Money Managers Live

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

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 

Life Really Isn't That Bad

As seen in Paragon's second quarter 2008 print newsletter

Written by Dave Young, President

The first half of the year made life difficult for investors.

Worries about the financial sector scared the market down during the first three months. Just as everyone decided "life was not over as we know it," the market rallied and came back to life during April and May. this was short-lived as high oil prices and inflation prospects gave us one of the worst "June's" in history.

For the first six months of the year, the S&P 500 finished down -11.9% and the Dow Jones Industrials ended down -14.4%.

Portfolio Performance

Our portfolios performed exceptionally well last year. That's great, and most of our clients appreciate it.

But, in this business everyone still asks the question, "What have you done for me lately?"

Paragon's Conservative Portfolio

Our conservative portfolio, Managed Income, has stayed in capital preservation mode. As a result, we have held more cash than normal for the first six months of the year. We have taken selective positions in high yield bonds, dividend paying funds and natural resources. As valuations have reached the ridiculous level, we have been taking some small positions in the financial and real estate sectors. Managed Income is down -1.89% through June 30, 2008. The Managed Income portfolio has done a great job so far this year, considering its first priority is to preserve capital.

Paragon's Growth Portfolio

Our growth portfolio, Top Flight, has been invested in Canada, Brazil, Steel, Transports, Mid-cap stocks, real estate and energy, to name a few areas. We have also held some excess cash for protection. We have started to see a shift from the international markets back to the U.S. Market. So far this year, our stock selection has added more value than our cash allocation. Recently, we have been reducing our energy exposure and adding more cash. When our models move more positive we will begin reducing cash and increasing equity exposure.

For the first six months of 2008, our Top Flight Portfolio is down only -4.7%. In a very difficult environment, Top Flight actually gained 4.36% over the past three months.

While we are not thrilled to be down at all, with our benchmark the S&P 500 down -11.9% and the Dow Industrials down -14.4% for the first six months, Top Flight has performed well. (See Paragon's full track record for more details).

Bear Market #34

The bear market we discussed last quarter has continued, and everything we talked about still applies. Click here to read the article about bear market #34.

Since bear market #34 began, over eight months ago, the S&P 500 has lost -16.5%. It has continued for 261 days through June 30, 2008.

Since 1981 the median bear market decline has been -24% and lasted a median of 204 days. However, since 1900, the median bear market has lasted 363 days and taken the Dow Industrial down by -27%. As you can see, this bear has lasted longer than the more recent bear markets, but has been shorter than the historical bear markets dating back to 1900. Also, its decline thus far has not been as deep as normal.

I wish I could tell you when this bear market will end, but unfortunately, no one knows that answer. No one rings a bell to tell us to sell at the top or buy at the bottom. There are two things that we can say with certainty. First, this bear market is closer to being over today than it was yesterday. Second, when a bear market finally ends, historically there are always significant gains.

Investment performance reflects time-weighted geometric composite returns of actual client accounts. Investment returns are net of all management fees and transaction costs, and reflect the reinvestment of all dividends and distributions. The Lehman Bond Index is a benchmark index made up of the Lehman Brothers Government/Corporate Bond. Benchmarks are used for comparative purposes only. The Paragon Managed Income Portfolio is not designed to track the Lehman Aggregate. Past performance is no guarantee of future results. Investments in securities involve the risk of loss.

Paragon Named one of the Top Advisory Firms in the U.S.

Paragon Wealth Management was named one of Wealth Manager's "Top Dogs"- the Top Advisory Firms in the country.

The rankings were announced today and will be printed in the July/August 2008 issue of Wealth Manager magazine. 

To be eligible for the Top Wealth Manager ranking, companies must be registered investment advisers, report more than $50 million in assets under advisement, have predominantly individual clients and offer financial-planning services. They rank them by the size of their average client relationships, not by total assets in order to highlight the firms with the wealthiest clientele. 500 firms are chosen in the United States.

Visit Wealth Manager's site to learn more.

When do I need to take an RMD?

One of our clients asked us this question last week and we thought you might be interested to hear the answer.

First of all, what is an RMD?

It is a required minimum distribution.

When do you need to take one? My December 2006 statement shows that I have an RMD due on April 1, 2007, and another December 31, 2007. How could I have two RMDs due in one year?

You are first required to take an RMD by April 1 in the year after you turn 70-1/2. Afterward, you are required to take future RMDs by December 31 of each calendar year. Essentially, you have an additional 3-month “grace period” (January 1-March 31) to take your first RMD.

Why do you need to take an RMD?

Basically, paying taxes is inevitable when it comes to your retirement assets. You can defer paying some income taxes by refraining from distributing your retirement assets, but you can't do this forever.

Information was taken from Charles Schwab and Investopedia. Visit these sites to learn more.

A few changes...

We decided to make a few changes to our blog to make it better for you.

