Of course, again in recent times, they delivered 300% in 6 to 8 weeks and 1000% in four to six months. But those days are over for a while. The Bubble has burst and we are back to reality. It is interesting how our expectations have been raised by ten fold in a matter of a few months. Well we are in for a shock to find we will be glad to get the 30% within a couple of months in the future.

The bane of an HGS Investor’s life is that he/she must be on their toes at Earnings Due time

The bane of an HGS Investor’s life is that he/she must be on their toes at Earnings Due time. So our cycle time is 13 weeks at most and probably 6 to 8 weeks as most likely from the time of Launch. In other words, given that the earnings have come out, and the stock has based, it is not unreasonable that a recent purchase will be at about 30% up by the time the EPS report is due. It is also not unreasonable that 30 to 50% is about normal for a stage breakout move until the stock pauses to refresh.

Given all that rationale, 30% up is a good time to take stock. You have these alternatives:

a. The stock has risen 30% in 6 to 8 weeks. Give it breathing room, especially if there is still time to earnings due, as the stock will anticipate the earnings and invariably move higher into that EPS Due Date. (I am not suggesting by this statement that one sells at EPS Due time)

b. The stock is struggling and has barely made 15%. It is a laggard and you can probably do better elsewhere. Don’t let this laggard turn into a loss.

Essentially, I am suggesting that 30% up is the point in time when you should do some soul-searching as to whether you want to ride through an EPS report, which usually results in some form of correction or pause to refresh, or that it is time to weed out a laggard.

3. Big Short and Long Term Winners

These take you to at least 30 to 100% and hopefully a lot higher. Your objective here is to ride them as long as they are behaving. Behaving means that they are rising for sure above their 50-Day MA, and hopefully it is a great leader rising above its 17-Day MA. All great leaders must pause to refresh, and so it is not unreasonable that under normal circumstances, your 100% winner has gone through at least one EPS report and at least two pauses to refresh. If not you are on a supercharged stock, and again those will be highly volatile stocks that make $20 to $30 in a day. Some of that stuffing has been knocked out of these high fliers, but for our discussion purposes, the focus in this context is on your big winners and long-term winners.

1. Big short-term winners

Here is where the biggest mistakes are made because of Greed. And then even bigger mistakes are made because of complacency and then fear once the stock begins to dive. By definition, a big short-term winner is rising at an angle that is far superior than its past history. It is a High Tight Flag, or it is parabolic, or it has risen reasonably, then announced a split, and now becomes unruly as it heads for a climax run. I am sure there are several other situations that fit this category, but net-net the stock has delivered in excess of 100%.

a. The first golden rule for these stocks is to review at the 100% mark whether the stock is faltering, or is still healthy. More importantly, you need to assess where the market stands, and of course the Group it is in. At any rate, the objective is to err on the side of letting great winners run to see if they can get you a lot further.

• If you are fortunate and the stock has blown right through the 100% mark to 200% or more, then by definition you are into a parabolic stock, and it is for sure into a climax run. If a stock delivers >30 to 50% in a few days after already giving you >100% – some were delivering 100% to 200% in a few days previously – for pete’s sake take half off. A stock with 300% profit at a climax run is begging to ask for taking half off. Why? You immediately have not only pocketed your original capital, but also have a 100% winner in the bag. A five-bagger (500% gain) would give you 200% with half off.

To say stocks will "come back" is the worst kind of Money Management imaginable.

• The higher the stock goes without a correction, the more you want to watch it for when it does falter. When it eventually corrects, don’t let it come down more than 20% from its high without deciding that the stock is healthy or in trouble. If the market is unhealthy, five-baggers turn to dust in a hurry. Alternatively, if the stock is a highly volatile upstart, then heaven help you when they correct. To say they will come back is the worst kind of Money Management imaginable.

• It stands to reason that the more profit you have in the stock, and the market is heading for a Bear Market, the earlier you should exercise the half off principle.

• The other consideration is that the % ownership in this stock of your total portfolio gets lopsided and you want to bear that in mind. Most Fund Managers will start to re-distribute the weighting by taking profits when a stock exceeds about 7 to 9% of the total portfolio, particularly for those where the portfolio is distributed between 30 stocks. Don’t hold me to that, but you can figure the math - essentially at a 130% to 200% gain.

• The more concentrated the portfolio, the quicker you act; the more distributed the slower to act.

b. However, don’t let a stock that has delivered more than 100% turn down without having taken half off. I didn’t say “automatically sell half at 100% gain”, but if they start to misbehave, your first objective is to take the capital that you have invested off the table. That way, you are playing with the “Street’s” money, and your next decision becomes a lot easier as it is one of how much profit are you prepared to give up. You avoid the very problem of fear, should the market and the stock turn against you. The prudent rule is not to take the whole lot off, UNLESS you have run into a buzz-saw and the market has turned violently against you. Then, if all you have is 100% gain, it will fizzle mighty fast and you had better run for cover. Now it becomes a question of not only preserving capital but also preserving profits to COVER the other losers in the portfolio, which are surely under water by now.

• Once you have half off - your next objective is to let the other half of your investment run for as long as it can and only take it off when your profit is no more than 30% in the stock. At least you have salvaged what was a “hundy” into a decent winner of 30%, having previously taken half off to preserve your original capital.

Under normal circumstances, and it is all a question of where the big kahuna of a bear market strikes in your cycle, your objective is to let the winners run for as long as they behave, and only run for cover when you were unfortunate to be hit with near term big winners that have turned sour, either because of the stock, the stock and the group rotating out, or the stock, the group and the market being trashed.

2. Big long-term winners

• These are usually Mattress Stuffers that have passed the tests of short-term perturbations many moons ago, in which you probably took half off at some point in the distant past, and let the other half get salted away to give you ten baggers and more. The only time you lighten up on these to any great extent is when the Fundamentals of the company have changed severely enough that there is a serious cloud over it which will probably last for years.

Well, I have exhausted myself today, but I hope all this mumbo jumbo (good stuff I should say provides some perspective and ideas at these times.

Regards, Ian.