Photo by highlander411
Article taken from the Simple Dollar Blog with permission
Written by Trent
Over the last three or four days, I’ve received a bunch of emails from readers asking me why I’m not talking breathlessly about the chaos at Freddie Mac, Fannie Mae, and IndyMac. I’ve read dozens of long explanations of why this is disastrous and why it’s the worst thing people have ever seen, and I’ve read many, many people shouting that they should completely get out of all investments right now and put their cash in a little green box buried in their back yard (or some similar crazy scheme).
Here’s my take: I think there’s almost nothing to worry about, and if you’re actively selling any broad investments right now, you’re actually making a giant mistake.
Here are five reasons why you shouldn’t be panicking right now.
One: Panics happen every few years
Right now, we’re having panics in the banking and housing sectors. A few years ago, corporate accounting was destroying everything. Remember the tech sector collapse of half a decade ago? The savings and loan failures before that?
These booms and busts happen for one reason and one reason alone: most investors are sheep. They follow whatever has been hot lately, and they run away whenever there’s a bad sign. These processes are rarely rational – in the 1630s, people bet their entire life fortunes on tulips.
It took only a glance at housing prices over the last decade or so to see that there was a big bubble going on. This bubble turned out to be mixed in with the banking industry which was funding this bubble. Now we’re seeing that bubble collapse. In a few years, when all of those ARMs adjust, people will be running around yelling “PANIC” about some other sector.
Two: The talking heads shouting “PANIC!” make money from “PANIC!”
If you run out right now and sell your stock, guess who makes money? That’s right, brokers and fund managers. These people want churn. They want you to buy and sell so they can make profit on the buying and the selling. The people who are on CNBC and TheStreet.com shouting “PANIC!”
If I was a broker or an investment manager and I knew that if I shouted “PANIC!” I could make myself a mint, I’d be tempted to shout “PANIC!” I probably wouldn’t do that because it would actually not help my clients, but there are other philosophies out there. Some believe that alerting their clients to “PANIC!” can help them avoid losses. Others could actually care less about the clients and just want to profit.
There’s big money to be made in “PANIC!”
Three: Stocks are not short term investments
Unless you’re day trading (and thus making an effective career out of very short term movements), stock investments should never be short term investments. The stock market is extremely volatile over the short term – annual losses of 20% or more in stock investments are somewhat regular occurrences.
So why invest in stocks? Over the long run, the gains exceed the losses over the stock market as a whole. Here’s a quote from David Swenson, the author of the excellent book Unconventional Success:
To the extent that history provides a guide, the long-term returns for stocks encourage investors to own stocks. Jeremy Siegel’s two hundred years of data show U.S. stocks earning 8.3 percent per annum, while Roger Ibbotson’s seventy-eight years of data show stocks earning 10.4 percent per annum. No other asset class possesses such an impressive record of long-term performance.
The stock market returns very well on average. The only problem is that it’s an average of some very nice positive numbers and some very painful negative numbers – that’s the nature of an open market.
Why should one believe the stock market is going to go up in value? THIS IS THE END!
Stocks will continue to go up in value over the long term for one simple reason: worker productivity. Companies over time will earn more money per employee because each employee is able to produce more value. As long as humans are innovative creatures, coming up with new technologies and ideas, then companies that implement those ideas will increase in value.
Four: Down markets are never a time to sell
At some point, the stock market will return to its previous level – there has never been a twenty year period of loss in the overall stock market.
Since the stock market is down this year, and we believe that the stock market will eventually match the previous high, now is not the time to sell. Now is the time to buy.
Let’s look at it visually using the S&P 500 from about 2000 to about 2007:
Obviously, it’s great to sell at the top – you’ll make a killing. The problem is that one never knows exactly where the top is. The market will start to drift downward and many people will think it a normal fluctuation. After a while, the talking heads on CNBC and other financial papers will begin to notice that it’s going downward and start shouting “BEAR! BEAR!” to get people to “SELL! SELL!” so they can make a profit on transaction costs. Most people still don’t move right away – it takes a little while for the “panic” to build.
