Monday, March 28, 2011
Walter Energy - 13%
Much like Red Hat, this is a stock that takes up a large percentage of the portfolio because it was bought cheap and increased in value, in this case rapidly. Unlike Red Hat, I don't plan on de-investing any time soon. First, this company appears to be run extremely well and efficiently making smart decision after smart decision; second, its market does not appear to be going anywhere as China needs its coal; and third John Paulson, the shrewd investor who correctly predicted the collapse of the housing market and, more importantly, figured out how to profit from it by selling mortgage backed securities short, recently added this diddy to his portfolio.
Also, unlike Red Hat, I cannot really pinpoint when and where I first heard about Walter. It was around 2005 and I believe I started tracking about ten stocks involved with China. I purchased my first bloc at $30 and watched it jump to over $90, then plummet down to $37. In some cases, wild swings are a major turnoff, and perhaps if you are protecting wealth instead of trying to accumulate it, they should be. However, I viewed the $90 price as a realistic target and bought my next bloc at the aforementioned $37. When it started climbing back up, past $90, I figured it would do what it did before, and I put my STOP order in when it hit $94 for $89. When it went up to $109, I changed my STOP to $101. When it topped $120, I canceled the Stop order altogether and now expect the 4 or 5 dollar swings a day. With a current price target of $150, its recent purchase of Western Coal (overwhelmingly improved by their investors), no analyst giving it a worse rating than "neutral",and nuclear power now suddenly on the wane, I see no reason to do anything but hang on for the ride.
Red Hat update: 2 days after my post, Red Hat announced a 25% quarter-over-quarter increase in sales, beating the analysts predictions. The stock increased 18% in one day fulfilling my predictions in much less than the 6 months to 2 years I had originally thought. This is par for the course. No one understands how they could possibly make money so they get trashed and everyone claims they are overpriced. The price goes down until the quarter results come out which they invariably beat and the price goes back up. However, as I promised, I need to put my stop order in and de-invest in 15%-20% of my holdings. I think 20% is a decent target for ones maximum percentage of one holding in their portfolio. This was historically about the percentage that coke was of Warren Buffet's portfolio, although that's up to 25% more recently.