“Company Up 62% in a Few Weeks!”
“Stock Rips Over 90% Higher from Its Recent Lows!”
If you saw headlines like these, you would think you were reading about some penny or meme stock. But these were recent performances of companies in the trillion-dollar club. As I write in my book The Compound Code: An Expert Guide to Trading Stocks & Options, even large cap companies can rebound quickly and violently. You have to be there to benefit from these rapid gains.
There have been periods in history where top quality companies like MSFT, SBUX and others traded basically sideways for years, then in a matter of months gained several years’ worth of solid returns. A recent example is WFC that languished for years (albeit paying ever-increasing dividends including its most recent 14.3% increase). In the case of WFC, the company had a cloud over its head as it dealt with regulatory matters over its fake accounts scandal, its stock floating in the $30s and $40s for an extended period of time. Once conditions changed for the company, however (getting past the scandal, normalizing of the yield curve, etc.), the stock shot up nearly 70% in under a year.
In other cases, as with META and NVDA, the stocks experienced material declines in 2022, many investors bailing when they ‘can’t take it anymore.’ Then the stocks reversed direction and nearly double in a matter of a couple months or less. Even large-cap securities like AAPL and AMZN have experienced several 50%+ declines on their way to becoming trillion-dollar companies. It is vital that you do your fundamental research and look through weak periods so that you are not shaken (or scared) out of these otherwise great companies at just the wrong time.
When companies have strong balance sheets like WFC, META, NVDA and AMZN do, they have the wherewithal to get through challenging periods, often using cash on their books to buy their own stock back on weakness (when investors who haven’t done their homework often are selling in a panic). While most investors focus on the profit and loss statement, ensuring the companies you own have a Fort Knox like balance sheet will give you the confidence to get through inevitable down periods and still ‘be there’ when the stock rebounds – which may be across a relatively short period of time – something to be thankful for.