Ram, you must visit the "Semi Equipments -- Buy when Blood is in the
Streets" thread on SI. There are some intelligent people there like
Cary Salzburg ( a long-time valuable SI poster). discussing selling strategies to maximize profits.
Here is a good one from Cary:
Ian, Thomas,
I believe that selling the semi-equips must be based on estimates of the duration of the
up leg of the cycle and estimates of peak sales and earnings for the companies. With this
in hand, each one of us can start selling when we feel that the current price discounts
much of the cycle's potential for that company. (When I say this, I think of the mice who
concluded that the solution to their problems was to put a bell around the cat's neck.)
While our task is not as hopeless as what the mice face, I am fully aware of potential
pitfalls. One, is market risk. "Irrational exuberance" characterizes the most conservative
investors, today; lunacy describes the rest. A severe market correction in response to
mildly negative news is certainly possible. A second risk is a repeat of 1997, where the
semi-equip up leg was short-cicuited by problems in the general economy. In the face of
these risks, Mason's "take the money and run" strategy with >100% gains certainly has
merit. But, I am greedier for stock profits than Mason is because I don't have lucrative
hourly billings to compete for my time and I don't think that it is a given that semi-equips
will be back to their '96 and '98 lows in a year or two.
The strategy I described on the LRCX thread, is a phase one selling strategy. I sell 40%
of the shares when the price reaches 2.5 times what I paid for it. This allows me to play
with the "table's" money and be a "long term" investor in the face of the risks described
in the previous paragraph. As Sam Citron suggested, it is only the beginning of a selling
strategy. I believe I have time to create a more complete strategy, because we are still at
the beginning of the cycle's up leg.
During the summer of '97, before the downturn began, I tried to stimulate an effort on
the AMAT thread to come to a consensus on AMAT's likely cycle earnings peak. I
considered likely cycle durations, likely industry growth rates, and AMAT's previous
cycle peak. I still think that this is a fruitful strategy. The current market's psychology
makes it likely that some or most of the semi-equips will be overpriced at various times
during the up leg. With a ball park peak valuation estimate, we could exit these stocks
during the first period of overpricing that sufficiently discounts the reward afforded by
waiting for the peak price.
Cary |
