The primary motivation behind my recent spate of selling is to reduce my margin exposure in a time of unpleasantly high margin rates.
But I needed to also determine which of my many holdings to clear out for this purpose. I have generally taken a short term viewpoint on all of them, which is somewhat alien for me, and have selected the few companies that met most of these criteria:
* Smaller holding (and therefore, a company I'm less confident in or interested in).
* Stock I'm not interested in buying more of right now.
* Stocks that don't have a near term positive catalyst that make me confident.
* Shares that are either depressed and unlikely to recover quickly.
* Shares that have gotten more richly valued and no longer represent bargains
FormFactor (NASDAQ:FORM) is a company that I think is very solid. They have recovered from a terrible manufacturing problem (contamination in their old plant, problems opening their new plant) about two years ago, to the point where their industry-leading technology can now be produced more efficiently.
And while they are levered to the very volatile semiconductor industry, they are not particularly levered to any one company or type of chip. They can produce the best probe test equipment for any of the myriad varieties of semiconductors in demand in the world. You can read my optimistic postings when I purchased shares last year, and when their new fab went online and started helping them earlier this year.
But ... it was a fairly small position for me, because I wasn't smart enough to add more to it last year at $20, and it has more than doubled, so I can't complain about taking that kind of profit.
And, perhaps mosts importantly, this has become a much riskier position at $48 then it was at $22. When I bought shares back then, pessimism reigned and the PE ratio was in bargain territory. Yesterday, the PE was 43 and the forward PE a still high 37, so I think that the turnaround and recovery story, which is really what sparked my initial investment, is pretty much complete.
It may continue to do well, but even as we tack on another 5% in gains from yesterday morning, I think the easy money has been made and I don't want to borrow money to hold these shares. I sold my position yesterday at $48 for about a 110% gain.