On Wednesday we trimmed our position in AbbVie in client accounts that were overweight the position.
We first invested in AbbVie as a byproduct of its spin-off from Abbott Labs. We then increased our AbbVie position to a full portfolio weight post spin-off. We saw a market misunderstanding of Humira, a biologic, and a mispricing of AbbVie. At the time AbbVie yielded around 4.6% and traded at a price of $34.59. AbbVie currently yields 3.81% and we trimmed our position at $148.70 per share. For those accounts that have owned AbbVie since its spin-off the yield on the cost of their first purchase is 16.31%. Over the years, we’ve added to AbbVie, so the blended yield on cost for most of these accounts is estimated at 9-10%.
We did not trim AbbVie because of recent market action nor are we raising cash to protect us from a further market decline. We have position size rules that trigger buys to add to a position if it gets too small in the portfolio and sells to trim a position if it gets too large. We create rules to try and remove our emotional biases as best as possible. AbbVie exceeded our maximum position size rule, so we trimmed it to bring it back down to our target range.
We also maintain a watchlist of high-quality companies that we want to own at the right price. The right price could happen at any time, but market corrections create the most opportunities. We recently added S&P Global (SPGI) after waiting for the right price for years and we’re adding Thermo-Fisher Scientific (TMO). We will cover these two companies more in-depth in upcoming letters. But the cash raised from the trimming of AbbVie will help fund our starter position in Thermo-Fisher.
