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Not What Anyone Expected

Posted January 20, 2018 by paragon. tags:Tags: , ,
Snow Trees_opt

Written by David Young, President and Founder of Paragon Wealth Management

Two-thousand and seventeen was a banner year for stocks. Not just in the U.S., but around the world. Investors with a long-term perspective were rewarded once again.

It was not a good year for the market forecasters. Their primary talent is consistency — and they were consistently wrong.

At the beginning of last year, most Wall Street Strategists forecasted a gain of 4% or less for the upcoming 2017. The actual gains were five times more than those projections. Following their advice would have been disastrous.

Between U.S. tensions with North Korea, the new presidential administration, and the state of politics in America, the forecast was increased market turmoil. Instead, we saw a calm in the markets we had not seen in decades. The VIX, which is a measure of market volatility, unbelievably closed below a level of “10” more times last year than any other year in its history.

In addition, the forecasts regarding global growth and inflation were off base. If you have been a client for a while, you understand why we never invest based on market forecasts.

Successful investors, on the other hand, focused on the upbeat fundamentals. Corporate profit growth was sparked by economic gains at home and abroad. The political push to decrease regulations and effectively free the “free market,” combined with the recently passed tax plan, increased positive expectations even more.

The U.S. economy grew at 3.3% in the third quarter. That was the second quarter in a row the GDP exceeded 3% — a feat that hasn’t occurred in three years. Even more impressive, fourth quarter estimates by the NY Fed expect GDP to come in at almost 4%, which is higher than anyone previously forecast.

The S&P 500 performance reflected the strength of the economy and was positive every single month in 2017. That has not happened since 1970.

PARAGON PORTFOLIOS 

An interesting surprise with this year’s rally is how many individual investors did not benefit from it. Throughout the last nine-year surge, after the devastating market of 2008, individual investors have continuously pulled money out of funds that own U.S. stocks. Nearly $1 Trillion has been pulled out since the start of 2012, according to EPFR Global, a fund tracking firm.

From a trading perspective, this has been a difficult market. Why? When markets consistently go up they don’t require a lot of trading. They require you to be in the right place and hang on.

Additionally, straight up markets, like the one we experienced last year, create false confidence amongst investors. Many people decide they are investment geniuses. And they are … until they aren’t anymore.

Investing based on luck, without a strategy, is impossible to replicate. Since no one knows in advance when the market is going to go up, go down, or run sideways, relying on luck rather than strategy eventually catches up with investors. Just like the temporarily successful gambler, it is just a matter of time before they implode and suffer significant losses. As the saying goes, no one rings a bell at the top when it is time to sell.

And then there were Bitcoin experts this holiday season. They sought me out at seemingly every event I went to. But they had a puzzled look on their face when I asked them to explain exactly “what” it was that they were investing in, or why their Bitcoin fortune would vanish if they lost their account password.

Another axiom we dodged this year was that traditional wisdom of “sell in May and go away.” If we had done that, we would have missed significant gains between May and November. That was another obstacle that could have cut your returns by more than half. Fortunately. our models kept us invested all year.

Overall, we were pleased with our portfolios. All performed well in the context of the risk level they are invested in.

Managed Income acts as the anchor to the portfolios. As long as interest rates stay pushed to the floor, its returns will be relatively low, but still better than bank rates. On a positive note, it looks as though we may see an increase in rates this year, which should help Managed Income. Regardless, its primary purpose is to provide stability for our portfolios.

Top Flight, with all of the changes we made a year ago, performed well. If you would like more detail on the three portfolios — momentum, fundamental and seasonality — that make up Top Flight, give us a call and we will happily walk you through them.

The new Balanced Portfolio and the two Private Funds both had a strong performance this year as well.

GOING FORWARD 

Our Consumer confidence or individual optimism is the highest it has been in 17 years. Investor sentiment is also the most bullish it has been as far back as we are able to track it.

This puts us in a tricky spot. Historically, we know that as investor sentiment moves higher we are approaching a market correction. The theory is that once everyone who is going to invest is invested, there is no one left to push the market higher.

The difficulty with market sentiment as an indicator is timing — you don’t know exactly when such a correction will occur. As a result, we are also watching internal market technicals but with a more skeptical eye than normal. Trend indicators, Advance/Decline lines, Industry Breadth, etc. all still look good.

