Summary & Discussion of My Trading History of UnumProvident Corporation (UNM) in 2000 Based on the Post Peak Bounce Pattern

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New World Technologies, Inc.
www.nwtai.com

Michael Fouche
mfouche@nwtai.com

Table of Contents

UNM Trading Executive Summary. 3

Introduction. 4

Discussion, Chart, & Results. 5

Original Return on Investment. 5

Alternative Return on Investment. 7

Conclusions. 9

Appendix – Transaction Receipts. 10

 

 


 

UNM Trading Executive Summary


The following is a synopsis for this stock investment. 

Return on Investment (ROI)

-5.7% in 3 weeks

 

 

Maximum possible ROI

127.1% within 16 months

 

 

Reason for Purchase

Post-peak bounce pattern

 

 

Time Frame When Purchased

2000

 

The next two sections include more details on the reasons for the trade, the trading history, and the maximum potential ROI. 

Copies of the original stock transaction receipts, for each of the trades (buy and sell), are included in the appendix at the end of this document.
 

 

 


 

Introduction

 

In 1989 I was introduced to Ted Warren’s book, “How to Make the Stock Market make Money for You” (originally published in 1966) – his claim was that one could discern specific patterns in stock histories to predict future performance (this is also called “Technical Analysis”).

In order to validate his claims, I studied many stock charts from the local library in 1990 – interestingly I found that the same type of patterns that Warren had used as examples from the 1950s and 1960s, were also present in the stocks that I’d studied from the 1970s and 1980s. 

Thus the next step was to begin investing - which is where the “rubber meets the road” so to speak, using the techniques that he had described in this book. 


During the early, mid, and late 1990s, I was successful for the most part, in selecting and investing in good stocks based on specific patterns – my primary downfall was in not being patient enough to wait for the stock to meet its full potential.

This document discusses the details of one of thirty documented stock investments which were made based on the patterns discerned from that particular historical stock profile.

 

 


 

Discussion, Chart, & Results

 

This could have been a “Parallel Horizontal Lines” pattern but the time frame was really too short (usually should be several years).  Thus it fell into the category of “Post Peak Bounce” pattern – that is that it would bounce back after dropping steeply from an original peak high.  The high had been up to $60 / share and at the time that I was looking into it, it was below $15 / share.  The company was relatively solid financially speaking and hadn’t been that low in years – so again, it fell into this “Post Peak Bounce” category (the expectation of a bounce which is where the profit would come in if the purchase was made sufficiently near the bottom floor.

Original Return on Investment

 

The two charts below in Figure 1 are the same – the difference being that the one on the left shows the UNM stock profile over eight years whereas the one on the right shows the profile for approximately one year – thus it provides a higher resolution on the dynamics of the stock profile relative to the purchase and sale transactions.  I purchased the stock at a little over $14, and then sold it 3 weeks later (impatience or worries that I’d made the wrong decision).  Note that if I’d been patient, the ROI could have been 50-100% in 6 to 8 months.

 

 

Figure 1 – Observed Pattern, and Buy / Sell History

 


 

The transaction summary for this investment is shown below in Figure 2.  Note that this does not account for transaction costs.

 

 

Figure 2 – Transaction Summary

 

 

 

 

 

 


 

Alternative Return on Investment

 

There was still a lot of upside to this stock – from the time of purchase, the stock increased in value by 127.1% in 16 months – as shown below in Figure 3.  Obviously it would be not be easy to figure out exactly where the stock was going to top out before declining again but one could easily have made a 50% or 100% ROI without a problem. 

The point is that this Post Peak Bounce pattern successfully predicted that UNM would be a high-performing stock if the investment was made near bottom of the fall from the peak.

 

 

Figure 3 – Illustration of Actual ROI vs Potential ROI

 

 

 

 

 

 

 

 

 

 

 

The transaction summary of this “projected ROI” is shown below in Figure 4.  Note that this does not account for transaction costs.

 

 

Figure 4 – Projected Transaction Summary

 

 

 

 

 

 

 

 

 


 

Conclusions

 

As with many of the other trades that I’d made, impatience (or panic in the sense of second-guessing my instincts) ruled the day and I lost out on a really big rise that would have occurred in a relatively short amount of time (less than a year).  The “Post Peak Bounce” pattern was good one if applied to solid companies (financially speaking).


 

Appendix – Transaction Receipts


The records of the purchase and sell transactions are shown below.

 

Stock Purchase Receipt

 

 

Stock Sell Receipt