Written by Dave Young, President of Paragon Wealth Management
Investing has always been difficult. I’ve managed money long enough that I’ve
experienced and survived the Crash of 1987, the Asian Crisis in 1996, the Tech
Wreck from 2000 to 2003 and more recently the Crash of 2008. One of my fundamental biases has always been
a mistrust of the markets mixed in with slight paranoia. I believe that mindset is one reason why
Paragon is still managing money after 26 years.
What has been different for the past couple of years is the
length of the cycles that we track.
Historically, markets and sectors trend consistently for six to eighteen
months – or longer. Much of our
historical outperformance has come from our ability to lock onto those trends
and generate excess performance in our client accounts.
Since 2010, those trends have been much shorter with much
more back and forth motion. In addition
to the usual factors that effect the markets positively and negatively there
has been a new elephant in the room.
That elephant is Government.
There have been issues created by government actions at home and in
Europe. Then you add in the effect of hundreds
of new government regulations on the economy, a government spending trillions
of dollars more than it has and a federal reserve stimulating the economy, i.e. QE1, QE2 and QE3.
I won’t even go into the effects of market uncertainty
created by the upcoming presidential election.
That election will determine whether we move toward an even bigger
government and more regulation or we let
the free market control our economy.
Not to mention the effects of the fiscal cliff we are facing after the
election regardless of who is elected.
Because the government factor is more difficult to measure
and more random, I believe that it has contributed significantly to the shorter
term, back and forth trends. This
uncertainty has added additional inputs to the way that we manage money and has
at least temporarily, forced us to be more conservative than we would like.
Even when our models are completely bullish we still have to
hold back some cash because of the increased level of uncertainty created by
the government. It is frustrating to
hold extra cash, but it does allow us more
flexibility to deal with unknowns that may occur.
There is an old saying that bulls make money, bears make
money but hogs get slaughtered. Right
now you could call us moderately bullish but definitely not hoggish.