1- We will be posting one article each week on Wednesdays to give you the best content.

2- We will write about questions you have and topics you are interested in. This blog is for you and we want to write about things you'd like to learn about.

Feel free to leave questions or topic ideas in the comments section or email us at shannon at paragonwealth.com. You can also call us at 801-375-2500.

3- We will be starting a new blog that will be integrated into our new website that will have updates two to three times a week if you would like more information. The site will be up in July.

Let us know how we can make this blog more useful to you. We'd like to hear your feedback. Thanks!

How are Your investments Doing?

At Paragon Wealth Management, we think it is important to publicize our performance numbers on a monthly basis.

Our two most popular portfolios are a conservative portfolio called Managed Income, and a growth portfolio, which is more aggressive, called Top Flight. Our 2008 numbers are listed below compared to their indexes or benchmarks.

                                              2008 Performance Numbers

                            Managed Income             Lehman B              Top Flight                S&P 500          

Jan-08                        -1.31%                         1.68%                     -5.26%                      -6.00%

Feb-08                        0.01%                          0.14%                     -0.96%                      -3.25%

March-08                   -0.16%                          0.34%                     -3.08%                      -0.43%

April-08                      2.19%                         -0.21%                      6.89%                        4.87%

May-08                       1.07%                          -0.73%                     3.91%                        1.30%

Although, past performance is no guarantee of future results... you may be interested to see our past performance numbers.

Paragon's Track Record

                          Managed Income                Lehman B             Top Flight             S&P 500

Thru May-08              1.78%                            1.21%                   1.01%                     -3.80%   

2007                          2.24%                            6.96%                  16.98%                     5.50%

2006                          5.73%                           4.33%                     5.91%                     15.79%

2005                          5.72%                           2.43%                     6.30%                      4.89%

2004                          12.81%                         4.34%                    10.15%                    10.87%

2003                          29.55%                         4.10%                    50.31%                    28.69%

2002                         -3.72%                          10.25%                 -13.60%                    -22.12%

2001                     4 Qtr  9.65%                  4 Qtr  0.05%               9.10%                     -11.92%   

2000                            --                                  --                       62.42%                  -8.82%

1999                            --                                  --                       17.69%                  20.66%

1998                            --                                  --                       31.67%                  28.58%                

Click here to learn more about our investment services or call us at 801-375-2500.

An investor's actual returns may vary due to timing of withdrawls, contributions and other factors. Past performance is no guarantee of future results. Before investing, contact Paragon to discuss your investment objectives, risk tolerance and fees. Investments in securities involve the risk of loss. The S&P Index is a market-value weighted index comprised of 500 stocks selected for market size, liquidity, and industry group representation. It is not possible to directly invest in this index.

Where is the Stock Market Going this Year?

In the past we have written articles about market forecasting. This article was written by Charles Martineau, and it goes right along with our philosophy on marketing forecasting. It was taken with permission from Invest by Simplicity.

“So where is the stock market going this year Charles?”

- I don’t know.

“Why don’t you know? Aren’t you supposed to be one of the top finance students at your university?”

- What do you mean by top? I have good grades, but that doesn’t mean I know where the market will go this year or next year… actually no one can!

“Why?”

- Do you know anyone who can actually predict where the market is going on a consistent basis?

“Well I thought someone could because of all the news on TV, etc… Those stock specialists sound smart, right?”

- Well they need to sound smart, otherwise they don't get a pay check! I could give you lots of reasons why the market will go up or down by the end of the year.

“No, what do you think?”

- I still don’t know…

“I am confused!”

- PERFECT! Now you understand the market!

“What do you mean?”

- You are CONFUSED! That’s the whole point… the market is simply a weird non-sense confusing thing!

“I still don’t get it…”

- good.

I've had this this famous conversation a couple of times with my dad, family, and some school friends.

Everyone needs to realize that no one can predict the market and where it will be by the end of year or the next year or in three to four years.

There are two types of Stock Market Specialists:

1- Some who don’t know where the market will go

2- Others who haven’t realized yet that they don’t know where the market will go

Sounds simple right?

Not really because it goes against human nature for not knowing something. Humans seemed to be programed to find trends where there are actually none.

But why is the market really confusing? I could go into details, but I won’t.

Simply ask yourself:

“What is the market? or Who is the market?”

The population of the world is forming the market and since humans often act in manners that are so unpredictable, how can we predict the market? We can't!

However, there’s something I can say for sure about “predicting” the market, if you can actually call this a market prediction.

In the past, Bull markets are followed by Bears but Bull periods tend to last longer than Bears… there you go!

Now everyone understands the stock market. Right?

Adventurer Tracks Opportunity

                                          

Featured in Utah Valley Magazine's May/June issue.

