The Delicious Agony of the Monster Winner

I love those stories so much.

I love stories about traders who bought Apple (AAPL) in 2004 at $1.52 and still have it now at $157.50 (a $10k trade is now worth $1 million).

https://www.screencast.com/t/SGZeVq0Gu2b

Beautiful.

I love stories about traders who bought Netflix in 2009 at $5.15 and still have it now at $166.50 (a $10k trade is now worth $320,000).

https://www.screencast.com/t/t4VH9JWCXUa

Gorgeous.

And I love current stories about traders who bought Bitcoin when it was offered in 2010 at $.003 and still have it now at $4,071.23 (a $100 trade is now worth over $100 million!).

https://www.screencast.com/t/uP7fSiPV1JMh

Mind-melting.

All anyone had to do was buy those instruments, sit around for several years, and become filthy rich. I just love that.

So let's have a little quiz. I'll give you three true statements. You tell me if these statements are about Apple, Netflix, or Bitcoin. Ready?

  1. This company/instrument utilizes a service or product that has never been seen before.
  2. This company/instrument was created by a visionary who saw vast potential nobody else saw.
  3. This company/instrument caused a major disruption in its industry, causing strong initial skepticism at first and then widespread adoration later.

How do you think you did? Pretty easy?

The answer to all three questions is the same:

Enron.

Do you remember Enron? If not, here's a chart:

https://www.screencast.com/t/SvnArPjVaL6

A trader who bought Enron in 1988 at $4.57 would have seen it explode up to $90.75 in 2000. A $10,000 initial investment would have grown to $198,577 in that time.

Interestingly, Enron had all the same qualifications as our three success stories.

Like Apple, Netflix, and Bitcoin, Enron was revolutionary:

  1. It melded a boring energy company into one of the biggest companies in the country.
  2. It was run by people who looked at things in a way that was totally unique and who did business in a completely original manner.
  3. It disrupted its industry to the point that it affected how other corporations conducted their business.

In fact, Fortune Magazine called Enron "America's Most Innovative Company" for six consecutive years!

You might know the rest of the story.

https://www.screencast.com/t/pkYhXhYf

In 2000-2001, the tide turned on Enron (Understatement-of-the Century-Nominee), and it all went bad. The company went bankrupt, the stock went to $0, people lost all their savings, and some upper management went to prison. It was horrible.

Why are we talking about this?

Take another look at Enron's chart, specifically the good part (before the fall). Now take a look at the three superstars' charts. See any similarities?

They're all pretty much the same, except for Enron's drop to zero.

And that's the delicious agony of buy-and-hold. If you buy a company that you think is revolutionary and hold it forever, you can become wealthy beyond your wildest dreams. That can happen.

But when do you get out?

If the answer is, "Never!" then you've already forgotten what Enron showed us.

If the answer is, "When the news becomes bad," then you've forgotten that Enron was posting good (but fake) numbers all the way down and analysts were recommending buying Enron stock during the entire slide.

If the answer is, "When the chart looks bad," then there needs to be a strict definition of bad.

How about this slide? Does this qualify as "bad"?

https://www.screencast.com/t/9gVKiRSx

That's $134 down to $89, a 33.5% free-fall over twelve months. Would you get out then? If so, then you would have missed this huge Apple run immediately afterwards:

https://www.screencast.com/t/BSV0gQU2g

Or how about this tumble from $1,082 down to $203.77 (an 81% drop in about a year):

https://www.screencast.com/t/qz2RUUREUQ

If 81% doesn't qualify as bad, then I'm not sure what does. But if you decide to sell then, you miss out on Bitcoin's 1,900% growth in just a few years.

So what do we do? Do we hold on to our revolutionary instruments and lose everything? Or do we hold on to our revolutionary instruments and make $100 million?

With buy-and-hold, it can go either way--and we probably won't be able to tell the difference in real-time.

That's the delicious agony of holding on for a big winner. Our dreams and our nightmares are there at our fingertips for the entire ride.

Is there a better way? Is there a way to get big winners without risking it all? Is there a way to make amazing money and not have to worry about getting out too soon?

There are, of course, other options. Options that don't require the constant worry of "should I stay or should I go"?

And we'll talk about those options in tomorrow's webinar (and there WILL be a webinar tomorrow, despite what someone may have told you).