Last year we updated Top Flight with our best individual stock models. In an effort to match or exceed the returns of the broad markets, we tied Top Flight’s more directly to those broad markets than we had historically. Our belief is it is better for Top Flight to accept more short-term downside volatility so that its returns over the long term will increase.

With this year’s market strength, along with the changes we made to Top Flight last year, it is important to correctly set the amount of volatility you are willing to accept. We can effectively reduce your overall volatility by decreasing your exposure to Top Flight and increasing your exposure to our more conservative portfolios. Getting that right is one of the pillars of investment success.

If you would like to talk about how you are positioned or make any changes, please give us a call. We are always happy to hear from you. Have a great 2018!

Disclaimer: 1. Investment performance reflects time-weighted, size-weighted geometric composite returns of actual client accounts. 2. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions.  3. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation The Barclays Aggregate Bond Index is a benchmark index made up of the Barclays Government/Corporate Bond Index.  4. Benchmarks are used for comparative purposes only. The Paragon Top Flight Portfolio is not designed to track the S&P Index and will have results different from the benchmark. The Paragon Managed Income Portfolio is not designed to track the Barclays Bond Aggregate Index. 5. Past performance is no guarantee of future results. Investments in securities involve the risk of loss. 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.

Happy Thanksgiving!

Posted November 27, 2013 by admin. tags:
Thanksgiving Decor

At this time of year, here at Paragon Wealth Management, we like to pause and reflect on all the many reasons to give thanks. We are truly grateful for our clients (and that the stock market is up)!

From all of us at Paragon, we wish you a happy and safe Thanksgiving!

Election thoughts…

Posted November 1, 2012 by admin. tags:Tags: , ,
Better news headlines

How will the markets react to the election?  Do you buy if Romney wins and sell if Obama is re-elected or do the opposite?  Most people’s answer to that questions depends upon their particular political persuasion.  However, if you take off the political glasses what does the choice look like?

There have been a lot of statistics thrown around lately regarding the impact on the markets of who wins the white house.  In today’s WSJ Ahead of the Tapecolumn by Spencer Jakab, a study by Barclays starting in 1929 shows that the market has risen 10.8% annually under Democrats and 2.7% under Republicans.  According to that data we should all want the President to win.  However, “there are lies, damned lies, and statistics” as Mark Twain said.  Economic policies enacted by governments can take years to implement and the consequences (both good and bad) can be felt years down the road. The growing debt burden as the prime example.   Sometimes Presidents preside during booms and their followers reap the aftermath.  Some Presidents take office during bear markets and the markets have nowhere to go but up and some encounter the exact opposite.  Politicians of course will always take the credit for the good and assign blame for the bad.  Trying to separate and assign the real cause and effect is a battle that constantly being waged.

There is no doubt that the GOP is the more business friendly party in general and that is especially true this time around.  So does that mean that the market will take off if Romney is elected?  It’s hard to say.  On the surface it would seem that a more business friendly administration would result in strong stock market gains.  However, the past four years have seen anemic economic growth but good stock market gains.  I have seen all too many investors sit out the last four years and miss out on the gains because of their political beliefs.  My main point is that it when the entire historical record is examined period by period it shows the futility of trying to time the markets for political reasons.  It is far better to stick with a proper asset allocation through thick and thin despite one’s political beliefs.

Depending on the election result and market conditions, we are considering making a short-term trade based upon the election results in order to take advantage of the possible emotional reactions many might have to the election outcome.  The WSJ article previously mentioned cites a study we have been looking at that shows the market tends to do well in November if the challenger is elected and can be the second-worst month of the year if the incumbent is re-elected.  The election is too close to call ahead of time to make a decision yet but we are watching and waiting to see if an opportunity develops…

Written by Nathan 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.

Paragon’s Summer BBQ

Posted August 29, 2012 by admin. tags:Tags: ,
Client Appreciation Dinner

Thank you to everyone who came to Paragon’s summer BBQ. We had a great turn out and a lot of fun watching Dave perform his magic – literally!

If you missed it we certainly hope you will join us next year!

