Why I've Decided that Now is the Time to Simplify My Portfolio

by: Travis Johnson

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 (NASDAQ:MYGN): I bought this one because of the high growth of the genetic testing business, and the promise of its 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 as 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 (NASDAQ: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. So far it has had some difficulty in turning its near-monopoly into real profits, though it hasn't been that long since it took out its competitor, and I'm a little bit worried about higher education budgets moving forward, and Out it will go.
  • Barrett Business Services: (NASDAQ:BBSI) This one has mostly treaded water for me. I bought it because it had an appealing regional-to-national story unfolding, and because it had piles of cash on the books, and had recently instituted a dividend. That story still holds, but the difficult undercurrent is that it is still primarily a California staffing business, and it is going to have some serious difficulty making up for all the construction business that's falling by the wayside out West. It may get through this fine, but then again it may not, and I wasn't going to add more to this small position unless it got hit for no good reason. 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 it on sale.
  • Akamai (NASDAQ: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 its industry, but there are lots of little guys nipping at the heels, and I'm not confident that its growth is guaranteed, or that it 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 (NASDAQ:PANL), and Harris and Harris (NASDAQ:TINY): These are both relatively small holdings that I've had in my portfolio for a long time. PANL gave me a nice profit, while I'm selling TINY 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.
  • 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.