Tag Archives: investor

Active vs. Passive Money Management

Posted November 3, 2011 by admin. tags:Tags: , , , ,

Watch this short video to listen to Dave Young and Nathan White discuses active vs. passive money management.

In this video you will learn:

-the difference between active vs. passive money management.
-which strategy is doing better right now and which has done better in the past.
-which strategy does better in volatile markets.
-the disadvantages and advantages to each strategy.

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.

 

Why Warren Pays Less in Taxes than his Secretary…

Posted October 6, 2011 by admin. tags:Tags: , , , ,
How Warren Buffett pays taxes


Photo credit:  Connected

Written by Dave Young, President of Paragon Wealth Management

President Obama says that his most important priority is to create jobs. With that priority, it does not make a lot of sense that he relentlessly attacks those who create most of the jobs in America, i.e. “the rich”.

For the past couple of weeks the president – and his new helper, Warren Buffett- have campaigned endlessly against the job creators who he says do not pay their fair share of the tax bill.

I agree that everyone should pay their fair share. That is common sense. However, I do not believe that Warren Buffett or the president should make up facts to mislead the public that the rich are not paying their fair share.

I work with wealthy people. Regardless of what the president says, these people pay a lot of taxes. It could easily be argued that they pay much more than their fair share.

As a matter of fact, the top 10 percent of earners pay 70 percent of all  federal income taxes. 

According to the Tax Policy Center, the average person making:

  • $50,000 pays $6,250 in Federal Income Taxes.
  • $75,000 pays $11,250 in Federal Income Taxes.
  • $1,000,000 pays $291,000 in Federal Income Taxes.

So if you make 20 times more than $50,000, or in other words $1,000,000, then you will pay 46 times more in taxes.

So you make 20 times more but pay 46 times more, and that is considered unfair? You are endlessly attacked and told you are not paying your fair share when in reality you should be getting a “thank you” card.

Do the rich get to use the roads more or do they get better police and fire protection? Do they get better protection from the military? I know they get much more attention from the IRS.

These are the actual numbers. The real numbers don’t back up the populist picture that the rich do not pay their fair share. They actually show the opposite.

So what about Warren Buffett? Why is he helping to distort the facts?

I’m only speculating, but he owns several large insurance companies. It is very much to the benefit of his insurance companies to have high tax rates. Because of the tax preferential treatment that insurance products receive, those companies  would benefit significantly from higher tax rates. In that way Buffett would benefit from higher tax rates.

Or maybe, Buffett is right that his secretary pays a higher rate than him. I would imagine she gets paid more than your typical secretary and is in a fairly high tax bracket.

Buffett built his reputation as a legendary investor in the 70’s, 80’s, and 90’s. However, for the past 13 years he hasn’t done much at all.

From June 30, 1998 to August 31, 2011 he has returned only 2.6 percent compounded to his investors in Berkshire Hathaway. That is 2.6 percent compounded over 13 years.

Maybe that is why he has been paying less in taxes than his secretary.

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.

How You Can Avoid Financial Scams

Posted January 20, 2011 by admin. tags:Tags: , , ,

Once you understand how the Bernie Madoff scam worked, you will be a better investor.

In the Bernie Madoff situation, the investment advisory side and brokerage side of the business were both owned by Bernie Madoff. They had full control of the investor's assets. It is not a good sign when an investment advisor has full control of your assets. If they have full control, they can withdraw your money, make up statements, etc. It is important to have the custodian of your accounts be completely independent from your financial advisor.

There are a whole litany of scams out there. One thing you can do to avoid some of them is to never write a check directly to an individual advisor or business. If you do this, you are setting yourself up for a scam. If anyone asks for a check written directly to them, it is a red flag.

Watch the video above to learn more.

Are you a fan of Paragon on FACEBOOK?
Click here to visit Paragon's Facebook Page.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Any information presented is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. All opinions and estimates constitute the judgement as of the dates indicated and are subject to change without notice. Do not rely upon this information to predict future investment performance or market conditions. This information is not a substitute for consultation with a competent financial, legal, or tax advisor and should only be used in conjunction with his/her advice.