Caveat Emptor – Buyer Beware

Posted May 31, 2012 by admin. tags:Tags: , , ,
Zuckerberg's Facebook

Written by Nathan White, Chief Investment Officer, Paragon Wealth Management

There’s a lot of never ending press coverage regarding the recent IPO of Facebook.  Now that is has followed the usual path of most IPO’s in declining after starting to trade on the secondary markets it is comical to watch the blame game circus.  I think it’s a symptom of what ails modern society as a whole.  It’s as if we are all adolescents and don’t want to be responsible for our decisions.  If something goes wrong it must be the fault of someone or something else.   We can’t stand for real estate, stocks, the economy or anything else to go down.  We then take actions to avoid this pain but just end up hurting ourselves even more for the long run.  Investments are long-term, right?   Of course there was a lot of risk in buying a company at a hugely inflated value.  That’s not to say it doesn’t deserve the value or more but just that a lot of things have to go right for the valuation to be justified.  Now that Facebook has gone down over 25% from the offering price people feign to be shocked!  Oh the horror!  Congress should investigate, there outta be a law, evil Wall Street “forced” me to buy it, it’s Zuck’s arrogance.  How about looking in the mirror?

This line of thinking can be applied to almost any crisis, financial or not.  The financial crisis was caused by greedy Wall Street, Bankers, and the government, and had nothing to do with everyone speculating on real estate and being more than happy to take the money that was being handed out.

For decades the Europeans have been voting themselves ever more entitlements and doing less of the productive effort that is required to support them.  They borrowed to cover the gap.  Sooner or later the charade ends and now they’re going through the blame game process and trying to avoid the consequences of their own decisions.  They are going through all sorts of contortions to try and avoid the pain of the inevitable “readjustment” process that must take place.  (how far the U.S. is down this road is of great debate)

Everyone always wants the upside but not the downside.  Does that sound like what actually happens in life?

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.

Paragon Advised Investors To Consider Alternatives to Treasury Bills

Posted May 17, 2012 by admin. tags:Tags: , , , ,
Gravel road up the mountain

Provo, Utah- Paragon Wealth Management’s financial advisers encouraged investors to consider alternatives to treasury bills until rates move back up.

“Treasury bills yield nothing,” said Dave Young, president and founder of Paragon Wealth Management. “Bonds and gold could have significant risk at these levels, which are near all-time highs. Both are owned for safety but ironically carry significant downside risk going forward. A home makes some sense because values are low, but it’s hard to get overly excited when a home’s 50-year return is half that of stocks.”

Young said it could be better to follow a proven investment strategy that invests in stocks. He said stocks have gotten the best returns long-term, even though the last 12 years have been extremely difficult in the stock market.

“Stocks are currently the most beat up, out of favor and undervalued of the five asset classes, which makes them even more compelling,” said Young.

Paragon’s wealth managers have been investing in stocks since they opened their doors in 1986. Paragon’s growth portfolio, Top Flight, has generated a total return of 418.55 percent versus 86.96 percent for the S&P 500 from its inception on January 1, 1998 through March 31, 2012. Its compound annual return is 12.32 percent versus 4.52 percent for the S&P 500 during that time period. (Visit www.paragonwealth.com to see complete track record and full disclosures).

“Even the best managers have a tough time staying ahead of the markets,” said Dave Young. “Since the market bottom in March 2009, the legendary Warren Buffett is up only  44 percent versus 80 percent for the S&P 500. Another high profile investor, Jim Cramer of CNBC’s actual track record is surprisingly dismal. If you had followed his advice over the past 10 years, you would have earned only 1.68 percent compounded per year.”

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.

The Search for Yield

Posted May 10, 2012 by admin. tags:Tags: , , ,

Written by Nathan White, Chief Investment Officer, Paragon Wealth Management
Taken from Paragon's 2Qtr 2012 print newsletter.

