Constellation Brands is the perfect example of why it pays off to be a patient investor…
As we suffer yet another painful downturn in the cannabis market, I want to share with you the tremendous value investors receive when they are patient with a successful endeavor.
The company I’m about to talk about should be familiar to the members of our various publications because I’ve written about it a lot.
I’ve even called it a stock to retire on.
But of course, it only had that kind of money to invest because it is a successful company in its own right. It owns Corona in the United States, it has the country’s largest portfolio of wines, and it has a highly successful lineup of spirits.
I happen to think that the controlling shareholders – the Sands Brothers – and their hand-picked CEO for Constellation Brands – Bill Newlands – are the best management team of any company in any industry in the world.
And the company’s stock performance shows it.
My point today is that the road to those stock riches was not an easy one.
The Tale of Constellation Brands
For Constellation Brands in 1986, all of the shareholders had to deal with a slumping stock price.
From July of 1986 to the end of 1989, Constellation’s share price was down.
You can see in the chart to the right that things went way down.
A person who bought at the beginning of this period watched their investment drop 70%.
But things turned around.
A few years later, investors in the company had made a lot of money.
The best returns went to the few lucky shareholders who bought at the bottom.
But investors who purchased before that downturn in 1986 were also in a very good place – their shares, which had been down 70%, were up about 150% by the end of 1994. Investors who purchased shares every few weeks or months during the downturn did even better than that.
And they didn’t depend on luck like the people who happened to get in at the bottom. They increased their returns through careful discipline and confidence in the company’s long- term value.
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It gets better.
As of earlier last week, those 1986 investors were sitting on a gain of over 10,000%.
You can’t even see the decline in this chart; it is too small to register compared to the massive gains the company has made since.
And those investors now receive an annual dividend of more than their initial investment.
Adjusted for splits, those 1985 investors paid under $2 per share, and every year they receive $3 per share in cash.
That’s what I mean when I talk about a retirement stock.
There are stocks that you put your wealth into so you don’t have to worry too much about your retirement nest egg. That’s Constellation Brands right now, and many cannabis companies will fit that bill in the future.
You will eventually see cannabis companies paying dividends because of their massive cash flows.
The Final Chart
I’ve got one final chart for you today.
This one is called a “Percent off High” chart. It shows the maximum decline from a high in a stock’s price.
This chart is a little harder to understand if you’ve never seen one.
The line never goes above 0% because that would represent a new high in the stock – and this chart only records declines.
The line shows how far down the stock came from its previous high. As you can see, Constellation’s stock price declined by more than 50% three times during its run to 10,000%, including that huge loss early on that we just addressed.
But look at the stock since it first declared a regular dividend in 2015.
It saw a decline – all stocks decline at some point – but the decline was nowhere near as large as prior ones. A stable and growing dividend has a way of moderating stock price movements, particularly to the downside.
The exercise we just did for Constellation is a multi-year preview of many cannabis stocks.
Some cannabis stocks will sell out to others over time.
Others won’t be up to the challenge and will have to be sold.
But a few will end up on a trajectory just like that of Constellation – some very painful times will turn into fantastically successful investments.
The key is patience.
Executive Director, National Institute for Cannabis Investors
P.S. It’s true that stocks can take time to yield returns. But we recently met with my good friend, Tom Gentile, who shared a little-known cannabis investment strategy for some quick turnarounds in the meantime. In fact, his first trade for Cannabis Power Trader members yielded a 73% gain in under a month. And it’s all down to his state-of-the-art pattern-spotting system. See how it works and how you could see double- or triple-digit returns in just weeks – or less.
17 responses to “These 4 Charts Show Why It’s Important to Be a Patient Investor”
September 03 2019