Tag Archives: stocks

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.

Volatility Unleashed (Continued)

Posted February 9, 2012 by admin. tags:Tags: , ,
Bright Light House

Whither the Europeans…

Posted August 19, 2011 by admin. tags:Tags: , , , , ,
6a00e54fa07ce28833015390d4bb37970b-800wi


photo by lyng883

Written by Nathan White, Paragon’s Chief Investment Officer

During the financial crisis of 2008 to 2009, there were many Europeans who scoffed at our troubles and blamed us for dragging them down. How irresponsible we Americans were was the general tone. Oh the irony.

How’s that Greek investment feeling right now?

It felt good to get that off my chest…

With the markets continuing its record moves and volatility and testing the recent lows, what is next? In the short-term, the market is extremely oversold and sentiment is extremely negative. It can be very hazardous to sell into this condition. The bad news is that Europe is reeling and their banking system is under extreme strain. Their recent futile efforts such as banning all short selling and the proposal of financial transactions tax are extremely counterproductive. Their fractured political system makes it hard to organize a bailout like the U.S. engineered three years ago. At some point they will organize a bailout, but the questions is a matter of timing. Will it come after bank failures occur or before?

In the meantime the uncertainty is hammering the market and affecting the real economy.

It is normal at this stage of the economic cycle for growth to slow down after business catch up to a more “normal” level. The slowing economic data was exacerbated to the downside by the Japanese earthquake ramifications and then unfortunately coincided with the debt-deal circus in Washington. Now the great debate is whether all these developments are going to cause to a double-dip recession. Some leading indicators are telling as much and indeed the effects of the current events are going to have an economic impacts as they are somewhat self-fulfilling. However, whether we have another recession or not is a moot point with regards to the market as much of it has been priced in.

Washington is still MIA and the Fed seems to be out of bullets.

However, don’t count the Fed out as Bernake is not called “Helicopter Ben” for nothing and they could pull out new versions of QE3. Bailouts always help in the short-term, but retard the upside. If the Fed keeps expanding its balance sheet at some point in time it will have to be reversed and that is the risk I fear in the future. I wish the Fed would have been selling all their bonds into this recent rally for a tremendous profit!

In the background of all this is that corporate profits have been tremendous supporting a low valuation argument and corporate balance sheets are generally strong and flush with cash. If a recession ensues they are much better prepared than three years ago (including the banks).

No one stopped buying iPhones during the last recession.

Survival is a powerful instinct and as we enter an election year, policy makers could come to their senses and realize they need some “real” policies that encourage economic activity or they are history (note to President Obama – extending unemployment is not one of them).

In the short-term, and until we get some kind of clarity/resolution regarding the European debacle, it is going to be a tough and volatile environment. The up side risk is that if at any time we get some resolution of the Euro situation stocks are extremely undervalued and could rebound so fast that sellers would be left holding the bag.

In this environment, we are cautiously looking at the areas such as energy and materials that get beat up the most and then offer the best upside while at the same time holding some cash for a bit of protection and future opportunities. In both of our portfolios, we have raised just shy of 20 percent cash and as a precautionary move. We have moved out of all traditional money markets into U.S. Government money funds (or FDIC Bank- sweep features) in order to avoid the negative effects should the European banking system freeze up.

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.

Ugly Thursday

Posted August 4, 2011 by admin. tags:Tags: , , , , ,
6a00e54fa07ce28833015434449866970c-800wi

 photo by Associated Press

Written by Dave Young, President of Paragon Wealth Management

The Dow Industrials dropped 512 points today. It is the worst point drop since 2008. Over the past 10 days the Dow has lost 1341 points or about 10 percent of its value.

Why have we seen these steep losses in such a short amount of time?

As we’ve seen in the past, it starts with our “leaders”. President Obama and his Senate seem to have one focus. Their focus has been to spend every dime they can find. This administration has taken government spending to an entirely new level. Unfortunately, when they can’t find any more money, they borrow it from our grandchildren and keep spending. That mentally has put us 14 trillion dollars in debt.

The House of Representatives told the White House and Senate to slow down the spending spree before they bankrupted us. A new player in politics, the Tea Party, took the position of an interventionist to an alcoholic. They told the entire group to stop their spending now.

No more compromises, no more kicking the can down the road… Just stop now. 

