Continuation Of Part 4…….With the stock price trending higher in 1999 and 2000 we would have had two opportunities to take a long position in GMCR at the time. One in September of 1999 at $0.31 and one in January of 2000 at $0.35. With the $0.35 entry point in January of 2000 being technically more sound.
The only remaining question at the time would be……Why would we take position?
There was no real reason to do so unless you were closely following the company and all of its fundamental developments. Including the growth in their Keurig/K-Cup line. And while the stock price was already trending higher since October of 1998, appreciating over 100% by the end of 1999, it was still unclear if it was just another range bound rally or something more.
TIMING & MATHEMATICAL ANALYSIS:
After going public in October of 1993 and staying in a relatively tight trading range over the next 5 years, Green Mountain’s stock price did not give us enough time nor volatility to determine its cyclical breakup. Typically, over 20 years of trading data is necessary in order to be able to determine underlying stocks mathematical, timing or cyclical structure.
While we would not be able to get that information from GMCR chart by the second half of 1999, one thing jumps out immediately. Green Mountain’s stock price bottomed at $0.14 in October of 1998. Exactly 5 Years after going public. If you are familiar with my other writings you are very well aware that I regard the 5 year cycle as one of the most important cycles in the stock market.
The 5 year cycle tends to represent completed bull or bear phases within the composition of the overall stock market or individual stocks. For example, the 1982-1987, 1994-2000 and 2002-2007 bull cycles all lasted exactly 5 years. An analyst familiar with this cycle would realize that a 5 year BEAR cycle that started for GMCR’s stock price in October of 1993 had likely terminated in October of 1998. At least the probability was fairly high. Giving more credence to us taking a long position in the late 1999.
GETTING IN AND OUT OF THE STOCK:
As you very well know, taking a trading/investment position in a Tenbagger at the appropriate time is only half the battle. Staying put, increasing your position and not being forced out to sell at the wrong time is the other side of the coin. After all, it wouldn’t be a good idea to take a 100% profit, only to see your stock go up another 20,000% over the next decade. As human beings we are wired to buy and sell at exactly the wrong time. Hence the inability to outperform the market. When it comes to Tenbaggers we must have a clearly defined set of trading rules that will help us mitigate the risk of being wrong (Please see the Tenbagger Trading Rules & Maximizing Returns chapter).
In case of Green Mountain, if you were fortunate enough to take a long position in late 1999 or early 2000 it would not be an easy ride up. The stock had suffered a 60% drop between 2001 and 2002, 50% drop in 2008 and a gut wrenching 84% decline between 2011 and 2012.
Would most investors be able to go through such massive sell offs without liquidating their positions?
Who are we kidding, most mortals would not be able to sustain such massive drops without first getting out. Most likely at exactly the wrong time. Well, that is unless you were in a comma during the time or if Green Mountain represented only a small portion of your overall well diversified portfolio. For the rest of us, neither one is likely to be the case. That is why a proper application of set trading rules becomes so important. So much so, that in many cases it can easily double or triple the overall return on the underlying stock. Easily turning Green Mountain’s 496 bagger into a 1,000 bagger over the same period of time. Once again, please check our Tenbagger Trading Rules & Maximizing Returns chapter for more information.
To Be Continued…….
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Would You Like A Million With That Coffee? (10 Bagger Book. Part 5) Google