Stock Market Video
Green Mountain Coffee Roasters and the Lessons of Long-Term
Sometimes Wrong - Never in Doubt
In Case You Missed It
In this week's Stock Market Video I look at the market's recent
action as evidence of investors' long-term uneasiness. Anyone who
has lived through two major market crashes always has a little
nervousness nibbling at the back of their mind. But for now,
markets are in an uptrend and you should be loading up on great
growth stocks. I asked Mike Cintolo and Tim Lutts for their single
favorite stock and added mine. Stocks discussed:
), Tesla Motors (
Vipshop Holdings (
Click here to watch the video!
Green Mountain Coffee Roasters and the Lessons of
Back in 1998, you could have bought Green Mountain Coffee
Roasters' stock for just 14 cents a share (adjusted for splits).
But back then, the company was just an early contender in the
gourmet coffee wars that would eventually spread across
Green Mountain was a classic case of a successful local business
with a good product and management that had ambitious goals. From
its humble roots, Green Mountain (to honor its Vermont roots) began
to distribute its popular roasted beans through grocery stores and
specialty shops. That's an organic way to grow, and the company got
traction with its flavorful coffees.
Success in the wholesale distribution game is labor intensive
and growth is just incremental. Still, by July 2001 GMCR had soared
to an astonishing 3.11 per share. That's a huge win, and investors
had every reason to expect great things from the stock. After all,
it had a good product, good management and great momentum.
Unfortunately, the market decided that Green Mountain had gotten
just about all there was to get from its commodity distribution
model. So, if you had owned GMCR in July 2001, it would have been
five years and three months before your stock made any advance at
all. Plus, during that time you would have had to endure a pullback
to 80 cents per share. And no dividend to soften the blow.
If you put yourself in the position of an investor who really
loved GMCR for the enormous gains it had delivered, you might have
hung onto the stock like grim death, insisting that GMCR wasn't
done, dammit! And you might have felt that you were vindicated when
the stock got moving again in 2007. By that time, Green Mountain
had upped its game, buying rival distributors to gain access to
their networks and growing aggressively. Earnings, which had been
stuck in high single digits from 2004 to 2006 popped to 14 cents
per share in 2007 and grew steadily to 2.40 per share in 2012.
The catalyst for this growth wasn't just selling coffee.
Beginning in 1996, Green Mountain started to invest in Keurig, a
Massachusetts company that had a unique single-serving coffee maker
that used K-cups to deliver fresh-brewed quality coffee (and other
beverages) using a patented brewing machine.
Green Mountain finally completed its takeover of Keurig in 2006,
but by then sales of K-cup brewers were on a roll. The company sold
the brewers for near cost, knowing that continuing revenue would
result from the sales of K-cups. It was "sell the razor cheap, make
money selling the blades" all over again.
GMCR had a great 2007, idled through 2008, then blasted off in
2009 and again in 2011. By the time GMCR hit 116 in September 2011,
thousands of investors had been in the stock for a four-year run
that gave them profits of more than 1,000%.
So who could really blame them if they chose to hold the stock
when it began to correct in 2011? After all, this was the kind of
stock that put kids through college and financed boat
When these investors finally realized that the dream was really
over, it was July 2012, and GMCR was trading at 17.
Now, investors are beginning to nose around GMCR again, which
may mean that the stock is ready to begin trading on its admirable,
but not startling, continuing growth. GMCR is back up to 45, some
of which is probably courtesy of the people who loved it
One obvious parallel to the tale of GMCR is the tale of AAPL,
which has been generating stock gains and headlines for the past
And the lesson, which has also been learned time and again over
the last decade, is that growth stocks should not be treated like
pets. Once they have lost their youth and vigor, you should get rid
of them. If you treat them like pets and hold onto them when they
are past their prime, all you will get is lost capital.
Out-of-favor growth stocks won't even lick your hand and look
soulfully into your eyes.
So, if you want to make a go of it as a growth investor, even
when stocks treat you well for a long time, you must be prepared to
be a little cold blooded when things go wrong.
Here's this week's Contrary Opinion Button. Remember, you can
always view all of the buttons by
Sometimes Wrong - Never in Doubt
My father often quoted this popular sentiment, and that irked me,
because I believed he was often guilty of overconfidence. As I grew
older, however, I learned to appreciate the value of the man who
could hold his convictions so tightly. You have to pull the trigger
sometime, and he who hesitates is lost.
There's no doubt that you can argue yourself into inaction, even
when action is necessary. If you can't summon up the resolve to
actually hit the "buy" or "sell" button, the life of a growth
investor may not be for you.
In case you didn't get a chance to read all the issues of
Cabot Wealth Advisory
this week and want to catch up on any investing and stock tips you
might have missed, there are links below to each issue.
Cabot Wealth Advisory 2/4/13-Apple and Two Common
Mistakes to Avoid
Chief analyst Mike Cintolo writes in this issue about the many
sell signals that Apple (
) investors have seen in the past months, and why investors don't
sell when they know they should. Stock discussed:
Chicago Bridge and Iron (
Cabot Wealth Advisory 2/5/13-A Fast-Growing
I used this issue to discuss the flow of money, including the
enormous amount of capital on the sidelines that's just starting to
jump back into equities. Stock discussed:
Copa Holdings (CPA)
, which, as I warned might happen, reported disappointing earnings
the very next day.
Cabot Wealth Advisory 2/7/13-Invest in Great
Growth Stocks Now
Tim Lutts looks at current market conditions in this issue and
sees plenty of indications that growth stocks are in great shape
and you should be putting money to work in them. Tim gives the
seventh of his Ten Stocks to Hold Forever. Stock discussed:
Have a great weekend,
Cabot Wealth Advisory
Cabot China & Emerging Markets Report