Tag Archives: investing

Market Summary

Posted April 13, 2018 by paragon. tags:Tags: , , , , , ,
Changes Ahead_opt

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

The markets have been strong the past few years — and they have been exceptionally strong since Donald Trump was elected. Most of the strength was based on investor expectations. Specifically, that Trump’s free market policies and tax reform would benefit stock prices. As a result, last year the markets were up 10 to 20 percent depending on the market. Volatility was almost nonexistent.

The broad market hit a peak on Jan. 26, 2018. Since then, volatility has picked up significantly and the market has been acting more like its old self. Three issues are currently pushing it around.

First, valuations have been at the upper end of fair value for some time. Whenever valuations get this high, investors start looking for reasons to sell rather than buy. They tend to look at everything through a negative lens.

Second, Trump has been pushing a protectionist trade agenda and recently announced tariffs against China. Investors do not like tariffs. Throughout history, tariffs have always caused more harm than good. Every time tariff news comes out, the market sells off.

Third, tech stocks (specifically the FANG stocks, i.e. Facebook, Apple, Netflix, Google and Amazon) have been leading the market up for the last 18 months. But recently, they have had more than their share of bad news, which is causing them to put a downward pressure on the market.

Overall, excellent market fundamentals are still in place, which forces us to stay invested. However, with interest rates slowly rising, we are on “high alert” more than we have been in some time.

CHANGES AT PARAGON

If When I founded Paragon 32 years ago, it was because I couldn’t find a fiduciary firm that managed my money the way I wanted.

I had sold several businesses and needed a place to invest my hard-earned money. I met with Shearson Lehman, Smith Barney, Merrill Lynch and Northwestern Mutual, to name just a few. None fit the bill.

I wanted them to invest my money as if it were their own. I wanted to cut unnecessary investment costs wherever possible. I wanted a proactive investment manager who would adjust my account depending on whether the markets were going up, down, or sideways. I didn’t want them to passively buy an investment, hold it forever, and pray it worked out.

When I started Paragon, I was trading through Fidelity Investments. Each of my clients had to sign a limited power of attorney so I could trade their accounts. We called in our trades on land phone lines, one by one, because there was no internet.

After a few years, Charles Schwab became the leader in the newly developed RIA industry. They were at the cutting edge. We moved from Fidelity to Charles Schwab, because Schwab allowed us to provide the best technology and lowest costs to our clients.

We have been at Charles Schwab for almost 25 years and have enjoyed that working relationship. However, after an in-depth review, it is time for a change. Looking to the future, we believe making some significant changes will provide our clients with a better technology platform, lower transaction costs and outstanding client service.

We did not make this decision lightly. Moving 330+ accounts and upgrading multiple technology platforms is not my idea of a good time.

But change is always painful … in the short term. We are doing this because it will allow us to better serve you and provide you with the best technology available to trade and monitor your accounts.

TD AMERITRADE

TD Ameritrade is at the forefront of technology in the Registered Investment Advisor space. TD Ameritrade is a leader in trade execution. We have negotiated trade pricing that is either the same or one-fourth the cost of what we were paying, depending on the account. Better trade execution and lower costs ultimately lead to better investment results.

Safety and security of the accounts is of the utmost importance. TD Ameritrade is committed to delivering one of the highest levels of security in the industry and carries FDIC, SIPC and additional insurance against fraud up to $152 million per client.

ORION

In conjunction with moving to TD Ameritrade, we will also be implementing a new portfolio administration package from the industry leader, Orion. The Orion platform will cost Paragon five times more annually than our current provider, but that cost will not be passed on to our clients. Your costs will go down while ours go up. We believe you are worth it.

In addition to enhanced trade order management, cost basis, tax reporting, compliance, and RMD distributions, this state-of-the-art Orion platform will provide you with an incredible array of tools.

Each client will have an online portal, which will provide them with immediate access to accounts and performance across multiple timeframes. We will build these reports for you, as simple or as complicated as you desire. We will use an aggregator, which will allow you to view any of your bank accounts, or other financial accounts that are outside of Paragon. You will have immediate access to your accounts and a variety of reports via your smartphone, computer or through the mail — whichever you prefer.

