Buy And Hold

Posted October 29, 2014 by admin. tags:Tags: , , ,
Old Stock Certificates

I was recently reminded of how much I disagree with the “Buy and Hold” concept of investing. One of our clients, brought in several stock certificates that she inherited from her family. They were dated from 1902 to 1920. That was a period of time when mining companies were very popular with investors. She asked us to research the current value of the certificates.

Her family held several of these certificates for over 100 years. Based on the number of shares and their valuation levels it appeared that some of these stocks had been valuable at one time. Unfortunately, her family had followed the Buy and Hold investment strategy and still continued to hold them.

After some research, it turns out that one company had been sued into oblivion, one morphed into another company and then that new company collapsed, one just disappeared, one went bankrupt and another had financial fraud issues. Bottom line, all of the stocks had gone from being valuable to becoming worthless….over time. They bought and held just like the “experts” told them to.

While this may seem surprising, it really isn’t. Imagine if your relatives in 1920 had the foresight to buy the original 20 stocks that made up the Dow Industrials average and held them until today. You would be very rich, right? Your relatives had bought the largest, highest profile stocks available 94 years ago. Actually, only six stocks (out of the original 20) from the Dow Industrial Average still exist.

If you read our blog, you know that I am not a fan of the Buy and Hold approach to investing. Actually, I get annoyed when I hear financial advisors and the media espousing its virtues. Some advisors support it with such zeal that it almost seems like it is a religious experience for them. I often wonder how many of those advisors actually have their own money invested in a Buy and Hold strategy.

The truth is that Buy and Hold works best sometimes and Active Management works better other times. Different styles of management come in and out of favor over market cycles. The big problem with Buy and Hold is that everything seems great while the market is going up. However, as soon as the market starts going sideways or down, then the Buy and Hold strategy becomes very difficult to stick with. If you cannot stick with your strategy then it is likely that you will never be able to generate good long term returns. If you aren’t going to generate good long term returns, then what is the point of investing?

In both the 2000 and 2008 bear markets, investors who followed a Buy and Hold strategy and invested in the S&P 500 lost roughly 50% of their value during those bear markets. Many found it too difficult to stick with that strategy and sold out of their investments near the bottom of the decline. Many investors never recovered from their extreme losses.

John “Jack” Bogle of Vanguard is one of Buy and Hold’s biggest proponents. It is hard to take him seriously when you understand that he has personally made a fortune pitching the Buy and Hold strategy for years. He is definitely not an impartial voice in the debate.

According to a November 28, 2013, Wall Street Journal article, Jack Bogle is invested in his son’s fund. It is even more interesting when you realize that his son, John Junior, has been managing a fund since 1999 that follows a very active investment strategy that is the polar opposite of Buy and Hold. His fund uses computer models to analyze earnings surprises, relative stock valuations, corporate accounting issues, etc. His strategy is about as far away from a Buy and Hold strategy as you can get. Even more interesting is that Jack (senior), considered the unofficial spokesman of the Buy and Hold movement, is personally invested in his son’s highly “Actively Managed” fund.

If John Bogle senior does not believe in using “Active Strategies”, then why is he personally invested in a fund that follows a very active strategy? Why is he paying higher fees than his index funds charge to invest some of his own money? Interesting….

My belief and experience is that pro-active strategies, such as the ones we follow at Paragon, require a lot more work to execute but provide the highest probability for long term investment success.

As always, if your risk tolerance or investment objectives have changed, please reach out to me or one of the members of our team, and we can discuss any adjustments we need to make to your current plan. We appreciate the confidence that you put in us.

Written by Dave Young, President & Founder of Paragon Wealth Management
Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Adjustment Period

Posted October 22, 2014 by admin. tags:Tags: , , , , , , ,
Rolling hills and fall colors

The era of QE has been a difficult environment for active managers. The last five years have been a heyday for the passive investor, aided directly and indirectly by the Fed’s Quantitative Easing (QE) programs, stocks and bonds have moved up in an indiscriminate manner. All one had to do was simply show up. Bonds have been directly aided by the trillions the Fed has purchased while equities have indirectly benefitted from the implied “put” or backstop inferred by these Fed actions. The Fed’s actions to keep rates artificially low have created market distortions that have interfered with many of our quantitative indicators.

