Here’s a peek behind the scenes at Hedgeye as we evaluated whether or not to remove Hologic (HOLX) from our Investing Ideas product this week. It was a debate between the coach (Keith McCullough) and player (Tom Tobin). Tobin is our Healthcare sector head and he authored this note.
[At a fund] I would be telling my portfolio manager to take down the position, but not eliminate it. Embracing the uncertainty of how the data leans (high valuation, +performance, possible negative surprise on revenue) is the key here.
Player: I am sitting on some good performance. I like the long term, but I see some short term risk. Data point 1, data point 2, etc….
Coach: Let’s book it. What I see from my seat doesn’t look good for the name. I hate this market and want to take down long exposure.
Player: But it could double from here! Be patient, you're overreacting. I’m just covering myself by sounding an alarm. I may be misreading how the street will react. And there’s always a chance I’m being way too worried about what other people think.
Coach: Relax. We’ll buy it back.
Player: That never happens. If I am wrong, the stock will be up and you’ll wait for a pullback that never comes. All of my research will get wasted. I put so much into this it will be heartbreaking to see us not participate.
Coach: Okay. Let’s sell half, more if it rallies into the number, less if it sells off. You good with that?
Player: That sounds good. If they puke the quarter we can double down. I’ll keep you posted as I update key data.