EVEN MORE…

In an effort to provide you with the best client service, we will also be upgrading our client contact software. This industry-leading client software, known as “Wealthbox,” will allow our staff to take your already excellent service experience to the next level.

Finally, we are significantly upgrading our Financial Planning Software. The state-of-the-art software will make it easier to build and update your plan online. Your plans will be updated daily since they pull in the data data directly from your investment accounts. They will also be available online through your portal. Whether it is a Retirement Income plan, a tax estimate, a Roth Conversion, or Social Security Optimization, our hope is to make it easy for you to understand your plan, access it and update it as needed.

Our ultimate goal is to provide you with the VERY BEST in the Investment Advisor space. We are excited with these enhancements, and over the coming months, we will reach out to you as we get everything put in place.

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.

Back To Normal?

Posted April 11, 2018 by paragon. tags:Tags: , , , ,
Screen Shot 2018-04-09 at 4_opt

Written by Nathan White, Chief Investment Officer

After a tremendous start in January (and what seemed like a continuation of 2017), the markets finally hit some long-anticipated turbulence in February and March.

The stock market had been riding a nice wave. Last quarter, I suggested it was a prudent time to review allocations and risk exposure while the markets were doing well. Now that volatility has returned, let’s review current conditions and factors, as well as future considerations.

The current economic conditions are generally considered to be exemplary of the late stage of an economic cycle. However, cycles can run longer than anticipated, and there is no way to know exactly when they will end. The effects of the fiscal stimulus are helping to extend the economic cycle, but they could also increase the potential for inflation to finally rear its head. A characteristic of a late economic cycle is where the economy continues to do well, but asset price declines or increases only moderately.

A research report from NDR (Ned Davis Research, Economics/Global Comment March 2018) indicates that two-thirds of countries are growing above their long-term growth potential, which last happened in 2000 and 2007 before major recessions. However, the dangerous threshold could still be a year or so out, and the timing can be tricky. Does this mean we are bearish? No. We are just getting cautious. There are still a lot of positives, but it is our job to investigate the risks.

Our risk models are indicating a rise in risk. Our trend and breadth models, while still bullish overall, have deteriorated. We are monitoring these closely. Equity valuations are still broadly high, but earnings are forecasted to grow nearly 20% for the year. We will be watching for changes to these results and expectations. Another characteristic of a late economic cycle is a flattening yield curve. This occurs when short-term rates exceed long-term rates. The curve has been flattening as the Federal Reserve increases interest rates, but for various reasons, long-term yields have not moved commensurately. The following graphic on the next page helps put the current environment in perspective.

Investing is a long-term game, and trying to time exits can be hazardous to returns — especially if future returns are harder to come by (i.e. lower). You will need to keep exposure to get returns. Stay invested — but be flexible in the mix of those investments.

Remember, pullbacks are a normal part of market action and create opportunities. What is not normal is the absence of pullbacks (like we experienced in 2017). The trillions of dollars — pumped into the markets by global central banks since the Financial Crisis — has smoothed out volatility and market corrections. The latter should increase as central banks begin to reverse course. Keeping interest rates so low for so long has encouraged massive borrowing at cheap rates. Corporate borrowing has surged with U.S. companies’ debt reaching their highest levels since 2000. Many companies have been able to borrow at rates and amounts that wouldn’t

have been possible in a “normal” rate environment. As rates rise, the cost of servicing this debt will increase and could expose many weak hands. This is healthy in the long-term, though, as it discourages wasteful or inefficient use of precious resources. The real question is that as credit conditions normalize, what will be the effects on markets and the economy? I believe current market conditions to be exemplary of returning to a more normal environment.

STRATEGY REVIEW

The S&P 500 ended down for the quarter, and only two of 11 S&P 500 sectors posted gains and outperformed — Technology and Consumer Discretionary. Bonds were also down for the quarter as they face an uphill battle of rising interest rates. Within TopFlight, all three of the strategies (Fundamental, Momentum, and Seasonality) were up slightly for the quarter. Some of the best performers within our Momentum strategy were Nvidia, NetApp and Micron Technology. Our small cap momentum stocks generally lagged in the first quarter but closed the gap by quite a bit in March. Within our Fundamental stocks, the best performers were Northrup Grumman, Ruths Hospitality and Eastman Chemical. After a difficult 2017, our Seasonality strategy posted a gain for the quarter as well. We continue to like the valuation position of our current stock holdings. Their collective forward P/E (price/earnings) multiple is about 14.8 versus 17.4 for the S&P 500, which is about 15% less expensive. Many of these holdings are industrial and materials companies that could benefit more from the tax cuts and possible infrastructure spending.