Eventually (as marked above), it becomes conventional wisdom that things are disastrous – that’s where we’re at now, well into the down trend. Now, if we believe that at some point in the future things will eventually return to their original level and we can clearly see that things are way down from their original level … why would you sell? Instead, it looks like a time to buy to me.
Five: If this event is making you worried about losing everything, then you’re not appropriately diversified.
My last point is for those people who have a ton of money in the damaged sectors right now. If you’re afraid that you’re going to be losing “everything” in this down situation, then the problem isn’t the stock market. It’s your investment strategy.
Diversification is what saves you from a bubble blowing up in a particular sector. Many advisors suggest having 5% of your total assets or less in any one sector simply to a void this. That way, even if one sector loses everything, you lose at most 5% of your money – a 20% drop in one sector means only an overall 1% loss for you.
In other words, don’t put all of your eggs in one basket and you won’t panic quite so much when a basket falls to the floor.
Throughout all of this tumult, I’ve lost a fair amount of money in my retirement account. Right now, I’m contributing significantly more money per week than I was three months ago. And I feel fine. I hope you do, too.
We are excited to announce that our new website is officially launched and finished! We have been working on the plans for this site since last November.
Visit www.paragonwealth.com to see our new and improved site.
We hired Red Olive Design, a design firm in South Jordan, Utah, at the end of March to design our site. We are very happy at the way it turned out. They also designed our new logo, business cards and letterhead.
New features the site:
Every page on the site can be accessed at any time from the top navigation.
We added a slide show of our office. Visit our Visit Us section to see it.
We added new charts to help you see our performance better. Visit our Growth Portfolio Performance page to see our growth portfolio called Top Flight versus the S&P 500. The green area is the S&P 500 and the other area is us.
We added new pictures of our team at Paragon. Visit our Meet Our Team page to see them.
We added pictures throughout the site of mountains and other beautiful landscapes. Many pictures were taken by Dave Young.
We added a new blog. We will be writing on two blogs each week.
We added a Press Room and newsletter section.
We added an Awards section. Visit our Awards page to see them.
We described our services and strategies in more detail.
We added a link to Charles Schwab login to make it easier for clients to login to their accounts.
A flash presentation will be added to the site by the end of this week.
As seen in Paragon’s second quarter 2008 print newsletter
Written by Nathan White, CFA
Photo by Kevin Dooley
We’ve had a good year so far relative to our benchmarks (S&P 500 and Lehman Bond Index).
Our models kept us fully invested during March as the credit crisis hit full steam with the Bear Stearns collapse unfolded and the markets sold off.
I must confess during that time the mood was so foul that I kept
As seen in Paragon’s second quarter 2008 print newsletter
Written by Dave Young
photo by Tom Hide
We’ve had several inquires from clients about the “inevitable” impending doom we face.
Opinions differ about the ultimate cause of this approaching economic meltdown.
–Some claim energy prices are causing inflationary pressures that will destroy us.
–Others worry that the economy is too slow and that deflation will be our downfall. Still others feel the budget deficit is creating an unsustainable drain on the economy.
These so-called experts may disagree about the causes, but the unified theme is that something bad is about to happen.
The media–print, television, the Internet–are the main sources of information for the average investor.
We read the newspaper in the morning with our breakfast, maybe check online a couple of times a day to see what’s going on in the world, and turn on the TV when we get home to watch the news. All of these information sources have become intertwined with our daily lives, and we trust that the information they provide is accurate and trustworthy. We have a tendency to assume we’re getting all the information we need to form good opinions about politics, tomorrow’s weather, and of course, our investments.
But it’s important to remember that the media companies are businesses. Their job is to make money, just like every other business. They all exist to make a profit, and their primary souse of revenue is advertising. The larger their audience, the more advertising revenue they can generate.
For investment-oriented media outlets, one of the best ways to attract a larger audience is to create a sense of urgency that taps into the two main drivers of investor psychology: greed and fear.
That’s why the financial media focuses on stories about the next stock poised for huge gains (greed) and warnings of impending disasters (fear).