All of that drama started the market tumbling initially. We anticipated that once the politicians did something, anything, the markets would recover. Our belief was that the initial sell-off was artificially caused by the debt limit drama. That made it very difficult for us to sell and raise cash. Raising cash is the last thing you want to do when you expect the market to snap back to the upside. Surprisingly, after an initial jump higher the morning after the agreement, the market continued lower.

Essentially, the debt agreement gave more money for Washington to spend in the near-term for a promise to cut spending later, once someone else, “a committee” figures out what to cut. Apparently that wasn’t enough to soothe the markets.

Unfortunately, then Europe decided to join the party. Investors decided that Spain and Italy weren’t getting enough of a bailout so the European markets started selling. The European markets closed down hard, right before our markets opened yesterday and today. That was enough to send everyone into a panic. What happens when you panic? You sell.

So where does that leave us?

On the positive side, investors “usually” buy stocks because of the earnings power of the stock they are buying. Corporate earnings are the highest they have been in four years. Corporations have generally been “knocking it out of the park” with their earnings. Corporations are lean and mean and very profitable. Stock valuations are very good. So in theory, stocks should be gaining in value.

At the same time, we have a weakening economy, high unemployment and inept politicians in charge. These factors all throw fear and uncertainty into the equation. Fear and uncertainty usually translate into selling.

But at some point, we run out of investors who are selling because of their fear and uncertainty. At that point, when the sellers are exhausted, buyers will enter into the picture and start buying up the bargains that exist… because of the reasons listed.

The problem is that no one rings a bell to identify when the selling has ended. We do know that stocks are 10 percent cheaper than they were 10 days ago, and there are a lot of reasons to buy them. Over the long-term, this should be a good buying opportunity. In the short term, it’s anyone’s guess.

At these prices, it seems that stocks have already priced another recession. Our data indicates that the last few months have just been a soft patch in the economy and the second half of the year should be much stronger.

We don’t see a double dip recession ahead. 

The problem is that if everyone scares themselves to death, then the fear could gain momentum and create a self induced recession. It would be unnecessary and we don’t think it will happen, but it is possible.

In the end, recent corporate earnings have been exceptionally strong, investor sentiment is very negative (which is good for stocks) and market valuations are low. Overall, these are usually positive indicators for the stock market.

We will continue to follow our models. Stay tuned. 

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.  

Friday Market Update

Posted May 13, 2011 by admin. tags:Tags: , , , ,
Wall Street Street Sign


Written By Nathan White, Paragon’s Chief Investment Officer
 
The markets have been down for the first two weeks of May. This was led by weakness in commodities, which had been on a tear over the last six to nine months. The materials and energy sectors have been hit the worst. We have been using the ups and down to lighten exposure in the materials area because it looks like it has seen its best days on a risk adjusted basis. We also pared back some energy exposure, but might look to re-enter at lower prices if given the opportunity.This is a seasonally tougher time of year for the market. The market is looking tired after the good run we saw and the uncertainty of the impact of QE2 ending. The majority of our models are still bullish, but not with a same degree of conviction as we saw over the last two years. We have built up a cash position in our growth portfolio, Top Flight, to hedge and take advantage of any dips.

Hopefully the market is just entering a consolidation phase wherein any corrections would not become severe as the fundamentals still supporting the cyclical bull market remain intact.

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.

 

Living With Uncertainty

Posted May 5, 2011 by admin. tags:Tags: , , ,
Downtown Wall Street

Photo by azureon2

Written by Dave Young, President of Paragon

Stock and bond markets incorporate all the available information at a given point in time when they operate efficiently. We saw other European countries with potential difficulties when sovereign debt problems emerged in Greece early last year. Along the same lines, we also saw an immediate spike in the cost of insuring their debt. The market factored this possibility in even though they had not run into problems yet.

Market analysis spend thousands of hours each year looking at these kinds of issues. Slow forming problems like government debt issues can be analyzed beforehand with enough time and research.

Unpredictable developments that cannot be anticipated such as these:

-The volcanic eruption in Iceland shut down 100,000 transatlantic flights and cost the airline industry $2 billion.

-The explosion of the Deep water Horizon oil rig in the Gulf of Mexico.

-The street protests resulting in changes of leadership in countries in North Africa, leading directly to the current military action in Libya.