Our Managed Income portfolio ended the quarter slightly down, primarily due to the slide in equities. We continue to maintain about 40% of the portfolio in short-term corporate bonds, which will allow us to capture the rise in interest rates without getting hit with significant capital losses. Another 15% of the portfolio is in intermediate Treasuries. We continue to avoid long-term bonds.

Going forward, our models still indicate a reasonable case for further stock market gains, but probably not on the level of past years. Inflation trends are still positive for now, and the strong economy and earnings growth outweigh the concerns I discussed earlier. But as the risks increase and the economic cycle matures, it is important to have a more flexible approach with your investments to control risks and take advantage of opportunities. This is exactly the way we like to manage investments.

If you have questions about your allocation and risk exposure, please give us a call. We are here and happy to help.

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.

Stocking Up

Posted October 22, 2017 by paragon. tags:Tags: , ,
Fall Time in the Park_opt

Written by Nathan White, Chief Investment Officer

How long will this upward move in stocks last? It’s a constant and valid concern, especially considering how well the markets have done for years. What will end the rally?

We are currently dealing with elevated valuation and sentiment levels, historically low volatility, rising interest rates, reversal of quantitative easing, terrorism, natural disasters, political uncertainty, and more. It is impossible to know what concern will finally “stick” and be the material cause for a correction. Sometimes markets just simply get exhausted to the upside. However, as there are always market concerns, being on the right side of the trend is more important. The current trend and economic indicators remain supportive of further stock outperformance. The market quite literally climbs a continual wall of worry. We will keep monitoring our models for indications of risk, but for now the weight of the evidence remains bullish.

If I had to pick my primary concern, it would be the potential effects from the Fed’s reversal of quantitative easing. The Fed’s quantitative easing actions (i.e. bond asset purchases) have provided tremendous liquidity to the markets. How long the markets will be able to move higher in the face of this withdrawal remains to be seen. There is usually a lag time for Fed actions to be felt in the economy and markets. As the Fed is starting slow, it may be some time before what is now being dubbed quantitative tightening (QT) has a material effect. We will watch the process with great interest.

On the constructive side, economic data continues to be positive globally. According to our indicators, recession is still not in the cards anytime soon. U.S. economic growth grew at 3.1% in the second quarter, which was slightly higher than expected. Manufacturing activity is the highest in 13 years and service-sector activity is the highest in 12 years. While stocks are expensive right now, they are not at extremes. Corporate profit growth remains positive and is offsetting the slow pace of rising interest rates. While interest rates are rising they are still extremely low on a historical scale. The prospect of fiscal policy being passed is still supporting the markets due to the potential economic shot in the arm it could provide.

Another positive is that we are heading into what is seasonally the best time of year for stocks. Additionally, the majority of global markets are trading above their moving averages, suggesting that momentum continues to support further gains.

Before this quarter, one of our concerns was that the breadth of the market advance was not very wide — only a few sectors and stocks were making up the bulk of the advance. However, last quarter alleviated some of these worries as the first half laggards such as small caps, energy, and value stocks rallied nicely. The final weeks of the quarter saw a rotation back into many of the “Trump trade” stocks.

Last quarter was good for the stocks in our Top Flight portfolio, which was up 6.3% for the quarter compared to 4.5% for the S&P 500 Index. Our stock portfolio is broken down into two segments and is currently comprised of 30 holdings of 2% each (60% total). The first is a fundamental based approach that focuses on stocks with the least downside risk. These stocks gained about 6.4% on average for the quarter. The second segment is a momentum or trend-based approach. The small cap segment of this approach was up about 11.2% and the large/mid-cap segment was up about 9.8% for the quarter. The best performers came from the auto parts industry with BorgWarner and Lear both up around 20% and 18% respectively for the quarter. Other good performers were building material companies such as Owens-Corning and Continental Building. Vertex Pharmaceuticals performed nicely after positive data on its cystic fibrosis drug. We also saw continued good performance from our aerospace and defense holdings of L3 Technologies, Northrop Grumman, Lockheed Martin, and Booz Allen Hamilton. Many of the small and mid-cap names did particularly well in September, accounting for much of the gain for the quarter.