When all equities or bonds generally get rewarded the same regardless of their quality or differences, it’s hard for the skilled manager to outperform. A rising tide of liquidity has lifted all boats making it easy for anyone to navigate in the harbor. But once the tide starts to recede, experience and skill are what matters. We have seen improvement with our models over the last year coinciding with the gradual reduction of QE. As markets return to “normal” we are better able to assess the risk and rewards of certain moves and strategies. We are seeing a number of opportunities develop that haven’t been available for years.

In the short run the market is looking tired. We have rejected the doom and gloom scenarios that have been so prevalent since the financial crisis and have caused many investors to miss out on the bull market. However, fewer stocks are hitting new highs and the breadth has been getting weaker. The uncertainty surrounding the end of QE and the timing of rate increases next year are factors contributing to the hesitancy. This is only natural and healthy in the long-run. As previously mentioned it also creates opportunities for us that have not been available for the last four years. Over the last few years we have held a cash position which has been a drag on performance. Going forward, this cash position is an advantage as it helps to cushion the downside and provide flexibility to take advantage of opportunities provided by any volatility and uncertainty.

Although the risks have risen, this doesn’t mean investors should get out completely. The market has been overdue for a correction for some time but it doesn’t mean that everything is ready to fall apart. Getting completely out now could cause you to miss crucial gains if stocks continue to rally as they have. The last four years have shown the futility of trying to time the market in an all in or out manner. It is still a bull market until proven otherwise.

The current economic data has been stronger indicating that the economic growth is picking up instead of getting weaker. Ultimately that is a good sign as it will support earnings growth that has been the key foundation for the current bull market. Any correction that comes will probably be more short-term and establish the next leg up for the market. Therefore, a correction would be viewed by us as an opportunity rather than a harbinger of doom. It is only natural after five years of market advances and ahead of interest rates starting to move up to get some market hesitancy or disruption. Our current exposures are to technology, energy, and materials which are late-cycle stocks and tend to do well in rising rate environments. We also continue to favor various segments of the healthcare sector such as medical device and healthcare providers. Several emerging market opportunities are also looking more promising than in the past and we have started to act in a few of these areas such as Mexico and Brazil.

It is no secret that we have been cautious on the bond market for some time. As the sun sets on QE the angst over when the Fed will begin to raise rates and by how much is growing. Markets always like to price actions in ahead of time and right now it seems the equity market is being affected to some degree by this interest rate uncertainty. However, the bond market has not moved much yet. Many thought that bonds would have a difficult year as they began to price in rate increases. So far, bonds have done the opposite and surprised many by having a good year. The inevitable is coming though and the window for bond gains is closing as we creep toward June of next year which is the most accepted time for rate increase to begin. Any equity market weakness will give bonds more time to put off the reckoning.

Although the potential for a bloodbath in the bond market is high, that doesn’t mean it will happen. It will probably be more like death by a thousand cuts. The Fed will be very slow and steady in raising rates as to minimize market disruption. After all, they do hold about $4.5 trillion of bonds!  Even if interest rates rise in a slow and gradual manner (which is what I believe will happen) bonds will still produce negative or flat real returns at best.

For example, take a look at the interest rate sensitivity of a broad composite of investment grade bonds such as the Barclays US Aggregate Bond Index. If interest rates are a half to one percent higher a year from now, the index could be down 2.5 to over 5 percent respectively. The current yield of about two percent would still not offset the losses.

In preparation we have been making changes and getting ready for the coming environment. We have been early on this call which has caused us to underperform in Managed Income this year so far, but not by a lot and we are better positioned for what is to come. We believe this approach is the most effective from a risk/reward standpoint and will pay off in the environment to come. Now is the time to take a look at the risk in bond or fixed income holdings and make adjustments. The first one to two percent moves from the bottom will be the most painful.

