Top Manager Continues Taking Money Out Of Tech Stocks

New sector leadership is emerging as the Tech sector’s slide continues.Getty

Fund managers who only invest in Tech stocks will be the last people to recommend you get out of Tech stocks. To assess the Tech sector’s attractiveness, I have been speaking with Wayne Himelsein, a Marketocracy manager who has been in and out of Tech stocks for the past 18 years. After another down week for Amazon, Apple and Nvidia, it is becoming clear that Wayne is steering us in the right direction.

Ken Kam: Almost two months ago, you started moving out of Technology and into some new sectors. Looks like you were right to sell some Tech stocks.

Wayne Himelsein: Yes, in October I started looking for sectors that were showing signs of strength during this recent weakness that indicate taking the reigns of leadership. My initial favored focus was on drugs & biotechnology, and to that, I now want to add, healthcare, and more specifically, my new gem find, WellCare Health Plans (WCG).

Kam: Before you tell us about Wellcare, can you give us your thoughts as to some of the tough times some star names are having in this market turbulence, and how much each day changes your opinion?

Himelsein: Profound question Ken. I imagine investors can get quite frustrated when a quality stock is identified, researched, and after painstaking thought, invested in; and soon after, is underwater.

This definitely drives me crazy. Nobody likes this experience, and no matter what people promote, professional or otherwise, everybody goes through the same pain. It is literally impossible to be right in the market all the time. The world’s best investors maybe have a 55% edge.

The question you’re asking boils down to “what should we do with our wrongs”?

My strong belief is to try your best to assess whether the underlying thesis has changed.

One should not get shaken out by an adverse market move, or by a few days or weeks of choppiness, if overall, the reason for purchase is still confirmed. A good stock that has an adverse drop (for example at a short lived bad news event) can be a good stock at a better buy! But much of the time, it can also be one to get out of and move on, given a large adjustment to its future prospects.

Kam: Makes sense. How do we know whether this week’s performance by Apple, Amazon, and Nvidia are giving us a chance to buy great stocks a lower prices, or whether we should get out and move on?

Himelsein: There’s, unfortunately, no magic or easy way to delineate, other than asking that question all the time, and thereby gaining the experience to properly answer it.

But asking the question is the biggest step in doing better from this day onward. In other words, instead of worrying about what price we paid, or breaking even, or how much we like the products of some company, the reframing the question to “does my thesis still stand”, or “are the future prospects as good now as they were when i first entered it?” Just asking the right question is half the battle.

A simple analogy to this is thinking about when a friend does something wrong in your eyes, do you end the friendship, or forgive them, and move on? Depends, did whatever happened reframe who they are, or who you thought they were? Or was it a just a mistake, or a careless decision, and doesn’t change their core person? Similar analysis.

Kam: Last week you said Amazon was an opportunity. Perhaps next week, you can tell us what you think of Apple and Nvidia. But, now can you tell us more about WCG?

Himelsein: WCG is precisely as described above, the friend who messed up badly, but is still that awesome person that you always knew they were.

Since mid-October, WCG has sold off about 22%, in a downfall that looks like it was pushed off a cliff. Ouch, it hurts to even look at it. But that recent behavior does not change the thesis, including its relentless climb over the last decade, making new leaps to higher highs almost monthly, like clockwork.

Even earlier this year, after building a beautiful base from Feb to Apr, it took off to advance upward, ticking new highs almost daily, with precision, and with ease. Such perfection of price performance has generally only been seen in the most darling of Tech stocks, but is readily apparent here too. The big difference is that through most of Oct, till about the 18th, while tech crumbled, WCG just danced sideways, barely losing ground amidst the turbulence.

Then, on the 23rd, it dove off a cliff like an Olympic athlete in a graceful swan dive, with a final body rotation on Nov 8-12th, to find its footing at the bottom. The bottom is the $250 level, where it last spent its time moving sideways over the course of July, establishing a new base before its rapid acceleration. I therefore like this level — its prior stomping ground — for a stop, an about face, and re-establishment of the uptrend.

Accordingly, it’s one of those that is a better buy now than it was before.

My Take: Technology fund managers never recommend selling tech stocks. When Tech stocks fall out of favor, Technology fund managers want you to ride it out with them. Wayne is different.

Wayne Himelsein has performed will in Tech stocks for the past five years, but he also performed well after the Tech bubble burst 18 years ago, so I trust him to get us out of Tech when its no longer the best place to be.

Wayne’s Logica Focus Fund (LFF) has a 18+ year track record at Marketocracy. Over that period, Wayne’s model averaged 12.43% a year which compares well to the S&P 500’s 5.50% return for the same period.

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source: forbes.com