Articles with headlines like, “The One Stock You Need to Own Right Now,” or Five Stocks to Avoid” should tell you something about the tone the media is trying to establish. You certainly don’t want to miss out on “the next big thing.” Perhaps even more importantly, you don’t want to get caught making a big mistake.
Our observation has been that fear-oriented headlines become more common in shaky market conditions, whereas greed-oriented pieces usually show up more often when things are going well.
This approach isn’t good for investors. When markets decline, the media feeds on investors’ fears by emphasizing risks, because fear in times of uncertainty attracts views and subscribers. Unfortunately, selling after a rapid market decline is almost never a good idea. In other words, the fears fueled by the media after a market decline essentially encourage investors to do the worst possible thing: sell when they should be holding or possibly even buying.
It’s important to understand we are not claiming that commercial media outlets deliberately lie. But, we are saying that commercial financial media outlets have a vested interest in making money, and as a result, they are not always the best source for complete and objective financial information.
So what do we recommend?
–Realize that much of the information you see in the media is not accurate. Often what you see is sensationalized. Why be depressed about how “bad” things are when it isn’t reality.
–Determine how “bad” or “good” things are based on your actual life experience, not what you see in the media.
–Never make investment decisions based on what you see in the press.
–As always, we encourage patience.
At Paragon, we receive data from many independent and reliable sources that do not receive advertising revenue, and then process it through our models which drive our investment process.
If you have any concerns about your investments with us, please call and we will evaluate how your portfolio is invested versus your individual risk tolerance. Feel free to call us at 801-375-2500 if you have any questions or concerns.
Second photo by Luisa
As seen in Paragon’s second quarter 2008 print newsletter
Written by Dave Young, President
The first half of the year made life difficult for investors.
Worries about the financial sector scared the market down during the first three months. Just as everyone decided “life was not over as we know it,” the market rallied and came back to life during April and May. this was short-lived as high oil prices and inflation prospects gave us one of the worst “June’s” in history.
For the first six months of the year, the S&P 500 finished down -11.9% and the Dow Jones Industrials ended down -14.4%.
Our portfolios performed exceptionally well last year. That’s great, and most of our clients appreciate it.
But, in this business everyone still asks the question, “What have you done for me lately?”
Paragon’s Conservative Portfolio
Our conservative portfolio, Managed Income, has stayed in capital preservation mode. As a result, we have held more cash than normal for the first six months of the year. We have taken selective positions in high yield bonds, dividend paying funds and natural resources. As valuations have reached the ridiculous level, we have been taking some small positions in the financial and real estate sectors. Managed Income is down -1.89% through June 30, 2008. The Managed Income portfolio has done a great job so far this year, considering its first priority is to preserve capital.
Paragon’s Growth Portfolio
Our growth portfolio, Top Flight, has been invested in Canada, Brazil, Steel, Transports, Mid-cap stocks, real estate and energy, to name a few areas. We have also held some excess cash for protection. We have started to see a shift from the international markets back to the U.S. Market. So far this year, our stock selection has added more value than our cash allocation. Recently, we have been reducing our energy exposure and adding more cash. When our models move more positive we will begin reducing cash and increasing equity exposure.
For the first six months of 2008, our Top Flight Portfolio is down only -4.7%. In a very difficult environment, Top Flight actually gained 4.36% over the past three months.
While we are not thrilled to be down at all, with our benchmark the S&P 500 down -11.9% and the Dow Industrials down -14.4% for the first six months, Top Flight has performed well. (See Paragon’s full track record for more details).
Bear Market #34
The bear market we discussed last quarter has continued, and everything we talked about still applies. Click here to read the article about bear market #34.
Since bear market #34 began, over eight months ago, the S&P 500 has lost -16.5%. It has continued for 261 days through June 30, 2008.
Since 1981 the median bear market decline has been -24% and lasted a median of 204 days. However, since 1900, the median bear market has lasted 363 days and taken the Dow Industrial down by -27%. As you can see, this bear has lasted longer than the more recent bear markets, but has been shorter than the historical bear markets dating back to 1900. Also, its decline thus far has not been as deep as normal.
