Disclaimer: Dan Plettner owns DCS, DDF and CAF in his Covestor Long/Short Opportunistic model.
September 30, 2010: 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.
To the extent, if any, that the broad market is the benchmark for this Long/Short Opportunistic Style, I underperformed in September. This style takes short positions as well as long positions, and most recently has been adding to composite short positions (DCS and DDF at the end of August, CAF in early September), and selling long positions like FGF and SGF.
Although I am targeted on total return here, this account’s style, among the various I license to Covestor is quite unique to the traditional “long equity”. In my opinion, being so narrow, this account’s style warrants only a minority allocation within a Closed End Fund and underfollowed security discipline. As I keep saying, I use a blended approach of alternate styles in my overall strategy. Each of my accounts has a unique style. I believe in blending alternate style biases within my own discipline in effort to achieve more smoothness over the long term.
Mr. Market grades each of us in both the short term and the long term. The short term matters because the long term is the aggregate of all short terms. When I look at my short term grades, I need to objective and critical of myself. Big heads never learn anything. With markets embracing risk assets like Chocolate in September and the general composition of this style portfolio, I am pleased when looking at its Covestor’s September performance and risk reports.
In contemplating signs of a confused marketplace a month ago, I observed that trading ranges never last forever. The top down positioning change here, and in alternate more traditional styles has reflected my assessment of the markets risk and reward parameters. In terms of positioning top down with my favorite single security ideas, I sure which I had a crystal ball. In the very near term, the market’s sharp move was upward.
I continue to lack strong conviction in the market overall. Was early September a head-fake to tempt in the last window dressers and risk-lovers, or the first inning of a major market rally? There are both upside and downside risks, and well-merited rationales for each. Stocks are generally cheap relative to alternatives, and they may be under-owned. At the same time, economic policy makers have used their primary ammunition and seem to be focused presently on rhetoric. Is rhetoric the policy makers’ most effective tool to keep people from shunning stocks? And, would the prospective returns that might justify the risk profile of equities be overtaxed next year?
With the benefit of hindsight, I would have loved to have closed all shorts in late August and put them back on later, but I am generally very happy with my general positioning in this style at present.
On a more personal note, I enjoyed the Covestor webinar. Since leaving Wall Street, I’ve loved the personal autonomy. My speech was never so liberated, even when communicating with Financial Advisors. I will continue to make myself available to Covestor for any follow up questions.
