The only change to the all-cap value portfolio in October was the sale of our entire position in Cisco Systems (CSCO). I originally bought the stock for my personal account in early August of 2011 (just before I joined Covestor) at what I thought was a panic price of $14.13. I subsequently added to my own position at less favorable prices.
It is clear that Cisco is acting aggressively to respond to the challenges that it faces in its core markets, and I still view it as the favorite to remain the most important networking company in the world in the coming decades. However, I fear that Cisco’s fate is to be forced to invest heavily just to maintain its strong market position. I don’t foresee much likelihood of profitable growth.
While I generally don’t pay much attention to the morbid rants of the more excitable amateur tech gurus on the internet (every innovation is an “existential threat” to one company or another, and every new product is a “killer” of someone’s beloved solution or device) the fact remains that I am unable to formulate a clear view of Cisco’s future prospects and I can’t rule out a worst case scenario driven by technological change.
In short, I sold Cisco because I don’t understand its business well enough to be comfortable that I have a margin of safety at the current price. I have learned that most of my investing mistakes have occurred when I have departed from basic value principles, so I am endeavoring to eliminate such departures.
The investments discussed are held in client accounts as of October 8, 2012. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.
Certain of the 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.
