The U.S. stock market remains robust and the equity holdings in the Covestor Asset Allocation portfolio are performing well. Our largest individual stock holding, Google (NASDAQ: GOOG) recently made news for a strong earnings report and crossing the $1,000 per share threshold for the first time.
It is clear that the method by which companies are advertising is changing at a rapid pace. Companies that want to reach younger consumers realize that they need to advertise where this demographic is spending their time — and that is on digital platforms like Facebook (NASDAQ: FB) and Google.
Many of the old ways to advertise have lost some steam. Television advertising, for example, was always a great way to reach a diverse customer base. However, I notice that many young people today will record their favorite programs on their DVR and fast forward right through the commercials. Some are even opting out of traditional TV in favor of an Internet-based system like Roku or Apple TV, and just choosing some very specific content to watch.
Another recent technological change is the shift toward mobile. Google has done a great job of integrating its technology onto mobile phones. This is, increasingly, where customers are viewing content and making purchases. Although individual stock investments are a relatively small part of our portfolio, our holdings in Google and Facebook have really paid off this year.
Looking forward, however, our outlook is more cautious. While the forward price to earnings ratio is below its historical average, if we look at the Shiller PE, (which is the price relative to the inflation adjusted average earnings of the previous 10 years) U.S. stocks look somewhat overvalued.
To be fair, though, the last 10 years include a significant drop-off in earnings during the financial crisis that may be unlikely to occur again in the near future. Also, with bond-yields remaining at historically low levels, stocks appear attractive.
Because US stocks are no longer very cheap after their multi-year run, it makes sense, though, to find bargains in other areas such as Developed International, Emerging Market, and Alternative Investments.
The investments discussed are held in client accounts as of September 30, 2013. 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 investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
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