Friday, January 25, 2008

Bookkeeping: Selling 50% of Solarfun Power (SOLF)

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I explained the reasoning for this yesterday in 'Solarfun Power (SOLF) Plunges 15% on Convertible Debt Offering'

I have a 2% or so position in this name - since this stock is now "cheap" and has an earnings report coming out in a month which can move the stock significantly I will await that, but under normal circumstances I cut bait immediately the minute I see convertible debt issued. It's toxic for long common shareholders in my book. That paragraph I highlighted in red explains exactly why. Only the fact this stock has the ability to rise 30% in a day leads me to hold these shares... but I am displeased in a very large way.

This name has been a fan favorite of the retail investor the past few months, so it could certainly rise and ignore the convertible, but if past experience is any gauge, the stock will be under pressure as institutions short common. Convertible debt simply is NOT shareholder friendly so I don't want to stick around in this name.

Instead of selling at the panic lows yesterday around $14, with the stock rebounding to $17 today I am going to take off half my shares and hope for $18-$19 sometime in the next few weeks to get rid of the second half. If it continues downward from here, well then I've at least reduced my exposure. So I'm still taking a heavy loss, but you cannot game a convertible debt offering - it happens out of the blue and you are stuck. So I got stuck here and I am going to pay with a meaningful loss.

I sold 650 of 1300 shares of Solarfun Power near $17. This reduces my exposure to the name from 2% of fund to 1%. Most of my purchases were in the low to mid $20s so I am taking roughly a $3500 loss on this batch. Luckily it is offset by some sales in the $28-$30 range, but it still does not sit well. Hopefully this company reports a blowout earnings and retail investors climb back in and can somehow overpower the institutional shorting, but for now I am going to set a limit order to sell the remaining 650 shares at $18.75 and we'll see it if triggers sometime in the coming weeks.

Long Solarfun Power in fund; no personal position

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