I wish I could tell you when this bear market will end, but unfortunately, no one knows that answer. No one rings a bell to tell us to sell at the top or buy at the bottom. There are two things that we can say with certainty. First, this bear market is closer to being over today than it was yesterday. Second, when a bear market finally ends, historically there are always significant gains.
Investment performance reflects time-weighted geometric composite returns of actual client accounts. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions. The Lehman Bond Index is a benchmark index made up of the Lehman Brothers Government/Corporate Bond. Benchmarks are used for comparative purposes only. The Paragon Managed Income Portfolio is not designed to track the Lehman Aggregate. Past performance is no guarantee of future results. Investments in securities involve the risk of loss.
Jul 03, 2008
Revealed: The 2008 Top Dogs Serve Some of the Wealthiest Clients Around. Here’s How They do it.
By Kathleen M. McBride
(Paragon Wealth Management was listed on Wealth Manager’s “Top Dogs” list in 2008)
Triple-A ratings were slashed, hedge funds were imploding, and it was nearly impossible to place an accurate value on many of the newer structured securities. It was starting to dawn on wealth managers, and many of their clients, that these were not normal investing times-not a regular part of the cycle. While it will take still more time to assess the extent of the damage to investors, the markets and the economy, we do know that a wealth manager’s job just became more complicated.
With all the noise that surrounds them, it is to their very great credit that wealth managers have been able to keep clients focused on the long term while ferreting out the opportunities that market uncertainty presents.
Wealth Manager’s 2008 Top Dogs survey found that the overall amount of assets under management has continued to grow, along with the number of investment firms managing that wealth. The 478 firms that participated in the 2008 survey-our eighth annual ranking of the top wealth managers by average AUM per client-manage an impressive total of $302 billion. Survey respondents do not include banks, broker/dealers or trust companies. Overall assets under management for the 2008 Top Dogs range from $14.4 billion at the largest firm to $36 million at the smallest firm, with an average total AUM of $632.6 million and a median AUM of $236.5 million in 2007, and up 28.8 percent from the $199 million reported in 2006. It’s interesting to note that, of the top to Top Dogs by total AUM, only three make the top 10 when ranked by average AUM per client.
What’s really exciting here are the Top Dog rankings by average AUM per client. Median AUM per client held steady from a year ago-again at $1.4 million for 2008-and up from $1.2 million in 2006. The average AUM per client was an impressive $3.33 million, ranging from a high of $66.9 million at Boston’s Federal Street Advisors, to $150,000 at number 478, The Tranel Financial Group in Libertyville, Ill.
The top 20 firms by average AUM per client include a wide distribution of average client assets from Federal Street’s $66.9 million to $15.2 million per client at Manchester Capital Management in Manchester, Vt; by number 100 in the ranking, The Fairman Group of Berwyn, Pa average AUM per client came in at $2.8 million. At number 200-Charlotte, N.C.-based Carolina Capital Consulting, Inc., average AUM per client was $1.7 million; the number 300 firm, Pinnacle Wealth Planning Services, Inc., in Mansfield, Ohio, reported an average $1.2 million per client. And there is an average $767,000 per client under management at McBearty Capital Management, Inc., in Knoxville, Tenn., the firm ranked number 400.
To give the nearly 500 wealth managers who participated this year, as well as others who chose not to, a glimpse at the inner workings of some of the most successful firms, Wealth Manager Managing Editor Nancy Mandell induced principals at the top five firms to reveal some of their strategy. Starting on page 42 you’ll find all 478 firms and their vital statistics; on page 61, Wealth Manager’s Top Dogs ranking methodology, and on page 59 you can see what we found by the numbers.
Click here to see the full article.
Paragon Wealth Management was named one of Wealth Manager’s “Top Dogs”- the Top Advisory Firms in the country.
The rankings were announced today and will be printed in the July/August 2008 issue of Wealth Manager magazine.
To be eligible for the Top Wealth Manager ranking, companies must be registered investment advisers, report more than $50 million in assets under advisement, have predominantly individual clients and offer financial-planning services. They rank them by the size of their average client relationships, not by total assets in order to highlight the firms with the wealthiest clientele. 500 firms are chosen in the United States.
Visit Wealth Manager’s site to learn more.