Author: Beckerman Institutional
Covestor model: Flexible Value
Despite a volatile 2011, the market finished relatively flat. In our model at this stage, we see opportunities across a number of sectors – in particular, large and micro-cap areas of the market. Although we are not biased toward a particular sector, we have found the most bargains within these sectors.
I see a number of opportunities in technology. It is clear that technology is impacting just about every part of the economy and we find that there are some impressive growth companies that are priced as though they are value companies.
We are underweight in gold, and I think this is where we are somewhat contrarians. The bull argument for gold rests upon the unprecedented level of quantitative easing and expansion of national balance sheets recently. This is true – however, every great bubble has an element of truth to it. In the nineties it was true that technology was going to change our lives. It was also true that investing in real estate and mortgage backed securities, broadly, was a consistent and reliable investment strategy prior to 2007. Of course, over long periods of time fundamentals do play a role in the valuation of assets. Once the majority of investors subscribe to an investment trend, there is the potential for the asset class en vogue to become overpriced and then ultimately to burst.
Gold is a bit trickier to value because there is no fair value. There are no dividend payments, cash flow, rental payments, earnings, or income derived from gold. Many investors point to the previous historic run–up in gold in January of 1980, when gold hit a high of $850 per ounce. This, gold bulls argue, would be an inflation adjusted price of over $2,000 per ounce today. This may not paint an accurate picture, as following that bull market for gold, within a few years it crashed to below $400 per ounce and it did not recover its previous high for more than two decades. Although the bull market for gold may still resume after a recent pullback, I believe it holds far more risk as an asset class than most people realize. I also think that at some point a more significant downturn is likely, particularly if one studies financial history and does not take a trend at face value.