Hunter Dave Young is also a former world-class magician who toured for more than four years before becoming a successful entrepreneur and then a finacial adviser who owns Paragon Wealth Management in Provo. Dave is Utah Valley Magazine's new columnist.

Five years ago Dave Young, owner of Paragon Wealth Management, made a goal to harvest a mountain goat that was among the world's 10 largest. After two failed attempts to get the record-setting goat in Alaska, Dave set his sites on the British Columbia/Yukon border in the fall of 2006.

"Getting to where the world's largest goats are takes an immense amount of concentration," says Dave, whose first column in Utah Valley Magazine appears on page 111. "We were scaling 60-to-100-foot cliffs. It's a mental game."

After nine days of backpacking, David was finally able to harvest a mountain goat that ranked on the all time "Top 10 in the World" list. He retrieved the goat after it fell more than 2,000 feet into a ravine.

"It took a lot of patience and determination," David says. "I learned a ton."

Dave applies his hunting lessons to his very successful investment business.

Hunting the Stock Market

When he's not hunting world-class trophies to hang in his Provo office, Dave spends his time managing his successful Top Flight Portfolio.

"What I enjoy most is the challenge of getting something that's hard to get," Dave says. "Anyone can go on a safari and shoot a zebra. I enjoy hunting leopards. They're like mountain lions on steroids. They're quicker, more aggressive and have a bad attitude. If you make eye-contact with a leopard -- they'll jump at you."

Dave's mantra of not taking the easy road translates into how he handles clients' financial futures.

"It takes a great deal of focus and patience to manage money," Dave says. "You can't force the market to do what you want."

While some financial advisers focus on selling their clients value-added services or simply on their personality, Dave has always relied on investing.

"What sets us apart from other financial advisers is that our fundamental roots lie in investing," he says. "That has been our primary focus for the past 20 years." The company does not sell any financial products.

And that effort has not gone unnoticed. Since its inception in January 1998 through December 31, 2007, the Paragon Top Flight Portfolio has generated a total return of 417.34 percent, crushing the 77.42 percent the S&P 500 has posted.

"That works out to a compound annual return of 18.03 percent for Top Flight, versus 5.95 percent for the S&P 500," Dave says. See www.paragonwealth.com for Paragon's full disclosure.

Most investment advisers are considered successful if they are able to simply beat the S&P 500.

Paragon's Top Flight portfolio has far outpaced that standard in all economic conditions the past 10 years.

An investor's actual returns may vary due to timing of withdrawls, contributions and other factors. Past performance is no guarantee of future results. Before investing, contact Paragon to discuss your investment objectives, risk tolerance and fees. Investments in securities involve the risk of loss. The S & P index is a market-value weighted index comprised of 500 stocks for market size, liquidity, and industry group representation. It is not possible to directly invest in this index.

2008 Best of State Winner in Financial Services

                                                            

                               

                                Dennis, Trudy, Patrick, Shannon, Dave, Cathy, Kim, & Nate

Congratulations Paragon Wealth Management! They received the 2008 Utah Best of State award in Business Services- Financial Services. Dave Young, President of Paragon, accepted the award on Saturday, May 31 at the Salt Palace Convention Center in Salt Lake City.

What is happening with the stock market?

Written by Nate White, CFA, Paragon's Chief Investment Officer

The stock markets have rallied since mid March when the credit crisis was in full gear and Bear Stearns was collapsing.

Just when it looked like the financial system was nearing collapse the trusty Fed came to the rescue by lowering rates and bailing out Bear Stearns. The long term implications of the Fed's actions in bailing out an investment bank remain to be seen.

For the moment it looks as though their actions have calmed the storm as credit spreads have narrowed, market volatility has decreased, and equity markets have moved higher.

Now that the Fed has signaled that it could be finished with interest rate cuts the market has started to focus on inflation and what the Fed will do if it worsens.

I don't need to tell you what has been happening with energy and commodities as it is a constant media topic and you see it first hand while filling up your vehicle and buying groceries. The Fed hoped to calm the credit crisis by lowering rates to get the economy moving but these actions have weakened the dollar further and sent commodity prices soaring.

If the economy continues to slow down then it could put a damper on the run up in commodities. However, if inflation gets worse it will force the Fed to raise rates at some point, but the odds are against it ahead of the elections.

With the current markets being down year to date, many have wondered what to do for the second half of the year.

Sell in May and go away?

There are prospects for the U.S. market to go higher for the second half of the year. The market has had a tendency to rally after May in an election year. The market also tends to have stronger performance following market lows during economic recessions.

There is also a tendency to rally after the Fed's last rate cut as Wall Street anticipates better economic performance. Summer is usually a quieter time on Wall Street, but that may not be the case this year -- for good or ill.

Here is the performance of U. S. markets this year (5/28):

S&P 500         -4.47%

DJIA               -5.06%

NASDAQ         -6.24%

Russell 2000   -3.11%