Tag Archives: market forecast

FIVE LESSONS LEARNED THE PAST 12 MONTHS

Posted September 27, 2012 by admin. tags:Tags: , , ,
The Canyon


Written by Dave Young, President of Paragon Wealth Management

“Buy and Hold” strategy doesn’t work.
The investment strategy that Wall Street and mutual fund companies constantly promote called “buy and hold,” has been a complete failure over the past 12 years. It has generated negative returns when adjusted for inflation.

Market forecasts by “experts” provide no benefit. 
Most forecasters completely missed this decline. The majority also missed the recent rebound.

Set your risk tolerance level.
Setting your risk tolerance properly before investing is critical to success. You must be comfortable with the amount of volatility in your portfolio or you are likely panic and sell at the wrong time. Once again, hoards of investors bailed out at the market bottom and then missed the entire rally.

Expect the Unexpected.
When building your retirement plan, hope for the best but plan for the worst.

Follow a disciplined, proactive investment strategy.
Remove emotion from your investment process. In the investment world, decisions based on emotion are usually wrong.

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.

Market In Rally Mode

Posted April 19, 2012 by admin. tags:Tags: , ,
The latest headline


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

Stock markets around the world rallied strongly during the first quarter of 2012. After the extreme volatility last year, many investors abandoned ship and headed for the hills…just in time to miss this entire rally. The irony is that selling to “protect” actually cost them dearly.

This rally has confounded many.  Market experts have called for a selloff ever since last November.  In the face of all their pessimism this market has steadily trended up.  Every attempted selloff has been met with new buyers coming into support the market.

In unusual fashion, surprisingly, the market trended up, even as large amounts of money moved out of stocks and into bonds. Unbelievably, against that backdrop, the broad stock market indexes had their best first quarter performance in 14 years.

Why?

According to the sentiment models that we track, last fall the majority of investors were very negative and believed the market was headed down again. Often, when investor sentiment gets that negative,  everyone who is likely to sell has done so.  At that point, the market is like a powder keg waiting for a spark to set it off.  Once the selling is exhausted and you start to see some positive news , then the market will usually take off.

The good news that ignited the market was that our economy was stronger than expected, Europe didn’t go down in flames after all and corporate earnings continued to be strong.  Market volatility declined and consumer confidence came in the highest it had been since 2007.

What’s Next?

While nobody really knows what will happen next…there is a good case to be made that this market has more room to the upside.  Market indexes are still below where they were twelve years ago while corporate earnings are about three times higher than they were then.

As the market moves up, it has a wealth compounding effect on the economy.  Investors cash out some of their market returns to replace an older car, buy a new house, remodel their home, make other large purchases or go on vacation.  This money from stock gains goes into the economy further benefitting the expansion.

As investors gain more confidence in the economy they will likely become weary of earning virtually nothing on their money markets, bank CD’s and bonds.  The ICI reports that there is currently $2.6 trillion invested in money market mutual funds alone.  Much of that money will likely start to move into equities in search of higher returns if the market keeps moving up.

Housing prices declined for the fifth consecutive year in 2011. This economic recovery has occurred without any help from the housing industry. Industry experts are currently forecasting flat housing prices for 2012. A stabilization in housing prices should have an extremely positive impact on the stock market.

Our models indicate that this current move up potentially still has room to go.  As this is being written, the first week of April, the market seems to be taking a break.  We are getting close to the previous market highs which usually provide significant resistance.

Sentiment has moved down from the extremes high’s of a couple of weeks ago.  Ideally, the market will continue to move sideways or slightly down while sentiment continues to weaken.  That could set up a positive environment for the market to start another leg up.

To be continued next week…

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 Investors Should NOT Listen to Market Forecasts

Posted January 24, 2008 by admin. tags:Tags: , , , , ,
Stock Market Cartoon

Posted by Dave Young, President

A few weeks ago I wrote a post called, “Market Forecasting:  Investors Beware.” I talked about how economists and stock market gurus seem to be consistently wrong, and I provided numerous examples to make this point. In the January 14, 2008 edition of By the Numbers from Direxion Funds, they published a report showing how the forecasters did last year. The year 2007 appears to be a different year, but the same story. One thing the forecasters can claim is consistency because they are consistently WRONG!

* The average prediction made on January 1, 2007 by 58 Wall Street forecasters for the yield on the 10-year Treasury note as of year-end 2007 was 4.88%, an increase of +0.17% over its 4.17% level from December 31, 2006. Instead the actual December 31, 2007 yield did not rise from a year earlier, but fell to 4.02% (source:  BusinessWeek).

* 82% of money managers believed in late December 2006 that long-term interest rates in the US would be “unchanged or higher 12 months later.” The yield on the 30-year Treasury bond was not “flat to higher” but rather declined from 4.81% to 4.45% during calendar year 2007 (source:  Merrill Lynch).