 

Follow the Money

Posted July 29, 2010 by admin. tags:Tags: , , , , ,
The Wizard of Oz


photo bycourtneybolton

Much has been said about the May flash crash being caused by those “evil” traders on Wall Street manipulating prices.

There seems to be a widespread view that the market is rigged, and everyone on Wall Street is some homogeneous entity that can move the market at its will. The mostly ignorant media is all to happy to reinforce this conspiracy minded viewpoint.

Just as Dorothy and her companions were startled to find out the true nature of the Wizard of Oz, so would the retail investor be shocked to only find themselves behind the “market” curtain.

What do I mean?

It mostly has to do with investor psychology and the herd behavior mentality. Quite simply, selling begets selling. By selling due to market volatility and not for asset allocation purposes, investors actually create the condition they want to avoid.

Take a look at the recent Investment Company Institute’s weekly fund flow figures.

As of July 21, investors have pulled out almost $36 billion from equity funds and put in over $57 billion into bond funds since the beginning of May.

How has the market fared over that period? Despite interest rates at virtually historic lows, people are piling into bonds? Is that good market timing or emotion causing people to become their own worst enemy?

Instead of blaming Wall Street for the market gyrations perhaps we should look in the mirror!

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.

Summer Rally?

Posted June 3, 2010 by admin. tags:Tags: , , ,
Spring Toolips

photo by Steve aka Crispin Swan

Written by Nathan White, CFA

The markets often take a breather during the summer as people focus on other things besides economics.

June and July are often lackluster months.

After the recent correction the “sell in May and go away” idea seems to have been right on the mark; or does it? The “sell in May and go away” tactic has gained widespread acceptance because it generally worked from 1950 to about 2003 according to a recent article by Louis Navellier (http://www.thestreet.com/story/10752020/1/sell-in-may-and-go-away-no-way.html).

Perhaps we should have said “sell before May” this time around. In fact, selling during May this year might end up being exactly the wrong thing to do.

The recent causes for the market turmoil (i.e., flash crash, European debts woes, Gulf oil disaster, new Israeli-Palestinian tension) have been masking increasingly good economic reports that show the economy continuing to recover.

I always believe that the market loves to continually disappoint as many as it can.

Now that the recent turmoil has caused investor sentiment to reach extreme pessimistic levels, and with a general belief that the summer is a bad time for the markets, perhaps the market will do the opposite of what is generally expected, and have a nice rally.

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.

Is the Recession Over? How Should I be Invested Now?

Posted August 14, 2009 by admin. tags:Tags: , , , , ,
The New York Stock Exchange Flags

Written by Dave Young, President of Paragon Wealth Management


photo by buggolo

We have been encouraging investors to become fully invested in the stock market since March of this year. We likened the stock market to “the sale of the century.”

At a time when most investors were selling all of their investments, we told investors to move back to a fully invested position.

We recommended that you as an investor take advantage of this rare, although scary, situation by investing in those areas of the market that have historically performed “best” after a market meltdown. We didn’t just give the typical – but useless – “cautiously optimistic” outlook. We named specific areas of the market you should be invested in.

Since the March 9 low, through July 31, the S&P 500 has gained 46 percent. It has made back its losses from January through mid-March and is now up 10.9 percent year-to-date through July 31. During that same time, our growth portfolio, Top Flight is up 17.2 percent year-to-date.

The reason we are up substantially more than the market is because we invested in those areas that perform best after severe market decline — just like we recommended. If you followed our advice, you were rewarded.

Going forward, the question is, how should an investor be invested?

Our indicators and the models we follow are showing there is a high probability the recession ended in June — although this hasn’t shown up in the press and is not yet mainstream knowledge.

The first and sharpest stage of the market recovery usually occurs right after the initial market plunge and takes about three to four months. We believe stage one occurred between March 9 and June 30. The second stage of recovery occurs after the recession ends, which we believe was around the end of June.

If it is true the recession ended in June, then we now want to be invested in those areas of the market that do best during the second stage, or after a recession ends.

The second stage lasts for about six months. Following the last eleven recessions, the data clearly show that certain areas of the market consistently perform best during stage two.

Typically, bonds perform poorly after recessions and should be avoided. Interest rates get pushed down during the recession, and then, as the economy starts to expand, demand for money increases and interest rates go back up. When interest rates go up, most bonds get hammered and lose money.

