Sell when you can, not when you have to


July has been an interesting month for the Aspect Large Value portfolio. I didn’t add any new positions and sold 40% of my Intel (INTC) holding for a gain.

One reason I sold Intel was that the position had become too big of a percentage of the portfolio. At the same time, I wanted to lock in some profits. It’s not that I think Intel is topping out – quite the opposite actually. It’s just that whether this is a strong bull market or a bubble, I like to sell when I can, not when I have to.

I have owned shares of Intel off and on since 1991, when I was in high school. I traded in and out of it back then, and by 1995, I finally decided to take down a bunch of it and sit on it. So I can honestly say that I have ridden this stock all over the place.

The first 10 years were great; the last 10 years have been painful. However, with a cost basis of 13 on my original shares, and having trimmed some back in 1999, I feel pretty good about Intel as a company and as an investment.

Capital gains taxes are only a problem to those who make money. So as much as I try to lower my tax bill by taking longer term positions, I don’t let taxes dictate whether to buy and sell a stock.

Of course, I don’t have a crystal ball. Yet if I had to guess, Intel may be a run that should continue for at least another 12-18 months.

Some have speculated that Intel is working on memory chips while other point to Intel’s ambitions for expanding into the chip market for smartphones and tablets.

For me, it is hard to tell – but Intel seems to have the best designs and the best manufacturing processes, so whether it applies it to tablets or memory chips, the company should be able to get a good number of design wins.

If Intel can make use of the capacity the company has already built, the stock could rise to the high 40’s or possibly the low 50s in my opinion. At that point, I hope to be mostly out of the position. In the long run, the areas that many large cap tech stocks compete in are turning into commodity areas, and I believe that there will be more exciting places to invest capital at that point.

For the record, I do not believe the stock market is in a bubble. Considering how low interest rates are, the market is actually cheap on a relative basis. On an absolute basis, it is hard to find stocks to buy, and I am selling more than I am buying anyway these days.

As a business owner, I look at what I would pay for a business or what I would sell it for – this does not change how much if the market goes up or down. So right now, I believe that we are in something like a sellers market.

Photo credit: Ryan Holst via Flickr Creative Commons

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DISCLAIMER: The investments discussed are held in client accounts as of July 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.