Clearing out More Positions

As we gird our loins for what appears to be an extremely unsteady market -- though whether it will go up or down, I have no idea -- I've taken the opportunity to simplify my investments a little bit.

What does that mean?

Well, in my case, it means selling some of the more vulnerable, long-shot, non-profitable or highly valued companies in my portfolio -- particularly the small positions that I never got the urge to fill out with more cash.

So I've sold a half dozen or so of my smaller holdings in the last few days, a few at more or less break even and most at significant gains (these are primarily stocks that I've held for more than a year, most cases significantly longer).

And as with some of my earlier sell decisions, many of these are more personal than stock-related. I do not have specific news or numbers that make me want to sell these, but they don't fit what I want with my portfolio right now.

So what have I sold?

Myriad Genetic (MYGN) -- I bought this one because of the high growth of the genetic testing business and the promise of their early-stage drugs, but the story has changed somewhat. This has more than doubled for me, almost entirely on the promise of their Alzheimer's drug, Flurizan, that I wasn't all that confident about. That makes me extremely nervous -- many nice news articles and analysts have touted Flurizan as the most promising Alzheimer's drug currently out there, which may be true, but that's kind of like being the best dressed guy at the tractor pull -- Alzheimer's drugs are extraordinarily costly to get through FDA approval, and so far almost none of them have worked at all. I'll take my profits here instead of bucking the odds -- I might be wrong, but this small position isn't worth chewing my fingernails over. If Flurizan takes a big hit and the shares fall hugely on the news, I might reconsider my initial investment thesis and get back in.

Blackboard (BBBB) -- It's lovely to have a monopoly, which is why these shares are up quite nicely for me ... but I wouldn't buy more here, and it's a small position. They have so far had some difficulty in turning their near-monopoly into real profits, though it hasn't been that long since they took out their competitor, and I'm a little bit worried about higher education budgets moving forward. Out they go.

Barrett Business Services (BBSI) -- This one has mostly treaded water for me. I bought it because they had an appealing regional-to-national story unfolding and because they had piles of cash on the books and had recently instituted a dividend. That story still holds, but the difficult undercurrent is that they are still primarily a California staffing business, and they are going to have some serious difficulty making up for all the construction business that's falling by the wayside out West. They may get through this fine, they may not, but I wasn't going to add more to this small position unless it got hit for no good reason ... and if it hits now, I'm afraid it will be for a good reason. I'll keep this one on the watchlist to maybe get back in if the economy really tumbles and puts them on sale.

Akamai (AKAM) -- Oh, how sad I was to see this one go. Again, mostly for personal reasons -- I'm not terribly comfortable holding any significant amount of margin in my accounts right now, and stocks that are richly valued are vulnerable. Akamai is the titan of their industry, but there are lots of little guys nipping at the heels and I'm not confident that their growth is guaranteeed ... or that they will be able to continue to charge relatively high prices. I could certainly be wrong, and I like the company very much, but I would prefer to book my 100%+ gains at this point (even though I missed the chance to sell it all at the top).

Universal Display (PANL) and Harris and Harris (TINY) -- these are both relatively small holdings that I've had in my portfolio for a long time. PANL gave me a nice profit, TINY I'm selling at about the same price I paid for it ages ago. Why? Neither one is going to show a profit for a very long time, so while they may be in an important business segment (Organic LED lighting and display, and nanotech venture capital, respectively) I have no particular confidence that they're going to weather a bad market or become profitable in the near future. Expensive and uncertain seem to me to be the wrong holdings to focus on right now, so I'll move along to shares that I'm more confident in.

So ... for the first time in a long time I'm using no margin and have some cash available. Hopefully, many of the companies I'm most interested in will go on sale soon, but at least I do feel more insulated from some of the shares in my portfolio that had been the most likely to falter on bad company or economic news. I remain significantly overweight foreign companies, now at more than 50%, and have also pared back my long options positions significantly.

Keep up with One Guy's Investments, Free Subscription
Enter your email address:

Delivered by FeedBurner

Strange Secondaries part 2 -- TINY

So the Google secondary is a little unusual, and I don't think anyone yet understands why they decided to make a secondary offering right now, when there's no clear need for cash that us individual investors can see.

But the Harris and Harris (TINY) secondary makes a lot more sense to me, even if it's not being particularly well accepted in the market. This was announced a while ago, to some sturm und drang, but I still don't get the concern.

Sure, there's the basic concern about secondaries that we should always have -- they are almost always dilutive, and they almost always have a negative impact on the most widely used metric out there, earnings per share.

But this company is a whole different kind of animal -- Harris and Harris is a publicly traded venture capital firm. They don't have any earnings to speak of right now. What they have is a portfolio of potential -- a portfolio of investments in private companies that have something to do with Nanotechnology. TINY exists to find promising companies in the nanotechnology arena, and to make early state investments in those companies in the hope that over a period of many years those companies will either go public or be acquired at great profit for the early stage investors.

Now, nanotechnology is certainly a reality, but it's not an area where there are already lots of strong operating companies. It is primarily a reality in the lab, and a reality in the minds and plans of technology entrepreneurs, even though in some areas, like semiconductors and textiles, it has already made an impact. The best is yet to come for nanotech, and money making industries should blossom from the technology. But not just yet.

So how does Harris and Harris grow? Two possibilities: They can have successful investments, sell them at a profit, and use that greater sum of cash to invest in more companies; or they can issue secondary offerings to raise more money to invest in more companies. I expect many of these companies to take a long time to develop, so I'd rather not see TINY try to trade their investments in them prematurely -- that kind of churn works against the long term success of even most individual investors, and it certainly works against early stage investors in private companies.

Is the share issuance dilutive? Well, not really -- all TINY shareholders own are the cash on the balance sheet and the investments in companies that may or may not ever pan out. Now there will be more cash on the balance sheet, and more potential ability to invest in tiny technology. That means that Harris and Harris can either diversify their investments further among a promising crop of small nano companies to increase their chances of participating in a big payday at a few of them, or they can make larger investments in the companies they have already invested in, thereby increasing their influence over the companey and their payday if they have decided that some of these companies show much more promise than others.

If you don't think that TINY can effectively invest this additional money in promising nanotechnology companies, that implies that you should probably have never invested in TINY in the first place. There is no shortage of places where they could put money, their investments to date are quite small in each company (relative to the investments made by other VC firms), so it might even be that a larger war chest gives them better competitive positioning amongst the crop of nano VC companies.

This offering makes perfect sense to me. TINY's investments may or may not be the most promising ones avaialable in the nanotech arena, but that's an argument for another day. I don't see how you can argue that there is a better way for them to grow than by raising more money, and increasing their ability to invest in more companies or as a larger participant in the companies they've already identified -- that, indeed, is exactly what they should do.


technorati tags: TINY, Harris and Harris, nanotechnology

Keep up with One Guy's Investments, Free Subscription
Enter your email address:

Delivered by FeedBurner