Written by: Dave Young, President
Market professionals are not alone in their inability to forecast market behavior. Economists do just as poorly. Every six months the Wall Street Journal prints the results of a survey of leading economists who predict the level and direction of interest rates for the coming six months. 55 high profile economists currently participate in this semiannual forecast. You’d think such prestigious economists in such a high profile newspaper would know what they’re talking about , right? Nope.
The record shows that from 1982 through the beginning of 2003 (43 periods), 71% of the time the consensus of economists could not even forecast the direction of rates, either up or down, for six months forward. If they’d just blindly guessed they’d have a 50/50 chance, but their actual educated predictions turn out to be much worse. And these are the best the industry has to offer!
So if forecasts are a waste of time then what does work? After 20 years of managing money, I am convinced that investors will only succeed when they are able to remove emotion from the investment process. Gut feelings are not a reliable investment strategy-even the gut feelings of so-called experts.
Oftentimes, successful investing requires you to act in a way that is contrary to what you “feel” is right. For example, several of our models measure the overall optimism or pessimism in the investing public. When optimism is high we know that there’s a lot of risk in the market and it’s likely that the market will decline. Likewise, when optimism is low and most investors think that things are really bad, that is usually a great time to invest. This pattern has repeated itself for years.
We take great care to ensure that all of our investment decisions are based on solid, proven models, not hunches. Our portfolio allocation models tell us how much we should be invested based on measured risk in the market. We run the models daily to determine the most effective percentages of investments and cash holdings.
Once we’re in the market, our portfolio focus models tell us where we should be invested. We constantly track all areas of the equity markets on both a macro scale (small cap, mild cap, large cap, value, growth, international and emerging markets) and a micro scale (individual industries, sectors and countries).
The bottom line for Paragon Wealth Management’s clients is that they can be confident that their portfolio isn’t being managed by some celebrity market fortuneteller. Our quantitative models enable us to impartially measure what is actually happening in the market and how much risk there is at any point in time. We constantly evaluate the models to determine how effectively they are working. In my opinion, this is one of the best ways to invest for long term success.
Click here to read the first half of the article.
To learn more about Paragon Wealth Management, visit www.paragonwealth.com or call 801-375-2500.
Copyright 2007 Paragon Wealth Management