Bonds are one of the worst places to be as an economy emerges from a recession.

Unfortunately, many misguided investors have been running to bonds for the past six months, hoping to find safety. If history repeats, they will find the opposite of what they seek.

From a big picture perspective, small cap, growth, commodities and emerging market stocks have performed the best for the six months following the end of the recession. On a sector basis, energy, materials, tech and consumer discretionary stocks performed the best.

On the other hand, in addition to bonds, other sectors that usually perform poorly after a recession ends — and should be avoided — include consumer staples, health care and telecommunication stocks.

This difficult market highlights why “active” investment management is so important.

If market dynamics always stayed the same, then a simple buy-and-hold approach would most likely work well for investors. Because market dynamics are constantly changing and evolving, we believe the best investment approach is one that actively adjusts, moves and changes based on market conditions.

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.   

Warren Buffett Says Now is the Time to Buy

Posted October 17, 2008 by admin. tags:Tags: , ,
Uncle Warren

 

 

Warren Buffett is known as one of the most famous investors, businessmen and philanthropists in the world.

It is interesting that he is calm at this time when everyone else is panicking. He has told other investors to buy because he is.

Below is an article that was on Bloomberg‘s site today.

Oct. 17 (Bloomberg) — Warren Buffett said he’s buying U.S. stocks and, if prices stay attractive, his personal investments, as distinct from his stake in Berkshire Hathaway Inc., will soon be wholly in American equities.

Writing in the New York Times, he said he’s following the principle: be fearful when others are greedy, and greedy when others are fearful.

Exaggerated concern about the long-term prosperity of the many sound U.S. companies is foolish, and most will probably be setting profit records in years to come, Buffett said.

While short-term stock-market movements can’t be foretold, the likelihood is that the market will recover before the economy or general investor sentiment do so, and “if you wait for the robins, spring will be over,” he said.

Referring to the 1930s depression, Buffett pointed out that the Dow reached its nadir on July 8, 1932; economic conditions continued to deteriorate until Franklin Roosevelt became president in March, 1933, but by that time the market had climbed 30 percent.

Bad news, Buffett concluded, is an investor’s best friend, for it enables you to buy “a slice of America’s future at a marked-down price.”

Is the Media Making our Economy and Stock Market Look Worse?

Posted July 16, 2008 by admin. tags:Tags: , , , ,
The Ocean

As seen in Paragon’s second quarter 2008 print newsletter

Written by Dave Young

 

 

 

photo by Tom Hide

We’ve had several inquires from clients about the “inevitable” impending doom we face.

Opinions differ about the ultimate cause of this approaching economic meltdown.

–Some claim energy prices are causing inflationary pressures that will destroy us.

–Others worry that the economy is too slow and that deflation will be our downfall. Still others feel the budget deficit is creating an unsustainable drain on the economy.

These so-called experts may disagree about the causes, but the unified theme is that something bad is about to happen.

The media–print, television, the Internet–are the main sources of information for the average investor.

We read the newspaper in the morning with our breakfast, maybe check online a couple of times a day to see what’s going on in the world, and turn on the TV when we get home to watch the news. All of these information sources have become intertwined with our daily lives, and we trust that the information they provide is accurate and trustworthy. We have a tendency to assume we’re getting all the information we need to form good opinions about politics, tomorrow’s weather, and of course, our investments.

But it’s important to remember that the media companies are businesses. Their job is to make money, just like every other business. They all exist to make a profit, and their primary souse of revenue is advertising. The larger their audience, the more advertising revenue they can generate.

For investment-oriented media outlets, one of the best ways to attract a larger audience is to create a sense of urgency that taps into the two main drivers of investor psychology:  greed and fear.

That’s why the financial media focuses on stories about the next stock poised for huge gains (greed) and warnings of impending disasters (fear).

Articles with headlines like, “The One Stock You Need to Own Right Now,” or Five Stocks to Avoid” should tell you something about the tone the media is trying to establish. You certainly don’t want to miss out on “the next big thing.” Perhaps even more importantly, you don’t want to get caught making a big mistake.

