stocks:  This is where most of the money is made over the shortest period of time.

Never Guess:  Take the guesswork (gut feeling) out of your decision making process.  Develop strict trading rules that are followed 100% of the time.  You should never guess if you have got it right. Let the market and/or your trading rules put you in and take you out.

Always Follow The Main Trend: You will always make money if you follow the main trend.  Either up or down. Remember, stocks are never too high to buy if the stock market is going up and they are never too low to sell if the trend is pointing down.

Always Use Stop Losses:  I cannot overstate this enough. Always use stop losses to protect your capital. Let the market prove if you are right or wrong. In the meantime, your capital base will remain safe.

Buy At New Highs:  Believe it or not, but buying at new highs is the most profitable way to make money in the stock market. Most people believe that they must buy at the lowest price or in the valley. That couldn’t be further from the truth. By buying at the new high you are moving with the main trend.

Sell At New Lows:  In a similar fashion, selling or selling short at new lows is the best possible way to exist a stock. It confirms that the trend has changed while giving you the ability to exit your trade at a good price.  More importantly, it allows you to trade with the trend and not against it.

To Be Continued On Monday….

  An Important Set of Simple Trading Rules Google

Continuation from yesterday……….This caution would have been well justified. Keurig’s stock price topped out in August of 2011 at a little over $100 a share and then distributed for a few weeks before starting a major leg down. An investor in the stock should have liquidated his long position and gone short at $80 a share. It was at that point that the company’s stock price broke below its previous low, suggesting further downside.   The stock price continued to collapse until it hit bottom in July of 2012 at $17.50 a share.  Delivering a gut-wrenching 84% loss in the process.

GMCR Trade #7: Exit our long position at $80 a share while going short at the same price/time. Realized profit from the previous entry point…… $70 or 700%. Overall profit $78.25 or 31,200%

By mid 2012 and after its 84% collapse, Keurig’s valuation levels were, once again, more than reasonable.  If anything, the stock was selling at a substantial discount considering its future growth potential. In addition, the stock trended down for exactly one year. This represents an important stock market cycle. Finally, given the extent of the collapse, one year time cycle and general undervaluation, an analyst following the stock should have been looking for trend reversal. This reversal was confirmed in November of 2012 when the stock price broke above its previous high at around $33 a share. A trader should have covered his short position and gone long at that point in time.

GMCR Trade #8:  Cover our short position at $33 a share and go long at the same time.  Realized profit from the previous entry point…….$47 or 59%. Overall profit $125.25 or 50,000%.

After hitting its bottom, Keurig’s stock price realigned with the overall market and staged a massive rally to $125 a share. Which brings us to today (8/14/2014 – $114) and the overall gain of $206.25 or 82,400%. Making this stock an 824 bagger or almost doubling our original gain.

Today, Keurig’s stock price finds itself at the same juncture it was back in 2007 and 2011. While the company is doing very well, its valuation levels are once again out of sync with reality. What’s more, the overall stock market is in its own overvaluation bubble and on the verge of another bear leg. In fact, any investor in Keurig should be following and watching the stock very carefully here. Looking for various signs that the top is in.  Further, said investors should consider exiting the stock and going short once again as soon as the previous low of $90 is broken on the downside. Riding this stock down again before reversing course and going long at the next bear market bottom.

Before we analyze Apple’s trading history, let’s take a quick look at some of the trading rules we must comply with.

To Be Continued Tomorrow……..

How To Generate 80,000% ROI In 15 Years  Google

Continuation from yesterday…….

That is exactly what happened in August of 2001 when Keurig’s stock broke below its lower low at around $2.50 a share and headed lower.  At that point, any investor who was watching the stock should have A. Sold his holding and B. Gone short.  The overall probability of a significant stock decline was too great not to do so. After all, technical analysis was confirming the move.

GMCR Trade #1: Sell and go short at $2.50 a share. Realized profit from the previous entry point….. $2.25 a share or 900%.

As the chart above illustrates, Keurig’s stock price proceeded to bottom out in October of 2002 at around $1.00 a share.  Around the same time the Dow hit a low point for its 2000-2002 bear leg. An analyst familiar with the overall mathematical composition of the stock market would be aware of the fact and would be, once again, watching the stock price very carefully for any sign of the bottom and the subsequent trend reversal.  Ready to cover and go long at a moment’s notice.  And indeed, such a confirmation arrived in March of 2003 when the company’s stock price pushed above its previous high at $1.25 a share.

