We have been asked by numerous Members to provide case studies so they can learn how to better use the Trend Following strategy and the Trending Stocks tools.
Here is the third in the series.
We became familiar with Trend Following after experiencing big losses in 2000 when the dot com bubble burst and again in 2008 when the Financial Crisis occurred.
Eventually, we developed Trending Stocks to make it easy for other investors like ourselves to use this strategy without all the complex charting.
“The Trend” features Bed, Bath & Beyond, Inc.Incorporated in 1971, ” Bed Bath & Beyond Inc., together with its subsidiaries, [and 32,000 employees], operates a chain of retail stores, selling a range of domestic merchandise….”
This is not the case study I was expecting to write about, but the numbers are so interesting, I decided to go ahead with it. I expected this to be a Case Study demonstrating loss.
Several of our Trending Stocks members have asked about this so we are providing an example of an unexpected winner.
Why unexpected? The company, tittering on the brink of bankruptcy, would not be considered a good investment today. Before it reached this sorry state, it was a different story and was one of my favorite stores.
We are going to compare 2 investors who both like this company and want to hold this stock for the long term.
However, Investor TF uses a Trend Following approach while Investor BH follows a Traditional Buy / Hold approach.
Here is the 5 Year Graph of Bed, Bath & Beyond (BBBY) stock market results. As you can see BBBY has some had some very significant swings over that timeframe.
Let’s see how both investors did over the 5 year period.
The Process
Investor BH is a traditional Buy / Hold investor. BH does not utilize a Stop Loss since there is no intention to Sell.
Investor TF practices Trend Following using Trending Stocks tools. TF buys when the stock is trending and deploys a pre-determined trailing stop loss specifically calculated for BBBY.
The Broker will execute a sell when the stop is hit. This is all determined at the time of the purchase. There is no emotion trying to decide when to sell.
The Trailing Stop Loss is a critical component of Risk Management.
TF continues this process.
If the new purchase price is lower than the price the stock was sold at, TF is able to buy additional shares of the stock. This is also very important as you will see.
The Record
January, 2019 — Both investors bought 384 shares at $13.01 for an initial investment of $4,995.84.
April, 2019 — The stock was up slightly and then faded. TF sold 384 shares at $14.44 or $5,544.96 for a gain of $549.12. BH continued to hold.
September, 2019 — From a previous low of $9.71, the BBBY was at $11.17 indicating a buy. TF invested $5,540.32 from the previous sale garnering an additional 112 shares for a total of 496.
January, 2020 — With the stock at $14.70 the Stop Loss is triggered and TF sells 496 shares for $7,291.20. For a gain of $1,750.88.
BH has continued to Hold.
April, 2020 — both BH and TF (who sold shares in January) are both shocked by the drop in BBBY share price. Covid has caused lockdowns and they feel the stock will recover. TF recognizes a buy signal and using the money from the previous sale, $7,289.04, acquires 1,506 shares at $4.84.
BH has continued to Hold during the drawdown in the BBBY share price.
This is where it really gets interesting…
January, 2021 — The stock does recover and reaches $35.33/share!
BH is very happy, as you would expect, with 384 shares worth $13,556.72. A gain of $8,570.88.
The stock begins to decline, reaches the Stop Loss at $30.00/share and TF’s Broker sells the 1,506 shares for — get ready — $45,180.00!! TF is very, very happy. TF is motivated to continue to watch BBBY and adds it to the Watch List again.
January, 2022 — TF sees that the stock, after a prolonged decline, is trending again at $16.15 and uses an amount equal to the proceeds of the previous sale, $45,180.00 to buy 2,797 shares.
March, 2022 — The stock reached $22.53, quickly declined and TF’s Stop Loss initiated the sale of 2,797 shares at $19.15 or $53,562.55.
March, 2023 — the stock continued its dramatic decline due to bankruptcy concerns and today is trading at $0.46 cents/share!
Where is BH, our Buy and Hold investor?
In January, 2021, BH held 384 shares at $35.33 worth $13,556.72. In March, 2022 the shares were worth $19.15 or $7,353.60. Today they are worth $176.64. Did BH decide the shares were too risky and sell? Or hoping for a turn around, continue to hold?
Not many years ago, we would have been BH. We believed that Buying and Holding for “the long run” was the logical, safe way to invest. We rode the Market and numerous stocks within it, down and down again.
There were wonderful companies, name brands, some we worked for (!), whose stock dropped and languished for years. We finally realized we could not keep doing that.
We still Buy and Hold but only as long as the stock is trending. Then we sell. In most cases we buy another stock. But when it comes to stocks we like long term, we watch for the trend to form and buy back in.
Some are small winners and some are big. There are small losers – but Not big!
We Always manage risk. We didn’t know how to do that before. Now we do. And now you do to.
Trending Stocks can help.
The goal is always to ride the winners and cut the losses by using the risk management process.
Buy stocks that are trending, use Stop Loss orders (static or trailing), keep your position size reasonable; the Trade Risk Calculator can help. Trending Stocks calculates all of this for you.
At Trending Stocks, we believe the Trend Following strategy to be very powerful. We endeavor to develop the tools to make it accessible and easy to use for the individual investor.
ANNOUNCEMENTS
We continue to enhance the tools and features on the Trending Stocks Dashboard.
We have added 3 new Detailed Search capabilities: the S&P 500, Nasdaq 100 and Russell 2000.
Coming soon – Bar charts! Let us know what you would like to see. Just hit ‘reply’.
Do you know someone who could benefit from our Trending Stocks research and the Dashboard tools? Forward this email to them and let them know about the 4 Week FREE trial.
In the coming weeks and months we will be expanding the ETF coverage.
And don’t forget to Ride Your Winners and Cut Your Losses!
To learn more about the Trend Following strategy, please visit our FAQs, and follow us on LinkedIn, FaceBook and Instagram.
Be sure to watch for our Trend Tidbits and next Month’s The Trend!
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