Written by Nate White, Chief Investment Officer of Paragon Wealth Management

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Looking Past Scary Financial News Headlines

Posted October 15, 2014 by admin. tags:Tags: , , , , ,
Looking past the scary figures

I encourage you to learn more about investing and planning. It will pay dividends in many ways, and we are here to assist you as you take steps to educate yourself.

But I caution you about spending too much time in front of the financial news channels dotting the cable landscape or the many Internet sites that are just a mouse click away.

It’s not that they don’t report hard news. They do. But there are times when markets get volatile and the “shrillness meter” hits alarming levels.

Just a couple of months ago, when the Dow fell over 300 points in one day, I went onto the MarketWatch website and found a section highlighting the most popular stories.

1. “Warning: the Plunge in Stocks Is Just Beginning.” Well, stocks quickly recovered and claimed new highs.

2. “S&P 500 Suffers Largest Weekly Loss in 2 Years.” True, but we emphasize the longer term and continually stress that your plan should take into account setbacks in the market. Be very careful of allowing weekly volatility sidetrack a multiyear plan.

3. “Three Market Warning Signs that Predict a 20% Tumble.” See my comment on article number one, above.

The top three stories were playing on the fears of investors. Simply put, bad news sells. But it can be confusing if the noise isn’t filtered.

It’s been over 570 days since we’ve had a 10% drop in the S&P 500 Index, or a decline that would officially be called a “correction.” Going back to mid-1940s, the median time period between corrections has been 121 trading days, and the average has been 273 trading days.

Markets never move up in a straight line and we are due for a 10% pullback, which, coupled with the expanding economy, would be healthy. No one can accurately predict when that might occur but it will happen. The portfolios we recommend have a long-term time horizon and are designed to help you achieve your personal financial goals.

Stay focused on your goals and make adjustments that take into account changes in your personal circumstances. Ignore fear-mongering that can be deafening during market volatility.

Written by, Dave Young, President & Founder of Paragon Wealth Management

 

Disclaimer Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

It

Paragon Receives It’s 5th NABCAP Award

Posted October 1, 2014 by paragon. tags:Tags: , , , ,
NABCAP Logo

For Immediate Release:

Paragon Receives It’s 5th NABCAP Award.

Paragon Wealth Management, a national leader in the investment and wealth management is honored to have been named a 2014 NABCAP Premier Advisor. This is the 5th year Paragon has named a NABCAP Premier Advisor.

The National Association of Board Certified Advisory Practices or NABCAP annually selects an exclusive group of financial advisors who represent the trusted standard of excellence in the Financial Services Industry.

NABCAP is a nationally-registered 501(c)(3) nonprofit organization, established to serve the needs of the investing public by helping identify top wealth managers. The selection process assesses 20 categories of practice management, which include areas such as experience, credentials, assets under management, fee structure and philosophy among other factors.

“We never consider the NABCAP award to be sure thing” says David Young, CEO and Founder of Paragon Wealth Management.  “We work hard everyday to meet and exceed our clients expectations .”

About Paragon Wealth Management:

Paragon Wealth Management is registered investment advisor (RIA) located in Provo, Utah. Established in 1986 by Dave Young, the company gives investors a smarter way to invest their money, develop sound investment strategies and achieve financial goals. Paragon was created to provide a more active and personalized alternative to the traditional buy, hold and hope approach to wealth management. Today, after over 26 years of refining proprietary quantitative financial models and building a trusted world-class organization, Paragon offers its clients across the U.S. a unique blend of proactive and proven money management techniques, extraordinary personalized service and a proven track record.

About NABCAP

The primary focus of the National Association of Board Certified Advisory Practices is to serve the needs of the investing public. Their multi-step verification process utilizes independent resources to objectively account for the accuracy and consistency of advisory practices. Comprehensively evaluating and validating twenty categories within a financial advisory practice distinguishes their process. NABCAP’s methodology is unique in deciphering advisors because it is primarily objective not subjective. The Board’s attention is centered on investor’s financial needs and an advisory practice’s probability to service those needs. Both investors and advisors can now rely on a trusted standard of excellence to help guide them within the Financial Services Industry.

For more information, please visit www.nabcap.org.

Media Contact:
David Kyle
for Paragon Wealth Management
801-375-2500

Disclosure: Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

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