>>Or was your selling purely based on resetting your diversification scheme?
It was a combination of that and noise of an ERP slowdown causing a P/E correction in client-server app stocks; Morgan Stanley downgraded SAP to neutral, PSFT only beat EPS by $.01 (I was assuming $.02 of upside at least), Baan blew-up... Sentiment was indicating a correction was imminent. That is what got me to trim the position.
However, MANU's biz had shown just its 1st quarter of acceleration so I wasn't too worried about MANU's quarter. I thought the first quarter was in the bag and we could reevaluate after Q1. MANU was overpriced if the biz didn't keep the hypergrowth but we were holding a ticket to something that could be the forefront of 2, 3, 4+ quarters of potential triple-digit growth. It was too early to sell the entire position (besides, sitting on a huge gain, it was easier to stomach any short-term volatility if you just trimmed it back). If you are going to be in hypergrowth stocks, you can't be too P/E sensitive or else you will sell all your best long-term stocks as most of them look overpriced based on near-term earnings. I try to be somewhat valuation sensitive when I initiate the position but once you own it and if things look as good fundamentally as it did for MANU (even some of the best tech analysts got fooled on this one), you can't get too cute or else you would have sold PSFT 40 points ago, CSCO 70 points ago etc... But, you have to trim the position if it runs too big a % of your portfolio (no matter what the acceleration) as everybody is capable of missing a quarter (even mighty CSCO did in 1994).
With regard to what is the right number of stocks to own, that seems to be the eternal question. I think you have to own at least 10-12. There are a lot of exciting things going on and there are always going to be a lot of surprises (both upside and downside) so you might as well diversify to give you the opportunity to participate in the upside of what you don't expect (i.e, MANU's February quarter was a pretty big upside shock) and diversify away the risk of the downside surprises (VNTV hasn't been able to grow nearly as fast as I thought). |