Our observation has been that fear-oriented headlines become more common in shaky market conditions, whereas greed-oriented pieces usually show up more often when things are going well.

This approach isn’t good for investors. When markets decline, the media feeds on investors’ fears by emphasizing risks, because fear in times of uncertainty attracts views and subscribers. Unfortunately, selling after a rapid market decline is almost never a good idea. In other words, the fears fueled by the media after a market decline essentially encourage investors to do the worst possible thing:  sell when they should be holding or possibly even buying.

It’s important to understand we are not claiming that commercial media outlets deliberately lie. But, we are saying that commercial financial media outlets have a vested interest in making money, and as a result, they are not always the best source for complete and objective financial information.

So what do we recommend?

–Realize that much of the information you see in the media is not accurate. Often what you see is sensationalized. Why be depressed about how “bad” things are when it isn’t reality.

–Determine how “bad” or “good” things are based on your actual life experience, not what you see in the media.

–Never make investment decisions based on what you see in the press.

–As always, we encourage patience.

At Paragon, we receive data from many independent and reliable sources that do not receive advertising revenue, and then process it through our models which drive our investment process.

If you have any concerns about your investments with us, please call and we will evaluate how your portfolio is invested versus your individual risk tolerance. Feel free to call us at 801-375-2500 if you have any questions or concerns.

Second photo by Luisa

Seven Steps for Building Wealth: Step #1

Posted April 3, 2008 by admin. tags:Tags: , ,
A pot of money

Written by Dave Young, President of Paragon

Many people believe that accumulating wealth is a random event. Or it is pure luck that determines who is wealthy and who isn’t.

It is true that occasionally someone wins the lottery or receives an inheritance and becomes wealthy, but usually immediate wealth is temporary. Studies have shown repeatedly that most widows who receive a life insurance death settlement either spend, loan out or lose the money they receive within three years of receiving it.

In order to build wealth, you must follow certain rules. In order to keep wealth, you must follow those same rules. If you never learn the rules or don’t have the discipline to follow them, you will not build or keep wealth.

I’d like to offer you seven sound steps for building wealth.

Step #1—Start Now
Albert Einstein said, “The most powerful force in the universe is compound interest.” For compound interest to be truly powerful, it must have the benefit of time. The more time the better.

For example, compare two investors who each put away $2,000 a year and earn 10% annually. The first investor starts at age 19 and puts away $2,000 per year for eight years in a row and then holds it there. The second investor waits eight years before investing $2,000 per year for 38 years. At the end of the 38 years, the first investor’s account will have grown to $941,054. The second investor’s account will be at $800,896. The first investor invested $60,000 less but ended up with $140,158 more.

The other factor affecting compound interest is the rate of return. Everyone knows that a higher rate is better than a lower rate. What most people don’t realize is that the benefit is exponential. A 15% rate of return is not merely three times more than a 5% rate of return. It can actually be anywhere from seven times to seventy times more depending on how long you’re investing it for. Small increases in rates of return make an enormous difference in the long run.

There will always be reasons to begin saving later, but as you can see, holding out for the perfect circumstances can be very costly. The sooner you start, the greater the effect of compound interest.

To be continued…

The Year 2007 in Review

Posted January 17, 2008 by admin. tags:Tags: , , , , , , , , , , ,
Happy New Year

Written by:  Dave Young, President

Once again, we are at the beginning of a new year. Each year seems to pass by quicker than the previous. In 2007, the markets started strong with a lot of optimism. The optimism disappeared when the market dropped in March, because the Dow lost about 700 points and found itself just above Dow 12,000.

Just as everyone was beginning to question their optimism, the market rallied off of the March lows, and by April reached Dow 13,000 for the first time. By mid-January the Dow was knocking on Dow 14,000. Everyone was euphoric, and according to our sentiment models, most investors thought the market would continue its upward climb.

As usual, once everyone is in agreement about where the market is going, it goes in the opposite direction. The sub prime debt problems became a serious issue in July and August, and the market sold off once again. This time the Dow fell again, but hit higher lows than the March sell off. The Dow sunk to 12,7000.

This is when things became interesting. The media was in full swing with their pitch that the market is “always” horrible in September and October. Clients called us and wanted to be taken out of the market because of the recent sell off and all of the doom and gloom in the press.