Top Flight also includes two ETF based strategies. One strategy is based on a seasonality approach that rotates among various sectors and industries. It is comprised of three to five positions of 5% each. This strategy has been an underperformer this year and is only up about 2%. It was dragged down in the first half of the year by energy and retail exposure. While seasonality has been disappointing this year, it has been a good performer in prior years, sometimes attributable for the bulk of the gains in Top Flight. We still have confidence in this approach. The other ETF strategy is a single ETF momentum-based strategy, which is about 10 percent of the portfolio. This segment has had a single holding all year so far, the PowerShares QQQ, which is heavily weighted in technology. It is up about 22.5% for the year.

We are still grinding along in the Managed Income portfolio. Due to the low yields and the risk of extremely high prices, we are still keeping our powder dry. We are getting similar returns as the benchmark (for a lot less risk) and we are not locked into today’s low rates. Most broad-based bond funds or conservative portfolios are comprised of various mixes of longer-dated bonds. As interest rates rise, the losses on those bonds will offset the meager yields offered. Most fixed income funds or portfolios are sitting on a pile of future potential losses. There is no avoiding the dilemma, and even if interest rates didn’t rise they would be stuck with their current low yields. Therefore, we have minimized our exposure to longer-dated bonds. We believe our portfolio to be more conservatively positioned. We still prefer shorter maturity bonds, and as interest rates have risen their yields have improved. Short maturity bonds allow us to increase our yields as interest rates rise without getting hit with capital losses. While we know it is hard to accept low returns, it is better than reaching for yield and taking bigger risks like so many investors are doing. Don’t succumb to the desperation many are giving in to! Yield chasing can be hazardous to your financial health. It’s better to get a lower, more stable return than to put too much at risk.

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.

Keep On Keeping On

Posted October 15, 2017 by paragon. tags:Tags: , ,
Fall Mountains-1

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

Last quarter was a continuation of what has gone on since last year’s election: The markets keep going up. Leadership changed and rotated to Small Caps taking the lead this quarter. Small Caps lagged in the first quarter (and again in August), but then took off in September to get back in line with the other averages.

The leading indexes change from quarter to quarter, rotating between the S&P 500, the NASDAQ, Emerging Markets, International Markets and Small Caps. But the bottom line is that the market trend is up.

Assuming your investment strategy is sound, this past quarter proves the “long term argument” of waiting patiently for your strategy to pay off. Our portfolios continue to provide good performance.

I am repeatedly asked, “How long can this market keep going up?” and “With all of the problems and concerns, why does the market keep going up?”

Regarding “how long,” no one knows for sure. We are currently breaking records for the period of time we have gone without a correction. Based on our models, the market is fully valued. We are to be cautious — but still stay invested.

History shows that markets can continue going up even when they are at full value. Last year, before the election, many pundits recommended jumping out of the market. Sadly, they are now significantly behind and are still waiting for their opportunity to get back into the market. Others got out during the 2008 Crash … and have still never gotten back in. The markets are seemingly biding their time and waiting for earnings to catch up with stock prices. Usually, you would have seen a sell-off by this stage in the cycle.

THREE PERCENT GROWTH 

To answer the question of why the market is going up, I’ve pulled some content from a recent article in the Wall Street Journal by Phil Gramm and Michael Solon. They were making an argument unrelated to the stock market, but I will use talking points from their article to explain the “why.”

Stock valuations are based on their underlying earning power. When companies are expected to make more money, their stock price goes up. Conversely, when companies are expected to make less money, their stock price goes down.

Complicating things, stock prices are not necessarily based on what is actually happening; they are based on investor expectations.

Looking at the big picture, GDP is a measure of the growth of the U.S. economy. In the postwar era, the U.S. averaged 3.4% annual growth from 1948 through 2008. We averaged 3% growth for half of the George W. Bush presidency (2003-06).

