And there goes another great idea. I’ve heard that every good thing must come to an end. GIG, the stock for the company called GigPeak which was GigOptix which I owned because it merged with Lumera which was spun off from MicroVision, GIG will soon be part of a much larger company. Integrated Device Technology and I agree, buying GIG was a good deal. They’re buying one of my most promising stocks just as the company delivered and just before the stock had a chance to be fully appreciated. This is the risk in buying small companies that are tightly held. Any deal only has to make sense for the people who hold the most shares, not to the most shareholders. The deal meant about a 22% rise in the stock which I estimated could’ve risen far more in the next few months. Instead, I followed my investing strategy and sold; and now must go buy something else.
Two of the main elements of my investing strategy are Long Term Buy and Hold, and Buy Small Companies and Sell Them When They’re Big. I’ve held various manifestations of GIG since 2004, and even 2000 if you count its time as a division within MicroVision. I like to buy small companies before they are profitable, and therefore potentially cheap, hold them through profitability, and then sell when their growth commands a premium. It has worked with companies like Pixar, Starbucks, America Online, and others. It has also failed when upper management is offered attractive buyouts that benefit them and few others like in Go2Net, Eagle Hardware, QFC, and now GigPeak. Details on some of the case studies are in my book Dream. Invest. Live.
GigPeak was bought for the very reason I invested in it. They have a technological advantage in the highly technical industry of high-speed internet infrastructure. Their revenues were up 45% over last year. Grow a $200M company by $10M and swing to a much higher Price/Earnings ratio. Put that same $10M inside a $2B company and barely see the stock budge. The great potential of GigPeak will continue, but it will happen in a crowd of products that can go down as much as it goes up. That’s why I sold Pixar when it was bought by Disney, Eagle Hardware when it was bought by some bigger big box store, QFC when it was bought by Fred Meyer (as I recall), and GigPeak when it is being bought by Integrated Device Technology.
GigPeak’s future is now moot to me. I have to focus on my future by shifting my portfolio. The first step was selling all of my shares of GIG. The question for me becomes, where does the money go next?
Look back through this blog and find several times when I’ve had to make similar investing moves. The process is simple, but can take a lot of time. One of the other benefits of Long Term Buy and Hold is that research invested in understanding a stock and a company happens in a large initial effort with updates a few times a year. Check my semi-annual portfolio exercises for years of examples. It saves time in the meantime, but requires significant efforts at a time like this.
I’ll pass along the updates as I work through the process, but here’s the general outline as it comes back to mind.
- Create a list of all the stocks with market caps below $2B. (They’re already too big for me. Besides, this is the region where individual investors are trying to out-compete major financial institutions. Dancing with the elephants is dangerous.)
- Remove all stocks with market caps below $50M. (They may be cute, but they can be so small that they can be manipulated.)
- If that’s too many stocks, remove all stocks with market caps above $1B.
- Remove all stocks with Debt/Equity > 0.10 (I skipped this step with Iridium, which went bankrupt from too much debt – and then succeeded after shedding its shareholders.)
- Remove stocks for companies that are either in industries I don’t understand or display values I don’t want to support. (This is a very subjective step, but a necessary one for me. For me, it makes personal finance personal.)
That will take the list of available stocks from several thousand down to several hundred. It is a long list, but most of the steps are mechanical.
My next step will be to review the list and watch for companies and stocks that I’ve been tracking from news items. I’ll also review my portfolio to rebalance it if I see an opportunity. In this case, I am likely to buy more AST (Asterias) because I am impressed with their clinical trial progress in helping paralyzed people regain some use of their bodies, and MVIS (MicroVision – and yes, I can hear the groans) because this year will be different (right? please?). I’m willing to devote some of the funds to those two stocks because their companies have histories of sudden positive stock movements on surprise news announcements. Neither has held onto those gains, but they both have a large, latent demand and a limited supply of shares (even with dilution.)
When I was acting retired, I’d devote a few days to the process. With working seven days a week, news may hit while I stretch the process out over weeks. I’ll move some of the money soon, hold some in reserve possibly through tax season, and eventually reinvest most of the rest because interest rates are too low.
Before I leave GIG behind, I want to pass along the chart of the last few days. While the government is supposed to regulate the stock markets, they can’t be everywhere at once. I include this picture of the stock action that happened around the news release. The pattern is too familiar. Days or hours before official news is officially released, the stock moves. It has now become the norm that such moves are watched by other investors as if they were news, too. Possibly felonious actions are now part of the indicators in the stock market. That’s a sad statement. I can’t prove if the stock movement was illegal, but I can point out that it is common enough that few investors expect any action to be taken. It, too, is one of the risks of investing in any stock, particularly small ones that could experience big news. Be careful out there. As I said above, dancing with the elephants has its risks.
In the meantime, it is time for me to say bye bye to GIG and then decide what I am going to buy and buy.