Cleaning House: Why I'm Selling My Imax and Lionsgate Shares

I've decided to clear some of the smaller positions out of my portfolio. Any holding that makes up less than two percent of my portfolio has been put on notice. If it's not something I'm actively looking to buy more shares of, I'm going to sell the few shares that I do own.

To some extent this is a natural outcome of my hyper-diversified portfolio, and from my strategy of usually buying shares in fairly small clumps as I build a position. In most cases, I'll buy a few shares to open a position, then research the company more over the ensuing months, and continue to look for opportunities to fill out the position over time.

But sometimes, that first position I buy turns out to be either a mistake, or not as interesting as I thought it would be. In those cases, I'm usually very reluctant to sell these small positions because I want to wait for more information. This means that over time, I find that a huge number of small positions are building up in my portfolio, all competing for my attention, and demanding a certain amount of effort as I track the news and earnings information about these firms.

But life is growing more complicated and there are always interesting new purchase ideas in the back of my mind, so I'm going to focus on being a little quicker to make decisions about these companies that I've taken a small position in, and then left to wither.

Two companies that I've actually bought and sold before meet this criteria today: They are small positions, each not much more than 1% of my portfolio, and right now, I'm not interested in buying shares. So, I'm selling Imax (IMAX) and Lionsgate (LGF).

I don't have strong negative feelings about either of these companies, but neither am I interested enough to buy more. Therefore, there is no point in paying close attention to these in exchange for what is likely to be a very limited upside (at least to me, since these are small positions).

Imax has been experiencing a moderately decent recovery over the last few months, although it has come down about 10% from its recent high near $5.50. I still think the shares are undervalued here, but I don't have enough conviction to buy more and make it worth my while. My primary concern is the company management, which so far, has failed to meet reporting standards and mismanaged a "strategic partner" search process.

It's quite possible that the big screen company will prosper - it's certainly doing well with hit films so far this year - but in order to really thrive it's going to have to expand its base significantly, which is likely to take quite a long time at this rate. It believed that it needed a partnership or a buyer who could push its growth, and I'm inclined to agree -- but with the lack of interest in theater companies right now, I don't know whether it will get it at a fair price. Even Cinemark (CNK), the big international cinema operator which came public just last month, has received a fairly tepid response in the market.

Even though Lionsgate is steadier and more profitable, it is also unlikely to make any big moves soon. While it's interesting to hold this one and watch to see which of its films are hits and which bomb, it's not interesting enough to make it worth my while. Carl Icahn is still holding shares in this one. Although it doesn't appear that he has bought any in quite some time, or even made any activist overtures toward the company of late, there's certainly ample reason to hold the shares here. My primary concern is that the shares are a little too expensive to buy, considering the growth rate they've shown over the past two years, and I simply no longer own enough shares to make it worth my while.

These decisions are very personal ones relating to my portfolio composition, so I wouldn't argue that anyone else should consider selling these companies - I might look back and regret this, but for sanity's sake I need to focus my attention on my filling out positions that I feel more positive about.

Disclosure: The author owns IMAX and LGF.

IMAX vs LGF 1-yr chart