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Just last week I decided to take profits in Netflix (NFLX) by selling half of our position. The shares had more than doubled and by using a money management approach as outlined in this article, we could take back our original investment and let the "house money" continue to run.

It has become much more clear to me that we might have reached a top in the NFLX share price as competitors like Amazon (AMZN) (perhaps even Google (GOOG)) move into the Netflix sandbox, of streaming videos and proprietary programming.

I am by no means stating that Netflix is a bad investment, quite to the contrary, I still believe that this company will be a strong producer, but the cost of entry into their business model is not very costly. Especially for companies like AMZN and GOOG who seem to have an endless supply of cash to deploy from all of their other businesses.

Both Google and Amazon are predatory in nature and they are not shy about going after other companies businesses with almost reckless abandon. Both of these companies' eco systems are far greater than Netflix and I have decided to sell all shares in Netflix, from our Young and Restless Retirement Portfolio as of today.

The "Young and Restless" portfolio consists of BlackBerry (BBRY), Amazon (AMZN), Google (GOOG), Facebook (FB), Netflix (NFLX), Yahoo (YHOO), Achillion (ACHN), and Zynga (ZNGA).

As of the latest update, this chart tells the story:

StockOrig.PricePrice Now%+/-Orig. InvstValue Now
AMZN23026713%10,00011,500
BBRY13130%10,00010,000
GOOG64080627%10,00012,700
FB232720%10,00012,000
NFLX82192125%10,00011,700
YHOO192217%10,00011,700
ACHN880%10,00010,000
ZNGA330%10,00010,000
Portfolio Valuexxxxxxxx25%80,00089,600
Cashxxxxxxxxxxxxxxxx20,600
Totalxxxxxxxxxxxxxxxx110,200

Since this update, NFLX has backed off from the $192/share price to roughly $182/share. Since this is pure profit at this stage, selling the entire position will give us another $10,000 to be redeployed into another stock, which could offer explosive growth in the near term.

As of today, I will be adding a new $10,000 position in Achillion Pharmaceuticals at today's share price.

Selling Into Strength

One of the ways to sell a position that we want to close out is to sell into strength (a rising share price) rather than selling into weakness (a dropping share price). In the last week we have seen weakness in Netflix due to the reasons outlined above. That being said, there still is an upside "bias" to the share price but I believe that we have seen a top at that $192 level (based on valuations, P/E, and price to book value) and we can put the money to better use.

Keep in mind that the goal of this portfolio is to create strong growth for a future retirement that is a long way off, in a shorter time frame, for those investors who have the risk profile as well as the determination to monitor events on a more regular basis. By selling when others are buying, prudent investors can use the age old strategy of selling high and buying low, which we have done quite well in this instance, in regards to Netflix.

Why Buy Achillion

I will be writing an in-depth article soon on the advances in ACHN's hepatitis C drugs, but for this trade, I am following the thesis that since the company has just had a very successful secondary stock offering (which has been sold out and closed by the way), which raised roughly $134 million to further the research and development of the drugs, on their own.

It appears to me, that the company could be "flying solo" into this $20 billion market (the hepatitis C market), and even by having some dilution in their share price with this offering, going alone can have several positives.

  • The company does not have to share revenues and profits in this enormous sector.
  • If there were still going to be a potential "big pharma" takeover, it would cost them more, because Achillion would be much further along in the Phase II and perhaps into the Phase III trials of at least two of their farther along drugs (ACH1625 and ACH 3102).
  • Updated results could be announced soon since there have been several conferences in which some further advances in clinical trials could be highlighted.
  • With an extremely clean balance sheet, if a company were to make an offer to buy ACHN, I believe the share price could easily triple

At the end of the month I will once again do a complete update. For now, Netflix has been sold and a second purchase of $10,000 has been made of Achillion, keeping the total investments made at $80,000. The balance of the cash from the sale of all Netflix shares also gives the portfolio a total of $21,600 in cash to look for a "home."

The Bottom Line

This actively managed portfolio is not for everyone and I know that. The goal is to move in and out of positions as events develop so we can create exceptional growth, with a higher level of risks.

Please do your own research and due diligence prior to making any investment decision. This is not a suggestion to either buy or sell any security and is solely the opinions of the author.

Source: Retirement Portfolio Management: Selling Netflix Into Strength And Buying Achillion For Strength