Author: Sreeni Meka
Covestor model: Long-Term Value
As of the end of September, I just completed one year managing my model at Covestor. In one year my portfolio made a little over one percent versus a less than one percent S&P 500 return.
It was relatively challenging year. The past three months for the market were very volatile. The market was spooked by the debt ceiling debate, and a bitter battle in Congress caused great damage. Later on, Greece debt issues and the European economic crisis made the global markets very volatile and forced some investors to sell their equities at the wrong time. People tend to trade based on hope and fear. Now fear is dominating the markets.
When irrational behavior caused by hype or unexplained fears dominate, market pricing can sway greatly. When it rains, it pours. At the peak of the fear, even the most valuable companies like Berkshire Hathaway could not escape the storm. For the first time in its history Berkshire announced it would buy its own stock back while it was trading at below book value. Recently, Corning also announced buying back its shares and increasing its dividend, as it is trading below tangible book value.
Corporate buybacks can make sense as long as the purchase price is less than its book value. I think it is great timing for Corning to buy its own shares. I own both Berkshire and Corning shares in my portfolio and consider it one of the rare moments to accumulate these equities.
On October 5th, one of the great visionaries, American icon Steve Jobs, passed away. Mr. Jobs is the great American innovator, a marketer of our time who inspired many souls all around the world with his creativity and thinking outside the box. Most American families carry at least one of his innovative Apple products like Macbooks, iPhones, iPods or an iPads. Following his legacy, I believe Apple will continue to maintain the innovative culture he left behind. I maintain a long position on Apple at my Covestor portfolio.
While markets going up and down, I don’t foresee any issue with our economic growth or recession in the near future. In fact, the third quarter GDP will end up in a positive note and therefore I do not plan to make any major adjustments to the portfolio. I think the market already factored in known issues like European debt, the housing market, unemployment and political rivalry in Congress. Sooner or later, the lower valuations of the equities should be recognized by the investing public and the market may end up in a positive note by end of the year.