In an environment where interest rates are at historic lows where does one go for yield?  As the baby boomers start to retire there will be a higher demand for fixed-income type investments of all types.  The effects of the

Market In Rally Mode (Continued)

Posted April 26, 2012 by admin. tags:Tags: , ,
Stack of 100 dollar bills with a red bow

Written by Dave Young, President of Paragon Wealth Management
Taken from Paragon’s 2Qtr 2012 print newsletter

Secrets to Building Wealth

Building Wealth is difficult.  It’s somewhat like a gauntlet.  According to Sports Illustrated 60% of NBA athletes and 80% of NFL athletes are broke within five years of retiring.  I’ve seen similar stats for beneficiaries of life insurance policies, lottery winners and trust fund recipients.

Even the best managers have a tough time staying ahead of the markets.  The legendary Warren Buffett  only generated a 6.2% for the first quarter versus 12.6% for the S&P 500.  Since the market bottom in March 2009, Buffett is up roughly 44% versus 80% for the S&P 500.

Jim Cramer of Smart Money is one of the most outspoken, well known market guru’s out there. His actual track record is surprisingly dismal. If you had followed his advice religiously over the past ten years you would have only earned 1.68% compounded per year.

A basic rule of investment success is to give yourself a fighting chance by playing in the right sandbox.  In other  words, invest in the right asset class.  Let’s look at the performance of five primary asset classes over the past FIFTY years.

  • Median Home prices have increased at a rate of 4.8% per year since 1962.  Home prices increased fairly steadily until about 2005 when they took a tumble.
  • Treasury Bills gained 5.4% compounded over the fifty years and had the smoothest ride.  Currently they are essentially returning nothing because interest rates are so low.  Until interest rates move higher it seems pointless to own Treasury Bills.
  • Treasury Bonds are in the middle of the pack and have returned 7.5% over last 50 years.  The bond chart shows that bonds trended gently upward for the first 20 years and then moved sharply higher over the last 30 years.  Bonds have performed phenomenally over the past 30 years as interest rates went from about 17% to 3%.  During this time, because interest rates have steadily trended down it has created an illusion that bonds are always safe.  With rates currently pushed to the floor it is highly unlikely that we will see returns approaching their 7.5% long term average any time soon.  It is much more likely that bondholders may see significant losses if interest rates move back up toward their long term averages.
  • Gold returned 8.1% over the past 50 years.  That sounds great on the surface until you realize what you would go through to get that return.  First,  you have to buy the gold without getting fleeced by the super high commission firms who sell it.  Then, for the first 13 years your  gold it went nowhere.  Then the next 10 years, amidst significant volatility,  it went straight up from $35 to $850 an ounce.  Just two years later it cratered back down to $307 an ounce.  It didn’t get back to $850 an ounce until 28 YEARS after it first hit $850. Over the past four years gold has doubled in price.  It is possible to trade gold successfully but it can be very difficult.
  • Stocks had  the best returns over the time period at 9.4% per year.  The first fifteen years, amidst significant volatility, stocks doubled.  The next 24 years the stock market moved steadily up creating one of the easiest environments ever to be a stock market genius.  The last twelve years stocks there have been two huge bear markets with stocks effectively going nowhere.

In my opinion, it currently makes no sense to invest in Treasury Bills, which yield nothing,  until rates move back up. Much worse than T-Bills are bonds or gold which are at all time highs.  Both are owned for safety but ironically carry significant downside risk going forward.  A home makes some sense because values are low but it’s hard to get too excited when a home’s 50 year return is half that of stocks.

I believe that it makes the most sense to follow a proven strategy that invests in stocks.  Even though the last twelve years have been extremely difficult,  stocks still have the best returns.  Even more compelling, stocks are currently the most beat up, out of favor and undervalued of the five asset classes.

Investing in stocks can be a positive or negative experience, depending on whether or not you follow the rules.

Rule one is to determine your risk tolerance so that you are not taking unnecessary risks.

Rule two is to follow a flexible strategy that allows you to protect wealth and capitalize on opportunities when they present themselves.

Rule three is to be very patient.

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.  

Volatility Unleashed (Continued)

Posted February 9, 2012 by admin. tags:Tags: , ,
Bright Light House

February 2012 Stock Market Update

Posted February 2, 2012 by admin. tags:Tags: , ,

Paragon Wealth Management’s investment advisers give their thoughts on what happened in the stock market in January and what they think will happen going forward.

Stay tuned next week for the rest of Dave Young’s article “Volatility Unleashed”.

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.  

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