* 56 economists who were surveyed in mid-January 2007 predicted that the average price of oil would be $58 a barrel in the 4th quarter 2007, down $3 a barrel from its $61.05 price of 12/31/06. However the price of oil did not fall but rather rose +57% during 2007, closing last year at $95.98 a barrel (source:  USA Today).

* The S&P 500 was up +9.2% YTD (total return) through Friday July 20, 2007, closing at 1534. The headline in Barron’s over that weekend stated “It’s Still Time to Buy” forecasting an additional +6% rise to 1625 by December 31, 2007. Instead the stock index fell 4.3% to finish 2007 at 1468. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source:  Barron’s).

* As of Labor Day Monday last year (Sept. 3, 2007), there were just four months remaining in the calendar year. The S&P 500 had closed the previous week at 1474. Barron’s asked eighty equity strategists to predict where the S&P 500 would finish the calendar year. Seven of the eight saw a rising stock market by year-end with one prognosticator foreseeing a December 31, 2007 value of 1700. The S&P 500 actually finished the year at 1468. (source:  Barron’s).

Also, from a long term historical perspective here is some more interesting “market forecast” trivia. This is also courtesy of Direxion’s “By the Numbers” publication.

* On the morning of October 19, 1987, the trading day that ultimately resulted in the largest one-day percentage loss in the history of the S&P 500, the Wall Street Journal ran a front-page article with the subtitle “Some Stay Bullish, Believing Downturn is Temporary.” The S&P 500 fell 20.5% that day (source:  Wall Street Journal).

* On August 13, 1979, BusinessWeek ran a cover story titled “The Death of Equities.” The S&P 500 closed at 107 on August 13, 1979. The S&P 500 closed calendar year 2007 at 1468 (source:  BusinessWeek). Apparently equities didn’t die…

* At the close of business on Wednesday October 9, 2002, the S&P 500 bottomed at 777 before beginning a bull market run that gained +101% to peak at 1565 on October 9, 2007, exactly five years to the day after the bear market bottom. The headline in the business section of USA Today on Thursday morning October 10, 2002 was “Where’s the Bottom, No End in Sight” (source:  USA Today).

The moral of the story is that forecasts make interesting conversation and trivia. Just don’t use them to try to make money.

Market Forecasting: Investors Beware continued

Posted December 26, 2007 by admin. tags:Tags: , , , , , , , ,
Grumpy old man

Written by:  Dave Young, President

Market professionals are not alone in their inability to forecast market behavior. Economists do just as poorly. Every six months the Wall Street Journal prints the results of a survey of leading economists who predict the level and direction of interest rates for the coming six months. 55 high profile economists currently participate in this semiannual forecast. You’d think such prestigious economists in such a high profile newspaper would know what they’re talking about , right? Nope.

The record shows that from 1982 through the beginning of 2003 (43 periods), 71% of the time the consensus of economists could not even forecast the direction of rates, either up or down, for six months forward. If they’d just blindly guessed they’d have a 50/50 chance, but their actual educated predictions turn out to be much worse. And these are the best the industry has to offer!

So if forecasts are a waste of time then what does work? After 20 years of managing money, I am convinced that investors will only succeed when they are able to remove emotion from the investment process. Gut feelings are not a reliable investment strategy-even the gut feelings of so-called experts.

Oftentimes, successful investing requires you to act in a way that is contrary to what you “feel” is right. For example, several of our models measure the overall optimism or pessimism in the investing public. When optimism is high we know that there’s a lot of risk in the market and it’s likely that the market will decline. Likewise, when optimism is low and most investors think that things are really bad, that is usually a great time to invest. This pattern has repeated itself for years.

We take great care to ensure that all of our investment decisions are based on solid, proven models, not hunches. Our portfolio allocation models tell us how much we should be invested based on measured risk in the market. We run the models daily to determine the most effective percentages of investments and cash holdings.

Once we’re in the market, our portfolio focus models tell us where we should be invested. We constantly track all areas of the equity markets on both a macro scale (small cap, mild cap, large cap, value, growth, international and emerging markets) and a micro scale (individual industries, sectors and countries).

The bottom line for Paragon Wealth Management’s clients is that they can be confident that their portfolio isn’t being managed by some celebrity market fortuneteller. Our quantitative models enable us to impartially measure what is actually happening in the market and how much risk there is at any point in time. We constantly evaluate the models to determine how effectively they are working. In my opinion, this is one of the best ways to invest for long term success.

Click here to read the first half of the article.

To learn more about Paragon Wealth Management, visit www.paragonwealth.com or call 801-375-2500.

Copyright 2007 Paragon Wealth Management

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