OK, not bye, bye, but I did sell some shares. Let’s talk about why.
I don’t like to sell shares of the companies I own. I’m a big fan of letting my winners run. Apple, Amazon and Netflix have grown from small initial investments to huge portfolio holdings for me because they’ve performed so well. Some folks will encourage you to sell some shares, and take some gains. A popular strategy when a stock doubles is to sell half so that you are playing with house money. That is, you’ve gotten back the money you put in, and you leave the earnings invested to continue to grow.
I’m not a huge fan of these sell strategies. If I believe in a company, why wouldn’t I stick with it? While typically I stick with the buy and hold strategy, today I didn’t. I took some off the table, which I typically don’t do.
Conviction
I don’t think I’ve written many posts on investing where I haven’t talked about conviction. In order for me to invest my capital in any investment – stock, bond, mutual fund, ETF… I need to have a strong belief that this investment will perform well in the long term. I create a brief thesis for the investment, and then I read and test regularly.
This process builds conviction.
Broadcom
So what happened with Broadcom? As you may remember, I bought shares of Broadcom back in early 2022. I bought a basket of chip stocks. Read more here. I was optimistic about computer chip stocks and I didn’t have a strong feeling about any one company, so I bought a few. Broadcom was one. I also bought Intel, Nvidia, and Taiwan Semiconductor.
After a rough start in the 1st half of 2022, chip stocks got hot. I’ve been pleased with my investments, aside from Intel, which I’ve written quite a bit about here, here, and here.
I bought Broadcom for a split-adjusted price of roughly $55 per share and it is now at $169.
Wow, That Grew Fast
I was updating my thesis today. Broadcom now shows on my top holdings by market value, and on the top gainers of 2024 (2 of my many spreadsheets). Companies that make the top holdings list get looked at more frequently than the rest.
Reading some research reports on Broadcom, I felt it was a solid investment. I’m optimistic about the future of microchips and Broadcom remains a premier player, but I’m concerned about competition, Broadcom’s growth by acquisition strategy, and the fact that a significant portion of revenue comes from a handful of customers.
While these certainly aren’t sell signs, they are concerns.
Looking at my portfolio and seeing that it is now a top holding by market value and that it has grown over 200% in the 2 and a half years that I’ve owned it, I decided to trim my position. I sold 1/3 of my shares.
Conviction (Again)
I like Broadcom and I’m optimistic about its future. I expect it will outperform and I expect that we will continue to see high demand for microchips. All the kids seem excited about this AI thing, so there may be something to chips and computers after all.
But my high conviction slots are reserved for Apple, Amazon, Netflix, Costco, Visa, and a few other favorites. Broadcom is more of a medium conviction company in a high conviction industry.
Allocation
I looked at the other chip stocks and tech stocks (like Arista Networks) and saw that Broadcom’s run-up had it over-weight compared to its peers. I decided to reduce my allocation to Broadcom and bring it more inline with the others.
Wrap-Up
So, I happily maintain a significant investment in Broadcom and enjoy a nice 200% gain on the shares I sold. It drops off my top holdings list, bit still remains on the 2024 top performers list. For those who are interested, here’s the top performers list
Just as an aside, the tech stocks make sense to me but Toll Brothers (House Builder), Texas Roadhouse (Casual Dining), and Carrier (HVAC)??? Wow.
But my decision to sell was not to take profits. If it was, what would I do with the profits? I need to invest in something else, something I expect will do better, right? Profit taking doesn’t really make sense to me, unless I’m using the profits to pay my living expenses.
My decision was to bring Broadcom more inline with companies of which I have a similar level of conviction.
I don’t like to sell the companies in which I invest. I also tend not to trim my positions, but in this case, due to excellent performance, Broadcom got a little too big for my portfolio.
Happy Investing!