Saying So Long to Ciena

I am closing the fund's position in Ciena (CIEN). This was the fund's 2nd smallest position for most of the past month at 0.30% or $3500, post earnings mid December [Ciena (CIEN) Reports Ok Earnings, Guidance Light, SIV Exposure?] At the time I wrote

I did sell half of my smallish position in Ciena - not so much on that bad guidance or even the SIV exposure but near term perception about the stock. Again its a small position and I have some decent gains in this name - when I have more time to read into the earnings report and guidance I will decide if I will hold the remaining 125 shares.

This is a case study in locking in profits - for a short time (September) Ciena was the #1 position in the fund - we benefited from a great run from $37/$38 to near $48+ in just a few weeks [Selling more Ciena to Raise Cash]. I took a lot of profits at the time as I felt the valuation was getting full. Since November, the stock has fallen from $48 to $28. However, I have a realized gain of about $8350 on the stock. So for all those stocks that you sell only to watch ramp on to make even larger gains and you grit your teeth, you have to remind yourself of one like this.

Why sell now? In fact, I find the valuation very compelling here. I just have too many names in the fund (trying to remain around 55 long positions), so I am selling off some of the sub 1% positions. Despite what I consider to be a very good valuation - again a nice technology company growing 20% long term, now trading at 17x forward 2008 earnings of $1.62. I'd call that cheap in fact. If I were running a "value" fund, in fact Ciena is a name I'd probably be loading up on at this time, and waiting patiently for the market to see the error in it's ways. But with so many nice bargains created on the 'stock sale' rack the past few days, I have bigger fish to fry.

Ciena's customer base is not the same "slowing enterprise market" , it is telco companies. So unless the AT&T's of the worlds cut back spending severely (and in their cut throat competition with the cable companies it's hard to see that) I just don't see the fears of severe cutbacks playing out. But the stock is in free fall, and due to portfolio management I am going to cut back and revisit this name later in the year. Right now there seems to be a pervasive fear that all things technology are going to die a quick death (see Intel (INTC) and Hewlett Packard (HPQ) charts the past week) - you'd think these were women's clothing retail stocks, the way they are acting of late.

Further this is an example, this is why I do not hold 250 positions... I don't think a non concentrated attack works. For example if I owned 250 companies, most would hold 0.3% or 0.4% positions in the portfolio. Then if my thesis is correct, and the stock ramps up 25%, I made 25% on 0.3% of the fund. That doesn't help much. So even if Ciena reversed and made a +40% move here, I don't hold enough that it will matter. Once again, why I say most mutual funds are simply index funds in disguise. I have seen the rare few over the years which can hold 100s of stocks and do well, but at some point you start to basically look like "the market" if you hold too many stocks. And really why buy your 221st best idea, instead of more of your 16th best idea? Are there even 221 stocks worth owning out there? :)

Disclosure: No position