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……
