Tag Archives: managed portfolios

Downgraded…

Posted August 8, 2011 by admin. tags:Tags: , , , , ,
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Written by Dave Young, President of Paragon Wealth Management

Over the past couple of weeks we’ve seen extreme volatility in the financial markets.

The volatility started with political drama over the debt ceiling, which initially created uncertainty for investors. After a high drama last minute agreement, which apparently didn’t solve anything, the markets sold off hard. Uncertainty in Europe exacerbated the situation.

It looked like we might have put in a market bottom last Friday with the selling reversing midday. Then, Friday evening we found out that the S&P Bond Rating Agency had lowered their rating on U.S. Treasury Bonds to AA+ from AAA.

Their timing couldn’t have been worse. 

I knew we were in for a ride, but wasn’t sure how much of one. U.S. Treasury Bonds have held a AAA rating ever since the rating agencies were created and started rating bonds. United States Treasury Bonds have always been considered the icon of safety and security. Their yield has always been always been characterized as the risk free rate of return. Historically, no security has been considered safer than a U.S. Treasury Bond.

Downgrading U.S. Treasury Bonds takes us into unknown territory. It’s that unknown that causes investors to panic. Panic ruled the day today with stock investors taking the Dow Industrials down another 634 points on top of the 513-point loss last Thursday. This puts the market down over 1900 points in 12 days.

This extreme drop in a short amount of time with the bulk of it happening over two days. This type of market action is virtually impossible to avoid by moving to cash. It was driven by politics and occurred so quickly that there was no time to react and move to safer assets.

On a chart this drop is extreme, which puts us into very oversold territory.

Often, when you have moves this extreme, either upside or downside, they are followed by extreme reversals. The problem is that nothing is guaranteed, and you don’t know that for certainty. All you know that the probabilities favor it.

A hard and fast sell off out of nowhere, like the one that we have just experienced, creates a quandary for investors. They consider selling because they don’t want to see their account go down anymore. If they absolutely knew that the market was going to keep going down then it would make some sense to sell.

However, they know that selling into a panic is usually a mistake, because it locks in their losses and hurts their long-term returns.

On the positive side, stocks are not overvalued like they usually are when you have a bear market. A combination of falling prices and rising profits has pushed stock valuations 20 percent below historical P/E ratios. More than 75 percent of corporations in the S&P 500 index exceeded their earnings estimates in the second quarter. In total, corporate earnings are expected to rise 18 percent in 2011 and 14 percent in 2012 (recent Bloomberg studies).

According to another Bloomberg survey, chief strategists at 13 of the largest banks still see the S&P 500 ending the year around 1400, which would be 25 percent higher than it closed today. While I’m not that optimistic, it is positive that they see fair value 25 percent higher based on corporate earnings.

Another positive is that fear and panic hit extremes today.

The VIX closed today at 48, which shows extreme fear. Historically, 42 on the VIX has been a level where markets reverse and start to rebound. The 2008 bear market was the only exception to that rule that I know of.

The negative side of the equation is made up of macro issues.

1- Europe has a debt mess that is trying to sort out and yet to do so.

2- Economic growth in the U.S. is slowing. Most economists don’t believe that we will see a double dip recession, but that is currently a concern.

3- Politics and our debt are creating uncertainty for investors.

4- Panic is currently ruling the markets. Even though the markets are severely oversold and undervalued, there is always the possibility that they can become more oversold. That short term selling pressure can be unduly stressful if your risk tolerance is not correctly set.

Is today’s market action creating a buying opportunity over the next one, three and five years? Or should you be selling? If you think prices will be lower over the long term or you need the money right now, then maybe you should sell. If you believe that prices will be higher one, three or five years from now, then this may be a buying opportunity.

My best advice is to stay focused on the long-term. Generally, decisions made in a panic situation are bad ones.

If you have questions or concerns, feel free to call us at 800-748-4451 or email us (dave at paragonwealth.com, nwhite at paragonwealth.com).

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.  

Put Your Money Where Your Mouth is?

Posted June 30, 2011 by admin. tags:Tags: , , ,
American and Foreign Money


photo by epsos

Written by Dave Young, President of Paragon Wealth Management

I have never understood why many financial advisors sell products to their clients and don’t personally invest in them.

If they are good for their clients, they should be good for themselves, right?

This creates a situation where once the financial advisor receives their commission they often become disinterested spectators. They have no “skin in the game”, so to speak.

I believe that advisors who sell investments they do not personally own often do not fully understand the investments they are selling.

An advisor who is invested in what he is selling is much more interested and emotionally involved because they experience exactly what their clients experience. They feel the same stress that their clients feel when the markets go down and the same satisfaction when the investment goes up. It’s a lot easier to empathize with clients when you really understand what they are experiencing.

The same is true of the mutual funds. If a mutual fund is as good as advertised, then certainly the manager would want to own it, so that he can benefit along with everyone who buys it. In 2005 the SEC started requiring mutual fund managers to disclose how much money they have invested in the funds they manage.

Shockingly, recent studies show that only about 40 percent of managers invest in their own funds.

According to a recent study by Morningstar, on average, the more money a fund manager invests in their fund, the better the fund does. Interestingly, those mutual funds in which the manager invests their own money are ranked higher in the Morningstar rankings and have been in existence, more than twice as long as those who don’t.

I founded Paragon Wealth Management for the purpose of managing my own money 25 years ago. Twenty-five years later, I still have most of my stock market investments invested in Paragon’s portfolios, Managed Income and Top Flight. In addition, all of our eligible employees invest in Paragon’s portfolios through our 401(k).

We continue to be invested right alongside of our clients. Our motto is “Do as I do” versus “Do as I say.” It really makes a difference. 

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 in bonds?

Posted November 4, 2010 by admin. tags:Tags: , , , ,
Deep Thought


photo by shutterstock

Dave Young was interviewed by Sunmee Choi and Mark Ely on Power Trader Radio a few weeks ago. Click on this link to listen to the interview.

http://www.tradecaddie.com/main/general/uploads/PTR091510.mp3

In this one-hour interview, they discussed:

-Should you invest in bonds?

-Will there be a double dip recession?

-Dave’s view on corporate earnings

-The political influence on the market

-How can we alleviate our fears?

-The influence of the media

-Positive factors (reasons to be hopeful)

-And much more!

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

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