-The earthquakes, tsunami, and nuclear-reactor crisis in Japan.

Set Your Risk Tolerance

The only way to handle uncertainty and manage the impact of unforeseen events is to build strict risk controls into your portfolios. While the risk of one-time incidents cannot be eliminated, through diversification and risk management, we hope to limit the damage when negative events such as massive frauds like Enron, sudden bankruptcies similar to Lehman Brothers, volcanic eruptions, oil rig explosions, or earthquakes occur.

Considering this, it might be useful to provide an overview of our approach to risk management and portfolio construction. The first step towards controlling risk is to make sure your individual risk tolerance is set properly.

Your risk tolerance can depend on many factors, such as how close you are to retirement, your goals, or lifestyle needs. It is determined by the returns you need to generate in order to meet your objectives and by identifying how much risk you are comfortable with and can handle. If your risk tolerance is set too low, you will not generate the returns you should. If it is set too high, you will feel pressure to sell your investments if market conditions become difficult, which could cause you to miss out on superior long-term returns.

Once your risk level is set, it helps us identify the mix of stocks, bonds and cash you should hold in your portfolio. It determines how conservative or how aggressive your portfolio should be. The allocation we put together based on your risk tolerance strongly determines how much volatility you will have to endure when unexpected events occur.

Risk tolerance is different for each of our clients because each has different needs. If you have any questions or concerns about your individual risk tolerance, please contact us at 800-748-4451, and we will make sure it is set correctly.

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.

Advisers urge Bond Investors to Abandon Ship in Face of QE2

Posted November 18, 2010 by admin. tags:Tags: , , , ,
Sailing Ship


Photo by kevincole

Quantitative easing causing plenty of unease among clients; interest rates are harder to pick than stocks.

Interview with Nathan White, Paragon’s Chief Investment Officer
Taken from Investment News
Written by Jessica Toonkel
November 16, 2010

Financial advisers are using the unexpected jump in interest rates to persuade clients that it’s time to get out of long-term bonds.

Last week, the Federal Reserve commenced its second round of quantitative easing in a bid to push mid-and long-term interest rates lower, and thus boost lending and spending. Instead, interest rates have spiked over the past few days, as the Fed has been forced to entice hesitant institutional buyers into purchasing government paper. Nevertheless, prices on longer-term bonds have continued to sag, boosting yields in the process. Indeed, the yield on the 10-year Treasury hit 2.91% yesterday, the highest since Aug. 5.

“Interest rates are harder to pick than stocks,” said V. Peter Traphagen Jr., an adviser at Traphagen Investment Advisors LLC, which has $240 million in assets under management.

Many advisers have been trying for months to persuade clients to bail out of long-term bonds. But investors, still shellshocked from the 2008 market crash, believe long-term bonds means safety.

But with QE2, clients are asking what they should do.

“I just had a conversation with a client the other day about what they should do in response to the Fed’s move,” said Nathan White, chief investment officer of Paragon Wealth Management.

“I told them that I would rather own a stock where I know the risk I am taking can be higher, but at least I am knowingly taking that risk,” he said.

Paragon has been shifting clients from long-term bond ETFs, like iShares Barclays 20+ Year Treasury Bond ETF (TLT), into dividend-paying equity ETFs like the SPDR S&P Dividend ETF (SDY).

Similarly, for the past few months Traphagen has started to move its clients’ fixed-income allocations from 10-year durations to four- to five-year durations. “We felt that clients were not rewarded enough to go out further on the yield curve and there was a potential that rates may move higher at least in the near term,” Mr. Traphagen said.

Paragon cannot guarantee the accuracy of information from other sources. Opinions are as of the dates indicated only. This report is not a solicitation for any security. Past performance is not a guarantee of future results. Investments in securities involve the risk of loss. 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 conjuction with his/her advice.

A Seesaw Market?

Posted October 14, 2010 by admin. tags:Tags: , , , , , ,
Seesaw stock market

 

Photo by Hoyasmeg
 

Written by Dave Young, President of Paragon Wealth Management
As seen in Paragon’s 3Qtr 2010 Print Newsletter

September is known as the worst month to be in the stock market.
At the end of August, many media outlets and TV talking heads ran stories about how bad this September would likely be. Investors moved money into bonds and gold and avoided stocks. Some of our clients called and asked to be taken out of the market purely because it was September.