Only with 3% or higher growth does America experience measurable progress in poverty reduction, strong job creation and income growth.

Many talking heads argue that the days of 3% growth are gone and that America’s economy has lost its ability to grow at 3% above inflation.

From 2009-12, the Obama administration, the Congressional Budget Office and the Federal Reserve all thought they saw 3% growth just around the corner. If the possibility of 3% growth is gone forever, it hasn’t been gone very long.

America enjoyed 3% growth for so long it’s practically become our national birthright. Census data show that real economic growth averaged 3.7% from 1890-1948. British economist Angus Maddison estimates that the U.S. averaged 4.2% real growth from 1820-89. Based on all available data, America has enjoyed an average real growth rate of more than 3% since the founding of the nation, despite the Civil War, two world wars, the Great Depression and at least 32 recessions and financial panics. If 3% growth has slipped from our grasp, we certainly had it for a long time before we lost it.

During the Obama presidency, growth slipped to an unbelievable low of 1.47%. As a result, many Americans believe 3% growth is gone forever.

Phil Gramm argues that most of the growth constraints we face today are directly attributable to the Obama era policies. The Bureau of Labor Statistics reports that labor-productivity growth since 2010 has plummeted to less than one-quarter of the average for the previous 20, 30 or 40 years. Productivity fell during the current recovery, not during the recession. With high marginal tax rates, especially on investment income, new investment during the Obama era managed only to offset depreciation, so the value of the capital stock per worker, the engine of the American colossus, stopped expanding and contributed nothing to growth.

A tidal wave of new rules and regulations across health care, financial services, energy and manufacturing forced companies to spend billions on new capital and labor that served government and not consumers. Banks hired compliance officers rather than loan officers. Energy companies spent billions on environmental compliance costs, and none of it produced energy more cheaply or abundantly. Health-insurance premiums skyrocketed but with no additional benefit to the vast majority of covered workers.

In 2006, when the labor force participation rate was 66.2%, the BLS predicted that demographic changes would push it down to 65.5% by 2016. Under Mr. Obama’s policies, it actually fell further, to 62.8%, and the number of working-age Americans not in the labor market spiked to 55 million.

By waiving work requirements for welfare, lowering food-stamp eligibility requirements and easing standards for disability payments, Mr. Obama’s policies disincentivized work. Disability rolls have expanded 18.6% during the current recovery, compared with a 16% decline during the Reagan recovery.

If reversing the Obama era policies simply eliminated half the gap between the projected 1.8% growth rate and the average growth rates during the Reagan and Clinton recoveries, it would deliver 3% real growth generating nearly $3.5 trillion in new federal revenues over the next 10 years.

Since 1960, the American economy has experienced 30 years with growth of 3% or more. Seventy-nine percent of all jobs created since 1960 were created during those years. The poverty rate fell by 72% and real median household income rose by $20,519. In the 26 years when the economy had less than 3% growth, just 21% of all post-1960 jobs were created, the poverty rate rose by 37% and household income fell by $12,004. With 3% growth, the American dream is achievable and virtually anybody willing to work hard can live it.

BOTTOM LINE 

If you listen to the national narrative about how scary and awful things are, it makes no sense why the market continues to go up.

On the other hand, when you understand that as a result of our last election, most investors “expect” that there will be major tax, healthcare and regulatory reform that should take us back to the policies that brought us 3% growth, the upward market trend starts to make sense.

As always, let us know if you have questions or need anything from us.

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.

Mid-Year Review And Outlook

Posted July 12, 2017 by paragon. tags:Tags: , , , ,
Screen Shot 2018-03-22 at 4_opt

Written by Nathan White, Chief Investment Officer

Volatility in the equity and bond markets has been at historic lows. The economy has been strong enough to support stocks, but not too strong to disturb bonds. While still on the expensive side, equity markets are being sustained by growing earnings. They are also still anticipating an increase in economic growth based on upcoming fiscal and policy measures. If the intended reforms keep getting delayed, it could result in a return of volatility in the second half of the year.

Global growth has been improving, and so far looks to be around 3.4% for the year compared with 2.3% for the U.S. As growth in places like Europe has improved, the ECB is setting up to follow the Fed’s footsteps in tapering its extremely accommodative monetary stance. Central banks are becoming more hawkish and could be worried about financial stability. That means they need to keep/start tightening to stay ahead of any issues and build up their ammunition. But for now, asset prices keep improving in this low inflation environment.

