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'We Expect Over 100% Gains per Year'

By Dr. Steve Sjuggerud
Monday, August 14, 2017

It sounded like an outrageous prediction when he said it...
 
"Uniphase is one stock you don't want to miss," my friend and colleague Porter Stansberry wrote. "We expect over 100% gains per year."
 
It might have sounded outrageous... But in hindsight, Porter underestimated how much the stock could go up – and how quickly...
 
Porter wrote this on March 1, 1999. Uniphase soared from about $100 a share at the time to about $1,200 a share at its peak a year later.
 
"Uniphase is already growing its earnings at over 40% a year," Porter said. "But don't forget to watch your stop losses. We recommend using a 25% trailing stop. (If the stock falls more than 25% off its highs, sell it.) Remember what Bill Gates says about the high-tech world: 'Microsoft is always two years away from extinction.'"
 
Porter traded the stock in the best possible way. He recommended the stock around $100. It went to around $1,200. It then fell 25% to around $900... And he said to get out.
 
Readers who followed his advice could have turned $10,000 into roughly $90,000 in a year.
 
Ah... but how many people followed his advice and sold?
 
I would bet that less than 50% followed his advice to sell. (Honestly, I'd bet that MOST people DID NOT sell.)
 
"Calling an audible," as they say in football – overriding the coach's play call – cost those people a lot of money...
 
It actually cost some of them everything...
 
Take a look:
 

By the summer of 2001 – a little less than two years after the peak – shares of Uniphase fell below where they started when Porter recommended them.
 
And they kept falling. And falling. And falling.
 
This was a brilliant trade by Porter. A brilliant trade is made up of two parts... a great "buy" and a great "sell."
 
Readers who only took his buy advice, and not his sell advice, lost all of their profits. In many cases, they ended up with losses – which is incredible when you think about it. But it's true.
 
I tell you this story because I believe today will turn out to be a time like 1999, when certain tech stocks soared higher than anyone imagined – and then crashed beyond any reason.
 
How you handle the ups and the downs will determine whether you walk away with a fortune or walk away with less money than when you started.
 
Porter and I have used trailing stops since we started writing investment newsletters together in 1996. Back then, we set simple trailing stops based on simple numbers, like 25%.
 
Today – with the help of our good friend Dr. Richard Smith – we do it in a much smarter way. We typically use "smart trailing stops" from his TradeStops service. Smart trailing stops change over time as volatility changes. So now, our trailing stops are based on volatility – the more volatile a stock, the wider its trailing stop.
 
In the next few months, you will likely hear a lot about the "Melt Up" in stocks, and the following meltdown. What should you do to participate in the Melt Up – and limit your downside risk in the meltdown?
 
The answer is simple: You should do what Porter did in 2000 – and use a trailing stop. You can use any type of trailing stop you see fit – just use one! And follow it!
 
Good investing,
 
Steve




Further Reading:

"A great trade is made up of two things... a great buy and a great sell," Steve writes. You can avoid losing all your gains on a stock like Uniphase. But you must have a plan. Read more here: The Biggest Thing My Subscribers Screw Up.
 
"Eventually – whether it's next week, next month, or next year – a hurricane will hit the stock market," Richard Smith writes. He shares how to prepare, while still taking full advantage of this bull market, right here: The Biggest Downside to 'Buy and Hold'.

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
Raytheon (RTN)... "offense" contractor
Lockheed Martin (LMT)... "offense" contractor
Caterpillar (CAT)... heavy equipment
Deere (DE)... tractors
Alcoa (AA)... aluminum
Office Depot (ODP)... office supplies
Wal-Mart (WMT)... big-box retailer
Best Buy (BBY)... big box retailer
Procter & Gamble (PG)... household goods
Morgan Stanley (MS)... financial-services giant
Travelers (TRV)... insurance
Cigna (CIG)... health care
Weight Watchers (WTW)... weight loss
Royal Caribbean Cruises (RCL)... cruises
Carnival (CCL)... cruises
Apple (AAPL)... iPhone maker
Nvidia (NVDA)... computer chips
JD.com (JD)... China's Amazon
Momo (MOMO)... Chinese social media

NEW LOWS OF NOTE LAST WEEK
 
Chipotle Mexican Grill (CMG)... troubled burrito maker
SeaWorld Entertainment (SEAS)... troubled theme park
Macy's (M)... troubled retailer
JC Penney (JCP)... troubled retailer
Schlumberger (SLB)... troubled oil services company

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