The Formula For Finding 2 to 5 Bagger Turnaround Stocks
The equation for identifying a future 2 to 5 bagger turnaround stock = (turnaround prescription being implemented by management + a technical change of trend in the stock price chart).
This formula will dramatically increase your odds of finding multi-baggers among out of favor and distressed stocks. The beauty of this formula is that if it works for just 20% of your turnaround stock purchases, you’re going to make money. One multi-bagger can pay for all your losses if you have pre-planned stop losses on all your stock purchases.
The turnaround prescription is the policies and procedures that a management team has to implement to raise the odds for a successful turnaround. These policies work regardless of the industry or size of the company. The turnaround prescription is only visible from doing deep fundamental research and then speaking with management to confirm they are following the policies outlined in the prescription.
I outlined the turnaround prescription in my ebook, “How to Create Wealth Investing In Turnaround Stocks”. The turnaround prescription was created from the insights I gained over the past two decades buying and operating distressed companies. It was further confirmed by studying 100s of public company turnaround attempts.
The second part of the equation occurs when the stock price rises above its multi-year downward trend line. It’s important to never confuse patterns like a double bottom with a change in trend. Many bottom fishers see double bottoms and inverse head and shoulders and think that’s the bottom. It’s not. My ebook has numerous examples of a change in trend.
Investing in turnaround stock multi-baggers requires a lot of patience and the attitude of a venture capitalist. You have to realize that 10 to 20% of your turnaround picks will generate 80 to 90% of your gains. The other stock picks will either be flat as the turnaround takes longer than anticipated or the turnaround failed even though it looked like it was starting to blossom. A corporate turnaround can run off course for many reasons, such as the loss of a major customer or the industry it operates in starts to experience a weakening in demand.
As a result, even if the equation for a multi-bagger is met, it’s impossible to be 100% sure the turnaround will succeed. In my experience, there is no perfect methodology for prediction, and no amount of research can protect you from a value trap, just ask Bill Ackman. This is why you invest in all the stocks that meet the multi-bagger equation but also always have your stop loss in place for each stock.
If you’re looking for stocks that meet the turnaround stock multi-bagger equation consider becoming a member of turnaround stock investing premium membership.
