Lessons of Long-Term Success


Stock Market Video

Green Mountain Coffee Roasters and the Lessons of Long-Term Success

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: LinkedIn (LNKD), Tesla Motors (TSLA) and Vipshop Holdings (VIPS). Click below to watch the video!

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Green Mountain Coffee Roasters and the Lessons of Long-Term Success

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 America.

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 ownership!

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 before.

One obvious parallel to the tale of GMCR is the tale of AAPL, which has been generating stock gains and headlines for the past decade.

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.

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Sometimes Wrong Never in Doubt, Button, Cabot Heritage CorporationHere's this week's Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.

Sometimes Wrong – Never in Doubt

Tim’s Comment: 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.

Paul’s Comment: 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 (AAPL) investors have seen in the past months, and why investors don’t sell when they know they should. Stock discussed: Chicago Bridge and Iron (CBI)

Cabot Wealth Advisory 2/5/13—A Fast-Growing Airline Stock

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: Salesforce (CRM)

Have a great weekend,

Paul Goodwin

Editor of Cabot Wealth Advisory and Cabot China & Emerging Markets Report

Paul Goodwin can be found on Google Plus.

Stock Picks


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