What did the market do? Of course, it did what it had to do in order to cause the most grief to the majority. Since everyone expected it to go down… it went up. In short, we just had the strongest September since 1939. The S&P 500 gained nine percent for the month. Unfortunately, because of outflows into bonds and gold, many investors did not participate in the stock rally.

Overall, it was a seesaw quarter.

The markets were up sharply in July, down sharply in August and then up even harder in September. The back and forth movement has been more difficult than usual this year with the S&P 500 either gaining or losing at least four percent in each of the last five months.

Those extreme up and down swings make our life much more complicated. When the markets are weakening, we make adjustments to protect ourselves. When they are strengthening, we make adjustments to prepare for upside movement. We have been stuck in this back and forth no man’s land since April.

We prefer trending markets. Either trend up or trend down, but just be consistent.

When the market is trending, it allows us to capitalize on the trend and ride it as long as it lasts. When it is whipsawing back and forth, we are forced to make constant adjustments, but it is difficult to make progress.  Effectively capitalizing on the trend is how we have significantly beaten the S&P 500 historically.

So far, this year’s market action reminds me of 1994. The good news is that markets never swing back and forth like this forever. Eventually, they break out and move in one direction.

MANAGED INCOME AND TOP FLIGHT PERFORMANCE

Our conservative portfolio, Managed Income, has done well for the first three quarters of this year with a 4.8 percent return, net of fees. This has been a very challenging year for our conservative portfolio. With interest rates at extreme lows, it has been difficult to generate safe returns and still avoid the potential danger posed by increasing interest rates.

You might be wondering why potentially increasing interest rates are such a problem. If interest rates go up one percent, then a 10 year maturity bond will lose about 10 percent of its value. Likewise, an increase of two percent would create about a 20 percent loss and an increase of three percent would create about a 30 percent loss.

With interest rates at all time lows, many supposedly safe bonds are really ticking time bombs.

Investors have been piling into bonds in a big way. Since the start of 2009 investors have put a net $620 billion into bond funds while they have withdrawn $100 billion from stock funds. When rates do eventually go up, investors who ran to bonds for safety will be surprised to find themselves saddled with big losses they thought they were immune to.

Most conservative funds simply buy and hold bonds. Those types of funds will likely get hurt when rates go up. In contrast, Managed Income attempts to own bonds when they have favorable risk/reward characteristics and avoid them when they are unfavorable. That is why this has been a challenging environment for Managed Income. We have been forced to pull returns from other conservative areas while avoiding the majority of corporate and treasury bonds. Managed Income has performed well year-to-date.

Our growth portfolio, Top Flight, has had challenges as well. It is at a virtual breakeven for the year, with a -0.4 percent return year-to-date. Its benchmark, the S&P 500, is up 3.9 percent year-to-date. Most of that lag in performance can be attributed to difficulty in two months, January and July. If you break it down further, it is the back and forth whipsaw characteristic of this year’s market that has made it difficult.

We have spent a lot of the year adjusting and changing direction, right before the market reverses direction.

 As I mentioned earlier, at some point the choppiness usually ends and the trending begins. Unfortunately, we aren’t notified in advance when that will be. That is why we are forced to constantly adjust so that we will be in position to capitalize on the change in trend when it occurs.

Even though Top Flight has slightly underperformed through the third quarter,  we are not terribly concerned. Looking at the big picture, Top Flight has beaten the S&P 500 over the past three, five, seven, 10 and 12 year time frames (see complete track record and disclosures on Paragon’s website, www.paragonwealth.com).

To be continued next week…

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.

How is Your Investment Experience?

Posted March 11, 2008 by admin. tags:Tags: , , , , , , , , ,
Company trajectory

Written by Nate White, CFA

At Paragon, we’re always looking for ways to improve your investment experience.

An effective portfolio is one that you’ll feel comfortable sticking with through market ups and downs. That means your portfolio needs to be efficient and tailored toward your personal financial goals and investment style.

Until now we’ve provided this service with our two main model portfolios, Top Flight and Managed Income.

