Deconstructing A Blow Up

I had a stock blow up in client portfolios this week. Last December on Forbes on Fox I picked Zebra Technology (ZBRA). They are in the RFID business which helps with supply chain management. There are also interesting applications with drug prescriptions and security. The story is simple, the demand for this is clear yet the company has struggled and this week the company gave its second bad earnings report in a row and also guided lower for the foreseeable future.

Most clients have a cost basis in the mid $40 and I think the highest entry point was around $52. When the news came out Wednesday about the earnings, the stock dropped to about $40 from about $47 in the pre-market. I decided to sell it at the open. I got an average price of $40.35.

Often it makes sense to not sell into the kneejerk reaction but I did anyway. For now that was the right call. The stock looks like it closed at $38.21 on Thursday. A month from now it may be back to $45, I don't know. I do know I got something wrong. As time goes on I will have more mistakes, that is how it goes. How I manage those mistakes is what matters.

My decision to sell was based on two bad reports in a row and similar struggles at Symbol Tech (SBL). I think I learned that I should have taken a cue from the action in SBL before the ZBRA news to get out.

ZBRA had about a 2% weight in client portfolios so the damage is minimal. This episode is a great example of why I have so many stocks in such small percentages for client accounts.