The below text is licensed to Covestor Ltd. (“Covestor”), by Dan Plettner. Such text may be disseminated only by Covestor. Dan Plettner invests and receives income for securities research, including “buy-side” research. Dan licenses his own real time trading data to Covestor Ltd. (“Covestor”). Covestor is a Registered Investment Advisor that uses Dan Plettner’s data to create the Core, Long Short Opportunistic, Tax Advantaged Income, and Taxable Income models for its clients. Dan’s words should not be misconstrued as investment advice.
The goal for my account licensed to Covestor’s “Core” model is “to provide significant risk-adjusted total return outperformance versus the S&P 500”. August was a frustrating month in the markets. Per the Covestor performance report, my account declined 0.66% relative to a 4.74% decline in the benchmark. Per the Covestor risk report, my account’s daily standard deviation was 0.37% (versus 0.92% for the benchmark) and range was 2.38% (versus 5.02% for the benchmark). Independent of my latest lesson learned and my wishes that I had done something differently, I stayed well focused on my goal.
In managing each of my uniquely styled accounts, I have to see the forest through the trees. And in blending my uniquely styled accounts together, I have to see the country around the forest. I am focused on long term performance. However, I’m not in that camp who claims short term performance to be irrelevant. In my eyes, the long term is the aggregate of all short terms.
I hope to have learned from every mistake I have ever made. Reflecting on myself more than 10 years ago, I often tried to do too much in certain market environments. Some environments justify more nimbleness than others. At all times, it is important to be aware of my environment. If am in a goldmine I want to look for gold. If I am in a cow field I want to watch where I step.
A good golfer knows when to “lay up”. A baseball manager must evaluate which batters to walk, and his pitcher must know when to throw that sinker ball in search of the elusive double play to end an inning. As the American Football season approaches, I prefer the quarterback’s expression: “Take what the defense gives you.” I believe that in the current environment, it is especially important to seek return prospects significantly warranting the perceived risk. The market’s sharp moves in each direction suggest to me that what are currently good opportunities may become exceptional.
During the trading week from August 23rd to August 27th, I arrived at a more liquid and nimble position largely resulting from the merger of Closed-End Fund GCS into an open end mutual fund (SKMRX, merger class of SKNRX) of which I now hold no shares. I continued reducing the AWP position into August.
I have plenty of ideas I love, but I think it smart to work on Mr. Market’s calendar rather than my own. In short, I want to be both prudent and opportunistic about when I implement various kinds of ideas. Over the last couple of month’s I’ve commented as to our patient’s bout with Bi-Polarity (the patient being “Mr. Market”) and I’ve questioned whether anything has changed as we’ve revisited the extremes of trading ranges. The one certainty is that the trading range won’t last forever. No medical observers know what will happen to a patient, or when. But a doctor should observe a patient closely, and maximize his preparedness for alternate possibilities.
I recently acquired some Trust Preferreds perceived to have minimal call risk and principle upside among their peer group. Those I chose here are guaranteed by JP Morgan (JPM-X) and Wells Fargo (WPK).For liquidity and concentration purposes, I have avoided duplicating the same Trust Preferreds in the alternate Taxable Income style.
In the last month, I believe the prospect and risk of rising interest rates became less immediate. Also, I have a desire to achieve a yield on some money not in equities. A well-reasoned upswing in volatility may further affect demand for fixed income assets. My specific choices of Trust Preferred Securities were influenced by credit risk and a desire to maximize the relationship between principal upside and call risk. I also anticipate that Trust Preferreds may become a more popular investing instrument if and when the Bush Tax Cuts expire.
I am decidedly imperfect. I want to continue learning from any and every mistake I make. I recently used VXX to play an expected rise in volatility. My decision was a bad one and my monthly return was lessened as a result of not choosing VXZ instead. I accept that I am imperfect and always will be. By accepting that I am imperfect, and attempting to be my own greatest critic I hope to continue learning and growing wiser as I assess myself critically.