These tactical portfolios are actively managed, meaning that we move them in and out of the market, sectors, and various assets classes according to our models and where we see emerging opportunities. These tactical portfolios are actively managed, meaning that we move them in and out of the market, sectors, and various assets classes according to our models and where we see emerging opportunities. Our “flagship” portfolios continue to be our main focus.

Active management isn’t for everyone.

However, we realize that active management isn’t for everyone. You may be one of many investors who prefer a more passive investment approach, and for good reason. Passive index investing has received a lot of good press in the last few years. Investors are realizing that many active managers do nothing more than attempt to mimic a certain index anyway, so when their fees are taken into consideration they never even match their benchmark index’s performance. What a waste.

Passive index investors need to be aware that some similar challenges exist with passive investing as with active investing.

First, you must create a good initial plan and second, you must stick with it by rebalancing on a regular basis. My experience is that most independent investors and many advisors fail at the second half of the investing process. They create a nice looking initial portfolio and then forget all about it. The result is dismal investment performance because one of the most significant advantages an investor possesses is squandered-time. You can correct many things with your investments but you can never recoup lost time.

I recently heard the indefatigable Jim Cramer recommend that investors spend at least one hour per week researching each stock that they own!

How many people do you think actually do that?

One of the hobbies I enjoy is yardwork and landscaping. Yes, I know that many of you might question the sanity of anyone who actually enjoys working in the yard, but for me there’s nothing nicer than a brand new beautiful yard done right.

Everyone’s approach to their yard is different, just like everyone’s approach to investing is different. Whether you do the initial work yourself or hire a professional landscaper depends on your gardening expertise, your willingness and ability to work, and the time you have available.

Even if you choose to go with a landscaper for the initial design, you know that keeping your yard beautiful requires regular maintenance. If you never cut the lawn, weed, or trim the bushes and trees you end up with a disaster that looks nothing like the original design.

The same thing goes for the creation of an investment portfolio. It may look great at the beginning and feel very satisfying, but if you don’t take the time necessary to keep it aligned with your original intent it will soon get overgrown in some areas and shriveled in others. Getting it back on track requires more effort than the regular upkeep would have.

Passive investing doesn’t mean do-nothing investing!

If you’re ready to dig in to the passive investment landscape, you’ll be happy to learn that we’ve created four new Paragon Strategic Portfolios for you to consider. These portfolios truly ease the maintenance effort on your part because we’ve made sure that they are low cost, simple and tax efficient. The new strategic portfolios differ from our main portfolios in that they include combinations of fewer macro-based exchange traded funds (ETFs), and in some cases contain an ultra-short term bond fund.

The Paragon Strategic Portfolios track the following five asset classes and corresponding indexes:

  • Large U.S. stocks represented by the S&P 500 Index
  • Small U.S. stocks represented by the Russell 2000 Index
  • International stocks represented by the Morgan Stanley EAFE Index
  • Intermediate Government Bonds represented by the Lehman Brothers Intermediate Government Bond Index
  • 90-day U.S. Treasury Bills.

Each asset class is ranked. The portfolios are then created by assigning different weights to the rankings based upon volatility.

The portfolios are rebalanced only once per year, which avoids any short-term capital gains. To further keep your costs low, the Paragon Strategic Portfolios include only ETFs with very low expense ratios ranging from 0.10% to 0.35%. The Paragon management fee is no higher than 0.95% a year (refer to Paragon’s Advisory Agreement for full details).

The following is a breakdown of the new Strategic Portfolios (All figures are back tested results before management fees and represent the return of an index. Click here to see the enclosure for full disclosure of the risk and return data.):

Aggressive Growth – Seeks to maximize capital appreciation by allocating a higher percentage of the portfolio to the highest ranked asset classes. Since 1982, this profile has generated and annualized return of 15.30% and volatility of 13.68%, compared to 12.63% and 13.90% respectively from its comparison benchmark.

Growth – Primarily emphasizes long-term capital appreciation. Since 1982, it has an annualized average return of 14.21% and volatility of 11.93%.

Balanced – Seeks long-term capital appreciation and an allocation for current income. Since 1982, it has generated an annualized average return of 12.13% and volatility of 8.98%, compared with 11.46% and 9.81% respectively from its comparison benchmark.

Conservative – Focuses on current income bust also seek to provide capital appreciation to maintain the relative to inflation. Since 1982, it has an annualized average return of 9.96% and volatility of 6.12%.

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