We’re selling large-caps in favor of smaller stocks

Author: Riddhi Ruparelia

Covestor model: Long-Term Growth

Disclosure: Long IPGP, TZOO, P, LRN, SODA, N, SSYS, DMD, QLIK, MELI, JOBS, CCSC

In August 2011 the market saw a significant decline with high volatility. As we planned and stated in our previous report (http://investing.covestor.com/?p=11379), we jumped on this opportunity to buy growth stocks at more attractive prices than some of our holdings at the beginning of August.

We also believe that the sovereign credit crisis in Europe and the U.S. will not be over soon. Markets will remain volatile for a while. This is why we avoided using margin leverage at this point, so we can use it at a later stage if the market provides us an even better buying opportunity.

Instead, we sold big names with large market caps, like Apple (AAPL) and Google (GOOG), where we believe that upside stock price potential is not as strong as some of the smaller companies that can grow at a high rate for as long as a decade from now.

For example, we bought initial positions in IPG Photonics (IPGP), Travelzoo (TZOO) and Pandora (P) while adding to some of our existing holdings like K-12 (LRN), SodaStream (SODA), Netsuite (N), Stratasys (SSYS), Demand Media (DMD), Qlik (QLIK), MercadoLibre (MELI), 51Jobs (JOBS) and Country Style Cooking (CCSC).

In September, we may raise some more cash so that we’ll be better prepared to take advantage of buying opportunities likely to show up in the upcoming weeks and months.