GMCR Trade #2: Cover our short position at $1.25 a share and go long. Realized profit from the previous entry point….. $1.25 or 50%.  Overall profit $3.50 or 1,300%

What followed was an uninterrupted bull market in Keurig’s share price between March of 2003 and December of 2007.  During this time the company’s share price appreciated from $1.25 to approximately $9 a share.  And that’s where it gets interesting.  An investor working with the overall mathematical and cyclical composition of the stock market would be aware of the 5-Year bull cycle terminating in the late 2007 and an impending secular bear market mid cycle correction.  Similar to those in 1907-1908, 1941-1942 and 1972-1974. In other words, with the fundamental analysis flashing signs of general stock market overvaluation and with the mathematical work suggesting a deep decline, it was highly probable that Keurig’s stock price was about to go through another correction.

To Be Continued Tomorrow……

How To Trade Tenbaggers  Google

Continuation from Friday…….One of the first things we have to realize in our attempt to anticipate and to time such large moves in the underlying stocks is the fact that the fundamental analysis will not be very useful.  We cannot rely on such an analysis due to a simple fact that the stock market or individual stock movements lead the fundamentals at least 95% of the time. In other words, by the time the actual numbers filter through onto financial statements or into press releases the corrections we are trying to identify are likely to be over.  Or nearly over.  The only fundamental metric that would be useful in our case is the general overvaluation of an underlying security.

For instance, if company’s stock price had appreciated so much over a relatively short period of time that it now sells above any reasonable valuation level, even if the future is otherwise bright, it is highly probable that the underlying stock price might correct fairly soon. Once we understand such fundamental shortcomings, it leaves us no choice but to concentrate on the technical and mathematical/timing side of the equation.

Our first 60% drop in Keurig’s stock price had occurred between 2001 and 2002. To be exact, the company’s stock price topped out in July of 2001 at around $2.90 a share and then proceeded to collapse into October of 2002 bottom of $1.00 a share. A 65% decline. 

Once we look at the chart a number of things become immediately apparent.

1. From the fundamental perspective alone , by the time 2001 top had arrived the company’s stock price had already zoomed up 1,100% from our 1999 proposed $0.25 entry point. Going parabolic on a number of occasions. In other words, while Keurig coffee systems were starting to get traction, there was no way for the fundamentals to keep up with a rise in the stock price. The stock was overpriced and overextended.
2. An investor applying mathematical and timing work to the overall market would be aware that the overall stock market is going through its initial bear leg and that this bear leg was not scheduled to bottom out until October of 2002. Rendering 2001-2002 period as a high risk one.

Given the setup above, any investor in the GMCR stock should have shifted in a highly defensive mode in 2001 by watching the technical side of the stock extremely closely for any sign of a technical breakdown.  As a technical breakdown at this juncture would have likely yielded a substantial decline in the company’s stock price.

That is exactly what happened in August of 2001 when Keurig’s stock broke below its lower low at around $2.50 and continued to head lower.  At that point, any investor who was watching the stock should have A. Sold his holding and B. Gone short.  The overall probability of a significant stock decline at that juncture was too great not to do so. Particularly when the technical analysis was confirming the move.

To Be Continued Tomorrow……

When You Should Trade In & Out Of Your Potential Tenbagger Google

Tenbagger Trading Rules
Maximizing Returns

Book Continuation From Yesterday…….While analyzing individual stocks in previous chapters we have looked at a number of variables that would allows us to first identify potential Tenbaggers, analyze their potential and then possibly take a position.  Yet, as we study the companies above we soon come to a realization that it is just as important to know when to get out or trade out of such stocks as it is when to initiate an original position. Doing so at the right time would not only prevent unnecessary losses, but in many cases it would allow us to double or triple the overall return on an underlying position (capital gains taxes are not considered in this analysis).

For instance, while Apple’s stock price had appreciated 3,700% over the last 11 years, the stock itself went through three significant corrections during the same period of time. A 60% drop in 2005, another 60% drop during the financial crisis of 2007-2009 and a 45% drop in 2012-2013. What’s more, another large drop is just around the corner.

