Sticking to My Guns with Micron

Well it seems that I didn’t need to be in any kind of rush to get into Micron (MU). While the Philly Fed report was an improvement, it did not add to any existing market catalysts in a meaningful way. While the diffusion index was barely negative and the best result since Sept. ‘08, the index is still down 18 of the past 19 months. No real surprises, but a promising result from one of my favorite leading indicators.

A better move would have been for me to stick with the good instincts that led me to sell out of Freeport-McMoRan (FCX) ($15/share ago) and do the same for Potash Corp. and Peabody (BTU)….and apparently Alcoa (AA)... and apparently all the financials. All have been hit hard as apparently the markets are treating the reflation trade as just one big swath with little regard for the prospects (or valuations) of its individual members.

Potash Corp. (POT) is down over 25% in the past week, as is Peabody (BTU). But therein lies the rub of prudent portfolio management. In this case it would have been a prescient move to blow out all those positions (See the real-time portfolio here), but since I remain a fan of all these stocks over the long term, I would have had to buy them back at some point, and that brings up the risk of missing a good entry point. Meanwhile there would be two sets of frictional costs.

And should I have succeeded this time around, how much more likely would I be to try my luck at flipping these guys later this summer, or in the Fall, or at year end?

I’d rather stick to my guns and spend my time making sure my long term thesis is intact. Which reminds me that I have yet to post my thesis notes on Micron. It’s rather unlike me to add a stock with losses stretching as far back as the eye can see, but I do believe there’s gold in them thar’ hills. Not because the proverbial consumer is strong, but because the makers of notebooks and other devices are all going to bet that he is, and start building up inventory this summer.

I’m going to be adding 1-2 more positions in the next 24 hours, while blowing out at least one more stock, most likely 2-3. I’ve seen one of my secular trends cracked, and found a better way to play another. Meanwhile I continue to work hard on the development front, as my prior venture capital deal has stalled and I’d rather just keep piloting the plane alone until I build up even more alpha (22 points and counting).

Do I think the reflation trade is dead? No, but I hate to see the theme get so mainstream, so fast. The herd can be quite frustrating as it mills around, repeating words so often that a parrot will pick them up.