Not surprisingly, the market performed the way it usually does in order to make the majority of investors wrong. In what are traditionally the worst two months of the year, September and October, the market instead rallied. During the historically worst months to invest, the market put together its strongest rally of the year peaking back at just under Dow 14,200.

The credit fears and worries about the strength of the economy pushing the market down came back again, and the Dow finished the year at 13,264.

The broadly watched, large cap DJIA gained 8.7% for the year. The S&P 500, which is also more representative of the large cap U.S. market, gained 5.5%. The Russell 2000 which represents 2000 small cap stocks lost – 1.6%. Finally, the Value Line Geometric Index, which is the broadest based index and represents 1,626 stocks, declined -3.8%. Overall, depending on where you were invested, it was a marginal year for many investors.

Paragon Top Flight Portfolio

Our Top Flight Portfolio had an exceptional 2007 returning 16.98% versus 5.5% for its benchmark, the S&P 500 (See track record for full disclosures).

How did Top Flight generate such good returns in a year when the major market indexes were just slightly positive or and even negative?

There were three reasons why we were able to triple the return of the S&P 500 benchmark this year.

1- The change from mutual funds to Exchange Traded Funds (ETF’s) boosted our returns. Because mutual funds are generally broader based, in the past they made it more difficult to “dial in” exactly where our models are pointing, and there is no slippage. Also, the ETF’s allow us to follow our allocation models with exactness because unlike mutual funds, we don’t face early withdrawal fees or penalties.

2- Our Allocation Models signaled opportune times for us to reduce and increase exposure  during  2007. Twice, at opportune times, we reduced exposure from 100% invested to 56% invested. These allocation changes benefited our returns.

3- Our Focus Models pointed us towards the areas of the market that showed the most strength. We experienced additional gains by following our Focus Models recommendations and investing in natural resources, emerging markets, Brazil, Canada, Australia, and Europe. Our limited exposure to the U.S. market was positive for Top Flight.

Top Flight portfolio recently completed 10 years of performance from December 31, 1997 through December 31, 2007. During this period, Top Flight generated a total return, net of all fees, of 417% versus 77.4% for the S&P 500. Its compound annual return is 18.03% versus 5.95% for the S&P 500 (see track record for full disclosures).

In the investment industry, 10 years is significant. Almost anyone can get lucky and have an exceptional year. If you see three years of good performance, investment advisors will start to notice. A five-year track record is even better. To generate 10 years of exceptional performance is even more meaningful.

I have sat on several industry panels where other “experts” have argued that active management doesn’t work. I believe that Top Flight’s 10-year track record indicates otherwise.

Managed Income Portfolio

Managed Income returned 2.24% for the year (see track record for full disclosures). It performed well from a relative standpoint, but not so well from an absolute standpoint. So what does that mean… it sounds like investment mumbo jumbo?

From an absolute standpoint, 2.24% is nothing to get excited about. We could have put our money in a bank CD and done much better if we had known the return in advance. Unfortunately, no one announced last January how the year would unfold.

From a relative standpoint, Managed Income performed exceptionally well. The underlying asset classes that make up Managed Income were a minefield last year. Managed Income invests in real estate, convertibles, preferred stock, high yield bonds, treasury bonds, bank loan funds, dividend income funds, etc. It invests in all of the more conservative asset classes that generate income. Most of those asset classes struggled last year and anything associated with real estate ended the year down about 15 percent.

Relative to previously mentioned investment groups that Managed Income is forced to stay within; we will take 2.24% for last year and be pleased with it. The fact that Managed Income was able to even generate positive returns last year was noteworthy.

Also, keep in mind that Managed Income’s primary objective is to avoid losses. Its secondary objective is to generate the highest returns possible within the investment constraints of avoiding losses. In 2007 it met both of these objectives.

Longer term, since Managed Income’s inception on October 1, 2001, the portfolio has generated a total return of 76.33% doubling the 36.95% earned by its benchmark, the Lehman Bond Index. Its compound annual return is 9.63% versus 5.23% for the Lehman Bond Index.

Copyright 2008 Paragon Wealth Management

Blog Role

Meta