If we were able to …..

A. Rotate in and out of these stocks at the right time and
B. Even go short

….our returns for such underlying Tenbaggers would skyrocket. For example, if we were able to avoid the three massive corrections in Apple’s stock price, our 3,700% return would quickly turn into a 16,220% return (approximately). A 162 bagger over the same period of time. Not bad. Yet, if we were fortunate enough not only to avoid the collapses but to short into them, we would be able to push our returns even higher. In the case of Apple our returns would skyrocket from 3,700% to 27,100%. Do this a few times and begin to realize just how important this approach is.

That is why it becomes incredibly important to lay out the necessary framework of getting in and out of our Tenbaggers at the right time. In this chapter we will look at each individual Tenbagger we have decided to invest in (Keurig, Apple and Chipotle) in order to ascertain at what points we should have gotten out and at what points we should have re-established our positions in the underlying securities. We will also determine if it would have made sense to go short at certain times to boost our overall returns. Finally, we will establish a clear set of trading rules that we should be able to apply to our future Tenbaggers.

Trading In and Out of Keurig Green Mountain (GMCR)

To summarize, Keurig Green Mountain’s stock price had appreciated 49,600% between 1999 and today. Yet, if we were fortunate enough to take a long position in the late 1999 or early 2000 it would not have been an easy ride up. That would be due to a fact that Keurig suffered through a number of serious corrections during the same holding period.  To be exact, the stock had suffered through a 60% drop between 2001 and 2002, 50% drop in 2008 and a gut wrenching 84% collapse between 2011 and 2012.

To Be Continued On Monday……

Tenbagger Trading Rules  Google

Continuation from yesterday……TECHNICAL ANALYSIS

Since the fundamental analysis has failed to yield any sort of a buy signal for Bally’s stock in 1999-2000 we must now concentrate on the technical side of the equation.

As the chart above shows, between 1993 and 2000 the company’s stock collapsed from $34 a share to less than $0.50 a share.  What’s more, this substantial down move had occurred during one of the strongest bull markets in history.

Unfortunately, outside of dropping 99%, Bally’s stock gave us very few clear technical clues that it would either top out in 1993 or bottom out in 2000. Outside of a clearly defined downtrend between October of 1993 and 1999-2000, we have very little to go by. As was mentioned earlier, by 2000 Bally’s fundamental and stock price performance has gotten so bad that it received a number of delisting warnings/notices from the Nasdaq. In other words, any analyst looking at this stock and the company’s fundamental performance at the time would have assumed that the Bally’s stock would be delisted. Ending up in the pits of OTC trading.

Yet, despite the setbacks Bally’s stock price bottomed at $0.42 in May of 2000 and then went on to appreciate to $34 by April of 2004. An 8,000% gain in less than 4 years.  Unfortunately, the stock itself gave us very few technical clues that it was about to stage a massive multiyear rally. In fact, it wasn’t until March of 2001 that we would have gotten our first real technical confirmation that the Bally’s stock price might be going through something more than a simple bounce. By that time the stock was already selling at $3 a share.  While an entry at that point would have still resulted in a 10-20 bag run over a 5-13 year period of time, such performance would have been far below our anticipated threshold.

In conclusion, technical analysis alone would have failed in giving us a clear buy signal anywhere close to our anticipated entry point of $0.50-1.00 a share in the second half of 2000. There were NO clear technical signs that Bally’s stock price was about to stage an 8,000% rally or a rally of any kind. Perhaps we will have better luck with our timing and mathematical analysis.

TIMING & MATHEMATICAL ANALYSIS: 

To Be Continued Tomorrow……

No Love From Bally’s Google

Continuation from yesterday……As we begin to analyze the company in the 1990’s we immediately realize just how out of shape and dysfunctional the company was at the time. On many different levels.  For instance, the company was involved in so many different businesses or lines of business that it would have been virtually impossible for anyone to truly understand their operations.  From developing slot machines and gaming systems to operating river boat casinos, from international partnerships to running their own slot machine route operations. And the list goes on.  In short, it would have been impossible to fully comprehend, let alone analyze the company from the fundamental perspective alone.