Recently there have been indications that the leaders of the first half of the year seem to be overdone. Whether it is simply profit taking or an outright rotation remains to be seen. We could see a churning process throughout the summer as the market tries to digest the first half gains and anticipate the environment and factors that will affect the second half of the year. For now, 75% of industries are still in uptrends. The majority of our models are bullish, but we have seen deterioration in some areas. We would like to see a broader advance across all segments rather than just the narrow leadership that has occurred. Our sentiment models are flashing caution, as they are in the overly optimistic zone. Earnings growth must continue in order to support current high valuations in the face of rising bonds yields.

Growth names doing well in a low economic growth enviroment? 

On the face of it, you would think growth stocks would do better in a high-growth environment, as opposed to the current moderate economic growth conditions. Well, markets aren’t always logical. As the stocks that benefitted from the Trump rally stalled along with his reform agenda, growth stocks took over and became first half leaders. Sectors such as Technology and Healthcare have been the best performers. In an environment of moderate growth, investors placed a premium on names that are currently growing. Much of the focus was concentrated in large mega-cap names such as Facebook, Apple, Amazon, Microsoft, and Google. These five names accounted for about one third of the S&P 500’s year-to-date gain. They are basically defensive names in a low-growth environment. Our exposure to these names has accounted for most of TopFlight’s gains as well.

Our seasonality model, which has performed well the last few years, was a laggard in the first half of the year. The energy sector tends to dominate this model in the first half of a year, but energy stocks have been poor performers due to the drop in oil prices. Seasonality signals are not high conviction through summer months. Small-cap stocks have also been trailing large-cap stocks, as they are more economically sensitive. We have observed this in our small cap momentum stocks as well.

Outlook for the second half of the year 

If a rotation out of the first half leaders develops, we could see a move from growth into value. This would better benefit the energy and financials relative to the technology and large cap growth names. We have had a slant toward value and small-cap in the first half of the year. These stocks will potentially benefit from a shift of growth to value in the second half of the year. We will keep exposure to the high-flying names for now, but want to keep exposure to the value names that have lagged, as they could benefit from a rotation in the second half of the year. If the Trump agenda gets close to becoming reality again, then our small-cap and value exposure could take off.

With oil breaking down, it creates an opportunity in the energy names. Sentiment on the sector is extremely low, and large financial traders drive oil prices in the short run. In the end, low prices are the cure for low prices in commodities. We don’t know where the bottom will be, but are watching this sector for potential plays in the stronger names.

Managed Income 

Interest rates are slowly heading higher. The Fed has raised rates twice this year and is indicating one more increase later in the year and additional ones next year. The Fed also announced it will start to reduce its massive holdings later this year. This will put pressure on bond prices — warranting caution with one’s bond exposure. We still do not recommend buying long maturity bonds, especially as yields have fallen. The extremely low yields are still not worth the risk of owning at these elevated prices. However, we are still in a waiting game until we can lock in higher yields. We have a significant amount of capital to deploy, and we want to wait for a more favorable environment. As yields have come down on longer maturity bonds, they have moved higher for short-term bonds due to the Fed raising rates. A flatter yield curve calls for shifting into cash rather than bonds. We favor short-term corporate bonds where the yields have moved up but the prices have not. We only want to use Treasury bonds as protection as opposed to an outright investment.

We are watching some oversold names in the REIT and telecom space. For example, in the heavily damaged retail space, Tanger Factory Outlet Center (SKT) is looking attractive. With its modern stores and attractive locations, it has been drawing customers away from traditional malls. Its retail tenants comprise unique desired brands along with a discount aspect enabling Tanger to boast a 95% occupancy level. The stock also has a 5.2% yield.

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.

Put The Odds In Your Favor

Posted November 4, 2015 by paragon. tags:Tags: , ,
Stock Market Graph

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

This article is from Paragon’s Third Quarter Newsletter. If you are interested in receiving a free printed copy of Paragon’s Quarterly Newsletter, please click here.

