"madamswerMay I ask why the sale at this price; do you believe it's fully valued, or just reducing exposure?"@SteveSage,
The two are mutually inclusive, so its a case of a bit of both.
For businesses that are at SP3's stage of corporate evolution, i.e, pre-profit and sub-scale and with some capital adequacy questions, the range of possible future share price outcomes is wide.
So what I do in these sorts of cases is I assess the likely valuation under a range of scenarios, from
Every Thing Goes Perfectly To Plan right through to
The Worst Case; then I apply some sort of probability to each scenario eventuating and in doing so derive a weighted average price target expectation.
(I acknowledge that this is clearly not a precise science and involves quite a lot of "feel" for which a bit of experience is required. But what it does do is it provides some sort of disciplined investment process framework which removes a lot of the emotional ebullience out of the thought processes... as you know, human emotion is an oft-demonstrated anathema to good investment outcomes, so I try do all that I can to invest in a way that neuters my emotions. To save me from myself, as it were.)
So in SP3's case, when I first acquired the stock, (refer
https://hotcopper.com.au/posts/48674213/single) my weighted average valuation was more than 100% higher than the prevailing share price at the time.
This feeds into the construction of my investment portfolio where - with sensitivity to tax consequences and a couple of other technical portfolio considerations such as liquidity constraints and sectoral concentration limits - I like to have more of my capital invested in stocks which I think offer the greatest potential upside.
So, for example, a nano-cap stock such as SP3 with a 100% or 150% or 200%, upside might justify a position of 0.5% of my fund. But in the fortunate event that it appreciates to such an extent that the residual upside is no longer 100% then it stands to reason that I should seek to own less of that stock.
Nothing overly remark-worthy in relation to any of this, I wouldn't have thought.
So that's what's happening to SP3 for me: I am selling because the residual upside is less than my initial investment positioning justified.
(Of course, for teeny stocks like this, it doesn't take too much selling before the position size becomes such that it is an immaterial investment which means that there is no point owning the stock at all, even if there is further upside. I'm approaching that tipping point.)
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