Why I am Closing My Position in KHD Humbolt Wedag

I closed my very small (100 shares remaining) position in Hong Kong infrastructure play KHD Humbolt Wedag (KHD). The stock is up around 13% on Monday, reversing some very bad action of late; this allows me to exit with a very minor loss - about $800. I've never made this a large position and frankly it's valuation has puzzled me - it could simply be a case of a stock no one knows about or cares about, but when its not standing in place it's falling.... despite some very good fundamentals. [Dec 1: New Position in KHD Humbolt Wedag (KHD)]

I've added quite a few new names to the portfolio the past week, and I'm starting to get "portfolio creep" (too many names), so this was a logical name to go due to the small exposure and poor technical action. Again, I am completely perplexed by the stock action in light of the fundamentals, but I've noticed most of my small cap stocks have suffered no matter what the fundmentals are as people flee to the relative safety of large cap (multinationals especially).

When the "real" rally begins in the stock market, I do expect small caps to rally hard since they've been beaten so hard, but I don't have any clear indication yet that this is the "real" rally - but even on Monday I saw some great action in small cap stocks on my watch lists that have been beaten to a pulp, regardless of industry or prospects. I still like this company, especially since it gives me exposure to Eastern European growth. I'd just like the market to like it half as much as me.

Disclosure: No position

Comments

[valueinvest...:]

I guess I am a bit confused to why you are selling your KHD position and I say that as someone who is long the stock. If you believe it has very good fundamentals, I would think you would have wanted to use the pullback to buy more. I know that I sometimes close out small positions that never got that big just because I hate small positions, but usually those are in cases when I started an initial stake and the stock just ran on me so I didn't have a chance to average down and build up the position. Clearly you are below cost on this name (as am I by a few %), but my question is if you think the company has good fundamentals and earnings is right around the corner, why not average down? Why did you buy other new names rather than add to this one? I have no clue what the company will report on March 31, but I know if it is bad I will buy more and if it is good it will just reconfirm my thesis and I will continue to hold the name.

2008 Mar 27 02:48 PM

[TraderMark:]

Hi valueguy, it strictly depends on your style of investing. I like to mix technicals with fundamentals- find the story through fundamentals and then buy using technicals (entry/exists). KHD is in no man's land technically - could drift here for another 2 days, 2 weeks, 2 months, 2 quarters before moving. If you are a value investor with a lot of patience you want to keep buying as it falls and wait it out. I prefer to have my money working (if I can) so for example if I have other ideas that are working now, I can profit, and revisit KHD later when its looking ready to move. Thats the theory. In fact I'd rather buy the stock higher once it has some life to it, than lower and risk it being moribound for months on end. Just my style and everyone has a style that works for them. Best of luck and I hope to be back in KHD once the market wakes up to its prospects.

2008 Mar 27 06:51 PM

[valueinvest...:]

Yes it definitely sounds like a different style of investing as I do not use technical analysis at all and am for the most part a buy and hold guy. I have some experience sitting with undercovered names for years before the market recognizes their value (most notably was probably MFW) which I sat with for several years before watching it more than quadruple for me. I don't think KHD has that type of potential, but I can see it in the mid 40's. I certainly do hope that the market does discover this company at some point. I have long contested that one of the biggest problems for the name is that the best write-up I have seen on it is from a write-up on valueinvestorsclub.com...

2008 Mar 28 09:35 AM

[TraderMark:]

Yes I read his piece and he did a good job. If you are a long term buy and hold type this is a good company I do believe. But this market has been punishing buy and hold investors the past 6 months :) Best of luck.

2008 Mar 28 11:12 AM

[valueinvest...:]

I would call today and win-win for you and me. You get out before the stock drops on earnings news and I get to buy more today on the earnings news at a lower price.

2008 Mar 31 01:52 PM