Investing encompasses two of the most powerful human emotions — fear and greed. In light of the recent market volatility, your biggest fear, without a doubt, is losing money. No one likes to see account values go down. So how much should you worry about losing money with your investments? And how valid is that fear when viewed through a historical lens?

We all know investing is a long-term process. I would take that one step further and propose that the main risk is not being invested. And history proves it.

Fear of the downside prevents people from investing correctly. When markets become volatile or economic fear increases, the apprehension is over values dropping in the present moment. Often the fear is that the values will drop and never come back. No one ever wants to see their accounts drop by 20 or 50 percent — and then never recover. But when in the history of the markets have they ever not come back? Never. Even still, it is amazing to hear this irrational concern over and over and over again.

When markets drop, many people sell out or change to a more conservative allocation, thereby effectively locking in their losses. When someone sells out as the market is going down, they rarely get back in at a lower price. If you sell out when the market is down 5 or 10 percent, when do you intend to get back in? When the market is down 15 to 20 percent? Usually the fears that cause someone to sell do not subside before the market rebounds (and it often become worse). By the time the waters have calmed and the investor’s confidence has returned, the market has moved higher than the point from which they sold.

In fact, if someone doesn’t recover from a market downturn, it is usually because their allocation was overly risky going into the downturn or they changed to a conservative allocation during the slide. It’s not because the markets didn’t recover. For example, if you were overloaded on tech stocks or financials before their respective crashes in the previous decade, you probably had a hard time recovering. People tend to load up on the “hot” things during boom times only to get sorely disappointed when those assets come back down to earth.

Now back to my claim that the real risk is in not being invested. Long-term risks are always harder to confront rationally because they are not immediate concerns. In order to help overcome the fear of the market’s downside, please consider the accompanying table. It displays the historical probabilities of a profit in various timeframes for stocks (S&P 500), 10-year Treasury bonds and a mix of 20% stocks and 80% bonds from 1928 through 2014. The stock market’s chances of being up in a single year have been over 70% — and it only gets better the longer you hold. There has never been a 20-year (and nearly a 15-year) period where stocks have been down. Most people entering retirement today have more than 20 years of “investable” time. Now, I’m not recommending a 100% stocks portfolio for retirees, but the principle remains strong.

For those who are more risk averse or require a more stable portfolio, look at the figures in the 20/80 mix of stocks and bonds. It is better than even a portfolio of pure Treasury bonds in that it has had a better average annual return (6.3% vs. 5.0%) for the same amount of downside risk. This portfolio had only two negative three-year periods out of 85 occurrences and has never had a negative five-year period. Talk about putting the odds in your favor!

Not one of us has control over the market, but we do have control over letting time work in our favor. This table shows that negative periods are in such an impressive minority that they should be looked upon as opportunities — or at least ignored from an investing standpoint. Not many people wanted to invest during the 2008-2009 financial crisis — and I get it. The headlines were scary and it seemed as though the economy might collapse. But in hindsight, it was a great buying opportunity very few took advantage of.

There will always be things to worry about — and today is no exception. Consider that the period covered in the above review included the worst World War ever, a Great Depression and 12 recessions, the Cold War, numerous other wars and conflicts, oil shocks, inflation shocks, strong and weak dollar periods, debt bubbles, fiscal crises, various housing booms and busts, technology booms and busts, and both Republicans and Democrats. Despite all these hazards, the markets have moved up, reflecting the virtues of a free market and providing an effective method for investors to build their wealth. Don’t be left out!

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.

 

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.

Should I Invest Now?

Posted August 19, 2014 by admin. tags:Tags: , , , ,
Financial advisor talking with clients

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

We are regularly asked this question. Investors don’t know what to do. They are concerned. Many seem to always be in the wrong place at the wrong time. They missed out on the gains of the past five years and are now concerned they may be investing at the top of the market.

It seems like the risk pendulum swings from one extreme to another. In the 1990’s investors did not take enough risk and missed out on amazing returns. By 2000 and 2008 investors finally began to believe that markets only go up. They became aggressive just in time to be devastated by 50% losses and years of bad returns. By 2009, many investors had thrown in the towel. Those investors then missed out on the big gains of the past five years.

