It's inevitable, even for longer-term investors such as myself. From time to time positions need to be closed altogether, or reduced in order to take profits, rebalance, or simply to raise cash. That's where I found myself late last week.
I said goodbye to Vonage (VG) after a great 3-year-plus run. This position was an odd one for me; I called it a "different kind of value" at the time of purchase. There may still be some meat left on the bone with Vonage, but it just does not fit into my scheme any longer, and I am happy to walk away with a three-bagger. I still love the product, and use it for my business, but I am a cheapskate, and this one was always an outlier in terms of valuation.
I also reduced the position in Hibbett Sports (HIBB) , which was a rebound play, purchased over a couple of days in August, smack dab in the middle of the specialty retail bloodbath. I was fortunate to get some shares very near the bottom, but did not expect the somewhat instant gratification as the stock rose from just below $10 (intraday on Aug. 18) to $26 on Jan. 22.
HIBB is still not expensive, trading at 14x next year's consensus estimates, and 2.34x net current asset value (NCAV), but with a 150% move up in five months, it was time to take some off of the table, and ultimately redeploy elsewhere. It is good, however, to have some dry powder available even though I am in no hurry to put that capital to work.
Meanwhile, I closed the position in Valhi (VHI) . This name fascinated me for years, but I finally initiated a position just four months ago. The option-like 150% move since then is something that I am not all that accustomed to, and the 28% drop on Dec. 6 following some news on the industry was further evidence that I was "not in Kansas anymore" with this position. The shares have recovered somewhat since then, up 17%, but enough is enough.
I still believe that VHI is a potentially interesting longer-term sum-of-the parts play, but at this point I am happy to at least take a breather, having realized an unanticipated and much-better than expected short-term gain.
While I am not a believer in luck per se, I will admit that the extent of the gains in VHI and HIBB were not based on skill. They were both, in my view, cheap companies with room to run, but the instant gratification from both was unexpected and somewhat abnormal in my convoluted small world of value investing.
Still, I'd gladly take a dozen more just like them, and am still on the hunt for cheap names, although finding them seems to be a tall order these days -- and growing taller by the day.
