Dan Plettner Long/Short Opportunistic Model Monthly Investment Report (AOD, GCS, DB, PGP, DNP, VGK)

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 CoreLong Short OpportunisticTax Advantaged Income, and Taxable Income models for its clients. Dan’s words should not be misconstrued as investment advice.

As the close of July draws near, I believe the equity market has been moving in the direction of valuation merit, but I also find continuation of a trading range to be likely. On, July 2nd the New York Times actually lent credibility to Robert Prechter’s “likely” assessment of the Dow Jones Industrial Average breaching 1,000. I perceived the credibility granted to such extreme talk as indicative of at least a near term bottom. I have not had the extensive conviction and opportunity necessary in any Market assessment to either detatch from, or fully embrace concentrated equity risk since contributing a newsletter to Covestor.

I closed a short in AOD. I certainly am not of like mind to those who now believe it to be a decent long trade. Any long perspective in the security to me seems dependent on taking a very narrow glance. But, I believed the broad market rally could have legs and through July 26th, my macro views had me primarily inclined to take off short positions, and add selectively to longs.

I would have liked for more of my underlying risk assets for much of July to be tied to equities and floating preferreds. The June 28th announcement that DWS Enhanced Commodity Strategy Fund (GCS) had adjourned a shareholder meeting that stood to afford liquidity to shareholders affected my choices. My written thesis has been that shareholders would achieve liquidity via a merger into an open-end fund, because Deutsche Bank and DWS have already maximized the duration and magnitude of pain they can tenably inflict on shareholders. After reading an available open letter from the Activist and contacting Deutsche Bank (DB) myself with the opportunity to clarify, I believe Deutsche Bank chose a delay for self-serving reasons.

I am happy that Western Investment LLC through its Activism campaign has achieved a benefit for all the public shareholders of GCS. When Deutsche Bank holds true to its press release, I look forward to seeing the value inherent in the market price discount being unlocked. I have had plans to deploy my capital, once fair value is unlocked. My plans adapt with changing profiles of available opportunities, and the broader market environment. My choices here will depend on what I perceive to be appropriate, on a risk-adjusted basis.

While July 2nd happens to currently be the year’s closing low point for the S&P 500, such does not make me “right” in assessing the relevance of the credibility granted to Prechter. At the end of June, I contemplated “whether June really was so awful, or if it concluded on the downside of what remains a volatile market”. I continue to contemplate similar questions. Has anything changed, or are we emotional observers of a trading range that reflects Mr. Market’s continuing bout with bi-polarity?

By July 27th, I was becoming less averse and more focused on finalizing my choices of favorite short ideas. Shorts ideas, especially those in my arena, can be subject to growing inefficiencies just as easily as logical re-pricings. Accordingly, I had tried to be patient to until believing to observe a rally stall. In the late morning of July 29, I put on shorts of PGP and DNP.

I strive to be disciplined and patient in putting on such trades. More specifically, I seek to wait until a catalyst for an individual idea appears near and/or I sense lesser danger of the inefficiencies that can grow in a runaway broad market trajectory of opposing direction.

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.

I expect my alternate styles to achieve alternate short term grades from “Mr. Market“, at alternate times. The steps I use to implement an overall strategy with alternately styled accounts can involve alternate timing, and alternate mechanisms. For example, consistent with risk-adjusted performance goals in the account licensed to “core”, I bought VXX on July 27th. Shall the market’s trading range persist; my belief is that the VIX will move higher before the S&P revisits recent lows. Such a tool as VXX has not been available to me at a more reasonable price since early May and was significantly more expensive during the market’s ascent in ’09. I am happy with the entry price, and lack of turnover enabled by for the near term risk-mitigation tool that I chose for the “core” style bias.

It’s important to note the time between actions I took in alternate accounts on July 27th and July 29th. The time between taking actions that reflected a broader market perspective could have been longer, or infinite. Again, I believe in blending my alternate styles within my discipline in effort to attain overall smoothness.

Regarding Europe, I closed a VGK trade within each applicable style bias account in July. I’m much more proud of the purchase decision for timing, and discipline than my premature closing of the position. VGK appeared a smarter risk-adjusted opportunity than Closed-End Fund EEA to buy European Equities, with both the Euro and European Equities appearing emotionally oversold. In hindsight I do wish I had been less risk-averse when closing the position. I could have captured more of the rebound.

I’m surely never perfect in my timing. But, I do always desire to get smarter and better in all ways by being critical of myself because I perceive the long term as the aggregation of many short terms.