In order to build wealth you must invest for the long term. Stocks and real estate are the two most reliable investments for most investors to build wealth over time. Over the long term they appreciate in value much more than bonds or bank savings options.

In the short term stocks and real estate fluctuate in value and scare many investors away. Putting money into stocks or real estate for less than five years does not usually work out.

I believe there are four principles that must be followed to build significant wealth over time. Sound investing is not a single decision. It is a process.

1st – You must invest using an investment strategy that has been proven to work over time.

2nd – Your strategy should provide you with exposure to the stock and real estate markets.

3rd – Your risk tolerance (investment comfort level) should be set properly so that you are not forced out of your investments at the wrong time.

4th – You must invest for the long term thereby giving yourself the ability benefit from the ups and downs of market cycles.

Please call us if you have any questions or would like to make any changes to your accounts.

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 Election

Posted November 5, 2012 by admin. tags:Tags: , ,
American Flag waving

Written by Dave Young, President of Paragon Wealth Management

The number one question I am frequently asked is, “How do
I think the presidential election will affect the market?”  In prior elections, I have always had a
preference who won, but my preference did not affect our investment
strategy.  This election is
different.  I believe the outcome of the
election will affect our management strategies, possibly significantly.

I will apologize in advance to those who do not share my
political views.  I do not mean to offend
you.  However, my opinions are based on
my experience managing portfolios for the past 26 years rather than pure
political ideology.  I look at this
election from an investment perspective and the potential impact it will have
on your portfolio.

Historically, in an election year, the market is usually
weak and trending down during August and September.  Then, during October it turns up.   November and December are usually choppy but have
an upward bias.  If a Republican or the
incumbent wins, the market is usually stronger going into the election.   Historically, over the course of the year,
the market ends the year about eight percent higher if a Republican wins rather
than a Democrat.

From an investment standpoint it would be nice to know how
this election is going to play out.  That
is the trillion dollar question.  Most
polls show the race very close with Obama having the edge in some swing states.  On the other hand, political pundits make the
case that the polls aren’t accurate, just like they weren’t accurate when they
showed Carter six points ahead of Reagan just days before Reagan won that
election.

This election is very close.
It is unlikely to be clear until after the election.  It is a tossup on who will control the Senate.  We do know that Republicans will continue to
control the House of Representatives.

If Obama wins a second term and the Democrats maintain
control of the Senate, it is unlikely that we will see a meaningful change in direction.  Thus far, their unsustainable path took our
national debt from 10 Trillion to a mind boggling 16 Trillion dollars in just
four years.  President Obama has promoted
an agenda of class warfare and demonized the job creators who currently pay
most of the taxes.  This divisive agenda
has scared many investors out of the market.
It has created uncertainty for anyone starting a new business or who
needs to invest for their future.  Obama’s
policies have significantly slowed the economic recovery and kept unemployment
at historically high levels.

Stocks have moved up against a backdrop of a very low GDP
and very high unemployment.  That is hard
to understand until you take into account the effects of three years of
artificially held super low interest rates, exceptionally strong corporate
profits (fueled by layoffs) and relatively low stock valuations.

Regardless of who wins, it will take a few years for the
impact of their decisions to play out.
Realistically, if Obama wins then we will not feel the full negative effects
of his policies until 2014 or 2015.
Likewise, if Romney wins and does what he has campaigned on, then we
won’t feel the positive effects until 2014 or 2015.  So, the markets may just meander along or
even drift up until then.

On the other hand, because so many investors invest
emotionally and are afraid of Obama’s policies, we have to be ready for the
possibility that those investors may sell out of the markets because of an
Obama victory.  Conversely, a Romney
victory could have the opposite effect with investors piling into the market
and pushing it up, albeit purely for emotional reasons.

In summary, leading up to and after the election there are
compelling arguments to be made for staying invested as well as selling out and
going to cash.  It depends on who wins
and how investors react.  For us, the
investors reaction to the election will be more important than its actual
economic impact.

There is a compelling case for a potential bull
market, a bear market or a flat market.
Accordingly, we will be watching the markets intently, following our
indicators closely and adjusting our portfolios accordingly.  It’s ironic that in order for investors to once
again have hope and see real change they might need to elect Romney rather than
the official “Hope and Change” candidate.
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.

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.

Blog Role

Meta