It’s starting to feel sloppy out there, especially amongst the momentum highflying stocks, including some of our own. For the last couple weeks, I’ve been saying that I wouldn’t want to chase these stocks up here, and I still wouldn’t. We entered most of these positions at much lower levels than they are currently trading at and it shouldn’t be a shock that there’s some risk in owning stocks that are up huge. And that such risk increases when the momentum highflying stocks start cracking as they have been of late.
Near-term, the path of the least resistance in this market is now downward, and it could be a bad summer for the highest beta stocks. I’ve suggested trimming down your longs while they were at their highs, but I’m not looking to start buying very aggressively anytime soon. Let’s let the markets and its cycles play out and show us what pitches its throwing over the next few weeks. I plan on initiating a new long or two over that time frame and will slowly scale into some of my recently added new longs, like AMBA and IXYS.
In the meantime though, I do want to clean up the portfolio a little bit and whittle down the total number of positions so that we can have some room to add some new ones that I’ve been researching without making our portfolios overly cumbersome.
We added a basket of highflying stocks — YELP, FEYE and FUEL — that had fallen 50-75% from their recent highs a few weeks ago. The stocks quickly ran 30-50% each and I quickly started trimming down. When I’d bought the basket, I wrote:
“In my own personal portfolio, I’ll look to build Yelp into a full-sized normal position, as its my favorite long-term pick of the three. And I’ll likely only put less than a third of that much money into the combined basket position of the other two for now.”
By far my smallest position of the three, FUEL, has been every bit as volatile as I’d expected it to be when I’d written two weeks ago that:
“Our basket of fallen highfliers has been on fire, with each up nearly 50% now since we added them. I wouldn’t chase any of these names now as they’ve gone vertical off their recent bottoms. The high growth of the revenues at each of these companies didn’t change as their stocks fell 60%-70% to give us the opportunity that we took to buy them. The volatility is likely to be rather extreme on the FUEL and FEYE in particular, though Yelp will also be wild to hold. Steady as possible as she goes, so to speak.
I’m going to trim about 1/5 or so of my positions in: YELP, FEYE, FUEL, INTC and SNDK today. “
I’ve grown uncomfortable with the business model and management’s ability to deliver. I’m closing out the FUEL position today with a nice gain and moving on from this one entirely.
Meanwhile, I’m also going to close out our Juniper position, though I will be keeping it on my radar. We’ve got exposure to the build out of the core of the Internet with two other names in the portfolio — CIEN and JDSU — and I’m going to let them provide us with our exposure to that Revolution Investment growth market for now.
We’re up about 20% on the Juniper since we added it back in March of last year, and I’m closing out the position entirely for now.
I’ll be selling both my own Juniper and FUEL from my personal portfolio over the next couple days.
Balancing risk and reward as well as knowing your own limitations is key to long-term investment and trading success. That’s what I’m doing with today’s moves — balancing risk and reward and knowing that I need to have fewer overall positions to manage and keep track of for now.