The case for tech stocks

I do not believe the prices of my small cap stocks are reflecting “fair value”.

Covestor shows The Gehman Capital Solutions portfolio returned -4.9% net of fees for the last 30 days and -9.0% net of fees for 2012 YTD as of the end of October. The stock prices are under pressure, but I believe the companies are performing well, and building a base for significant returns.

All small cap stocks must go through periods of “blocking and tackling” and building for the future. I believe that today’s stock market only wants to reward immediate results and is not paying for future profits that I believe will be generated in the future.

I repeat from my September, 2012 comments: “As a general comment, most are technology stocks that have been seriously affected by (1) the slow recovering economy, (2) the pending introduction of Windows 8 by Microsoft and (3) the delayed spending by telecommunication companies to increase their broadband capacity to accommodate the gushing demand for video traffic.”

In my opinion, the US economy (and technology companies) has started to recover because: (1)The US housing market is showing signs that prices have bottomed and sales activity is picking up, (2) Windows 8 has been introduced – that will now allow corporations to make educated decisions about technological upgrades, (3) China is starting to see increased economic activity – especially with a new government about to be installed and (4) the telecommunication companies are closer to being forced to increase their broadband capacity to avoid serious bottlenecks.

This has been an extremely frustrating year. I believe that patience will be rewarded by owning the Gehman Capital Solutions portfolio. If anything, now is a good time to start, or add to an existing position because I believe that stock prices are low and the companies are getting closer to collecting the rewards from all the “base” work they are performing.

Profit opportunities are significant because when the market turns and investors want to buy small cap stocks, they usually end up paying prices that are too high.

Performance discussed is net of advisory fees.

Any index comparisons provided in the blogs are for informational purposes only and should not be used as the basis for making an investment decision. There are significant differences between client accounts and the indices referenced including, but not limited to, risk profile, liquidity, volatility and asset composition. The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry, among other factors.

Certain information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. The manager believes that such statements, information and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.