Constantly Concentrating: Why I Sold George Risk (RSKIA) and Weight Watchers (WTW)

by Geoff Gannon


I’ve gotten a lot of questions regarding my sales of Weight Watchers (WTW) and George Risk (RSKIA).

 

Interestingly, literally no one emailed me about selling Babcock & Wilcox Enterprises (BW).  

 

I’ve picked out two questions as representatives of the larger group.

 

 

Question #1: George Risk

 

“Really interested in why you decided to suddenly sell RSKIA.

 

I mean it's still obviously undervalued. You could have sold it in the beginning of 2014 for a better price than $8.40. Stocks in general were obviously cheaper at that time than they are now.

 

So logically it means you've found a better opportunity now than you could find in 2014 relative to the current price of RSKIA. That just seems really surprising to me.

 

The only logical conclusions are that you either lost patience with RSKIA, now have a different view on the risk of the markets, or really did find something better than what you could in 2013/2014.

 

If it's the latter, I can't wait to hear what it is when you decide to post it...”

 

 

 

I sold George Risk, because I am planning to buy Howden Joinery.

 

I don’t like to take positions that are smaller than 20% of my portfolio. The total amount I had available in cash, Natoco, and Weight Watchers combined was less than 20% of my portfolio. So, I sold George Risk to make room for Howden Joinery.

 

I try to only sell one stock to make room for another. The reason I hadn’t sold George Risk before is that I hadn’t found a stock I liked better than George Risk. I’ve now decided I like Howden Joinery better than George Risk.

 

Yes, I could have and should have realized this a couple years ago. I’ve known about Howden for years. Howden shares were cheaper in the past than they are now. George Risk shares were more expensive in the past than they are now. I’d have been better off if I made the swap sooner. But, it took me a while to come to this decision. I don’t own Howden yet. But, I expect to buy it soon.

 

 

Question #2: Weight Watchers

 

“With regards to your long term stake in WTW, I am just curious about the WTW sale, since WTW has announced growing subscription numbers and has Oprah as a Board Member, so things look rosier than last year.”

 

Yes. Weight Watchers is doing better now than it was in the past. Oprah Winfrey is a great spokeswoman and a good board member for WTW.

 

I didn’t sell my shares in Weight Watchers because I like the stock less now than I did last year. I sold my shares of Weight Watchers because I looked at what percent of my portfolio the stock made up and then considered whether or not I’d like to buy more.

 

Here’s what I said in a previous post:

 

“Weight Watchers, B&W Enterprises, and Natoco combined were now only about 10% of my portfolio. I had no intention of buying more of these stocks. I like individual positions to be about 20% of my portfolio. So, both Weight Watchers and B&W Enterprises had become distractions I wanted to eliminate at some point.”

 

Honestly, once I come to the realization that I’m never going to buy enough of a stock to get it up to 20% of my portfolio – I start thinking about selling that stock. I still own Natoco. It’s only about 5% of my portfolio. And I plan to sell it at some point. When I do sell Natoco, it won’t be because I don’t like the stock. It’ll be because I don’t like the stock enough to bring it up to 20% of my portfolio.

 

That’s really just how I think. If I wouldn’t want a stock to be 20% of my portfolio – then why would I want it to be any percent of my portfolio?

 

From time to time, I do own stocks that are less than 20% of my portfolio. Natoco was bought as part of a roughly 25% to 50% of my portfolio basket of Japanese stocks. When I sold out of those Japanese net-nets, nobody was willing to take the price I was asking for some of my Natoco shares. So, I kept the leftover shares rather than compromise on price. Later on, I kept holding Natoco, because I didn’t have anything I wanted to buy more of at the moment. So, it was a choice between either doing nothing and staying in Natoco or doing something and adding 5% of my portfolio to my cash balance. My bias is usually toward: 1) Inaction and 2) Holding stocks instead of cash. So, I just stayed with Natoco.

 

Once I decided I was probably going to buy Howden Joinery, I started thinking about selling George Risk, Weight Watchers, Babcock & Wilcox Enterprises, and Natoco because these positions combined were about 30% of my portfolio. I knew I’d want to put at least 20% of my portfolio into a new stock idea like Howden.

 

And I knew I don’t like holding “distractions”. I consider any stock that makes up less than 10% of my portfolio to be a distraction. When I look at a distraction, I ask myself a simple question. Would I rather have 20% of my portfolio in this stock or 0% of my portfolio in this stock? And then, I either buy more to get the stock up to 20%. Or (much more likely) I eliminate the position entirely.

 

This is something I really do. With both Weight Watchers and Babcock & Wilcox Enterprises – which are two stocks that dropped 50% or more at one point to become small positions for me – I really did ask myself whether I wanted to more than “double down” on these positions. In both case, I decided I’d rather buy a completely new stock than take positions like these from less than 10% of my portfolio up to more like 20% of my portfolio.

 

So, I sold George Risk because I decided I liked Howden Joinery more than George Risk. And I sold Weight Watchers and Babcock & Wilcox Enterprises because – in both cases – I decided I’d rather have 0% of my portfolio in each of those stocks than 20% of my portfolio in each of those stocks.

 

I could have kept them at 10% or less. But, that always feels to me like a half measure that doesn’t make much sense. I never want to “water down” a future good idea I’ll have – like Howden – because I’m still holding some ideas I maybe half-like and half-don’t like so much anymore. I’d rather ask myself: do you really want to buy more of this stock to bring it up to 20% of your portfolio? No. Then why own it at all?

 

I know that’s an unorthodox approach. I’ll also admit that on a strictly rational single case basis, it’s an incorrect approach. It’s not rational to sell something just because you aren’t willing to make it 20% of your portfolio. However, I’m always trying to find the strategy that works best for me over the long-term. And I think a habit of focusing all my efforts on holding no more than 5 ideas is one that makes sense. If I’m going to implement that policy long-term, I need to constantly eliminate positions of less than 20% in the short-term.

Talk to Geoff About Why He Sold George Risk and Weight Watchers