Part of the problem stemmed from the company’s mismanagement in the past and number of acquisitions/takeovers the company went through in the 1990’s. So much so that by 2000 Bally’s stock was on the brink of being delisted from Nasdaq. Hence the low price. Yet, by the end of 2002 the company was earning record revenues and profits and was even able to move from the Nasdaq to the New York Stock Exchange.

What had caused such an improvement in operations?

A turnaround of sorts. The company began to consolidate its business lines and divest non-core assets. Selling a number of properties and businesses in the process, raising additional cash and paying off debt. Further, the company refocused on technology and slot machine, introducing a number of popular products throughout 2000’s. Today, Bally Technologies has a much simpler structure and business. Deriving all of their revenue from just three lines of business, gaming equipment (34%), gaming operations (41%) and systems (25%).

If we analyze the company during the 1999-2000 period, unfortunately, we would have been unable  to predict that the company would A. Begin its turnaround efforts  B. Start consolidating and selling off assets  and C. Be successful.  In fact, after pouring over company’s records and financial statements during that time I have yet to find one management discussion alluding to the fact the company will attempt a turnaround.

In other words, it would have been impossible to predict the company’s turnaround from the fundamental perspective alone for the following reasons.

• The company’s structure was too complicated.
• Financial mismanagement and a heavy debt load
• The company was on the verge of a financial collapse.
• No discussion of any turnaround attempt by the company’s management.
• No discussion of consolidation and asset divestiture.

The question becomes, would investors be able to forecast such changes on their own?

Absolutely NOT.

The fundamental developments above could not have been anticipated nor predicted. Particularly when the management of the company did not talk about them in advance.  And while we could have assumed the company would have instituted additional turnaround steps, we would have no way of knowing if they would actually work and to what an extent they would go. Forcing us to make an investment decision on hope alone. An unacceptable way to approach any sort of an investment decision.  Perhaps technical analysis can offer us a better answer.

To Be Continued Tomorrow……

What A Real Gamble Looks Like  Google

Continuation from Friday…..

FUNDAMENTAL ANALYSIS:

In order to establish a clear picture of what had happened between 1999 and today we must first analyze the fundamental growth of the company over the last 15 years.

Key Statistics	2000	2014
Price Per Share	$1	$77.70
Market Cap	$39 Million	$3 Billion
Earnings Per Share	$(1.47)	$3.17
P/E Ratio	N/A	24
Price/Sales Ratio	0.08	2.04
Price/Book Ratio	N/A	10.3
Revenue	$478 Million	$ 1.14 Billion
Net Income	$(15 Million)	$124 Million
Annual Earnings Growth	4% (revenue)	39%
Total Cash	$34 Million	$90 Million
Total Debt	$ 354 Million	$580 Million
Book Value Per Share	$N/A	$5.81
Shares Outstanding	39 Million	39 Million
Total Assets	$351 Million	$1 Billion
Shareholder Equity	$(51 Million)	$120 Million

As we look at the data above, one issue becomes immediately apparent.  Just how much out of shape the company was back in 2000. And not just in 2000, between 1996 and 2000 the company lost a net total of $170 Million. A massive loss considering the company had a debt load of $354 Million, negative equity and a market capitalization of just $39 Million. In other words, at least from the financial statements perspective alone, the company was dying.

Further, while Bally’s financial performance had improved considerably between 2000 and 2014, this improved performance hardly justifies the 7,800% rise in its stock price.  With the revenue base growing at just 138% over a 14 year period of time and with the shareholders equity expanding by just $170 Million, it becomes puzzling how Bally’s market capitalization could have expanded from $39 Million to $3 Billion. Finally, while the company was selling at depressed valuation levels throughout 1999 and 2000, with a Price/Sales ratio of 0.08, it not entirely evident if this simple turnaround is what had caused the company’s stock price to expand by 78 bags

We must now go back into the 1995-2000 period and study the company in greater detail in order to determine why the company was underperforming,  losing money and on a verge of a financial collapse during that time. Further, we must ascertain what the company did between 2000 and today in order to turn things around. If this improved performance could have been anticipated. Most importantly, we have to figure out if we would have been smart enough to take a long position in either 1999 or 2000.

To Be Continued Tomorrow…..

How You Could Have Made A Fortune Gambling  Google