Bookkeeping: Cutting back LDK Solar (LDK)

With the 2nd tier solar names in a tizzy over the past few days, and daytraders arriving en masse, I am reducing sharply my exposure to LDK Solar (LDK) - the stock has moved from $30 to $40 very quickly (2 days). The price action has confounded be a bit in terms of the portfolio as the stock was extremely weak last week in a good tape - indicating perhaps some bad news was coming from its audit report. So I lightened up prematurely. But this week, speculation has trumped everything else and the stock has put a huge move on.

Apparently the names are rallying today on the Congressional energy bill. I guess it's as good of an excuse as any. This bill has been floating around in various forms for weeks but today was apparently the day for it to matter. When a sector is in play, any old excuse to run the stocks up will do. If this were truly "the" reason, the 2 leaders in the sector would not be down 4% today. But I guess a news reporter can't write "many names in the sector are up 10-25% today as day traders roll in buying up stocks that were up 15-20% yesterday as they momentum trade". It just doesn't make for good copy.... so they come up with some more legitimate 'reason'.

Either way, as I said this former high flier could be worth $50, $60, or even old highs of $70 as long as they get the audit news out of the way in the coming weeks. Until then it could be up 40% or down 30% in the blink of an eye so I am going to book the gains of this smallish position and let the information come to the forefront. I do expect LDK Solar to have spectacular revenue gains in the months ahead, it's just a matter of what their true gross margin is. Well that matters to me - to the people speculating in these 2nd tier solar stocks its back to mania time "what it was up 40% yesterday? Buy more today, it can only go up". Again, I am constantly fascinating and always underestimating what little time it takes for greed to triumph over fear. Humans have very short term memories.

One can ask, why would you do this? You could be leaving 50% on the table. Certainly. But I always like to work from a position of more information rather than less. While I believed downside risk was relatively limited near $30, it begins to increase more as we move upward. Once again, just like a Fed meeting we are encountering a bipolar event where a stock could be up 60% or down 30% in a blink of an eye based off a news event. I have no information advantage here, its simply a roll of the dice. Hence we move from investing to pure speculation and the advantages of fundamental analysis are lost, and we move to Vegas style 'guessing'. Someone will win very big soon on LDK Solar, and someone will lose very big. I have no idea who it will be, so I'd rather not be either party at this time. I was more willing to sit at the table at $30 without information - now I'd rather pull back, and yes as strange as it sounds it would be more safe (to me) to buy at $55 with a full plate of information than at $40 with huge unknowns. But that's just me and each invests accordingly. Half the battle is not losing money... so I try to avoid it when possible.

Long LDK Solar in fund; no personal position