Fagan Associates Commentary

We sit here stunned by the ferocity of this rally yet not.
The market has the ability to confound and frustrate the greatest number of investors possible. The level of negative commentary on CNBC was at all time highs a few short weeks ago and we received several phone calls from our investors expressing concern and contemplating “evasive” (i.e selling) action.

Now we sit firmly over 12k and up some 1400 points in a few weeks time.  Resisting the temptation to say “told you so” (and not because we knew this rally was coming but only because we think selling in panic or buying when greedy is ALWAYS a mistake)- what is an investor to do now?

We sometimes feel too folksy and simple to get respect but here are a few principles good investors should heed:

1. Know yourself - there is no shame in being a conservative- risk averse investor. There is shame and financial peril in being a risk averse investor during times of market turmoil and not one after the market has advanced. Frequently we hear, ” I’ll get back in when things are better” - TOO LATE!!

2. Invest towards your objectives and not how the media is telling you that they invest. We frequently say, sell to your sleeping point.

3. Be diversified. It never hurts to have cash, bonds AND that’s even in an “up” market. These assets frequently enable jumpy investors to weather those difficult markets (remember September- that was last month!!)

We are happy that the market is moving higher off of the European debt settlement (seemingly solved for now anyway) but caution investors to not become too giddy.  Just as we were preaching calm during the market storm that was September.

Its not easy getting older- the morning aches, the naps on the couch at 7pm and half hearted attempts at staying in shape. One of the biggest challenges to aging is keeping an upbeat attitude.

To younger investors this market turmoil seems like an opportunity. Great growth stocks on sale at bargain valuations, dividend payers with yields that grossly outdo the 10 year treasuries - solid opportunites to make some serious money over the coming years. In short, a glass half full.

To older investors this market turmoil is threatening. Greece is imploding, 9-11 isn’t a ceremony rather it’s an invitation to terrorists and the unemployement rate will soon victimize them.  They look for safety with US treasuries and reducing their equity levels. In short, a glass half empty.

Reality is somewhere in between. We believe that younger investors are RIGHT to look at the glass half full and seek opportunity. We however believe that older investors are WRONG to ignore stocks at a time when they might re present value and provide income for their portfolio.

Asset allocation is a valuable tool in allowing “jumpy” investors to ride difficult markets. Our advice is always to know yourself as an investor and to know what type of risk you can tolerate. Its only at these times of market turbulence that we really find out.

Stocks remain under pressure this Monday morning as a result of continued troubles in Europe, specifically Greek debt and the potential for contagion.  Why does this matter?  Simply put, the U.S. economy is at stall speed, thanks in part to the wrangling over the debt ceiling that occured during July as well as the fact that it never really reached escape velocity after the recession.  The result is that negative events will have a greater impact on the economy now as compared to an economy with a lot of positive momentum.

What’s an investor to do?  Stay calm.  Pick your spots.  Should the market come down, look to move up to leaders with long-term secular growth stories.  Regarding mutual funds, be patient as well.  There is no need to go “all-in.”  Furthermore, remember that money at 0% comes with its own set of problems.  Focus on your objetives and try to ignore the noise along the way.

The huge news of Apple CEO Steve Jobs stepping down and handing over the reigns to current COO Tim Cook was dominating the business airwaves for about twelve hours until it was announced that Berkshire Hathaway CEO and legendary investor Warren Buffett was investing $5 billion in Bank of America.  What does this all mean?

Regarding Jobs and Apple, short- and mid-term this should mean nothing who has its product cycles mapped out for approximately the next three years.  However, over the long term it remains to be seen if the Apple innovative bench is deep enough to offset the loss of the visionary, Jobs.  Although Jobs is certainly a loss, at eleven times 2012 earnings and a management team with now a chip on their shoulders, we believe that a pullback in Apple should not be sold.  We believe that the loss of Jobs is akin to the loss of Walt Disney.  Both has institutionalized product creation and this will be tested over the next several years.

Regarding Buffett and BofA, Warren Buffett will invest $5 billion  in perpetual preferred stock of the beleaguered banking giant which will also provide t warrant to buy 700 million shares of common stock at $7.14 each.  Has the Greenspan Put been replaced by the Buffett Put?  Time will tell.  However, the news is lifting all banks.  At this time, we continue to prefer JP Morgan Chase, First Niagara and FNB Corp.

Last, but not least.  We continue to believe that this is not another 2008 and the stock market is in the PROCESS of etching out a bottom.  Remember, bottoms are processes, not events.  Be patient.  Pick your prices. and stay disciplined.

Let us state first and foremost that time will tell whether stocks are etching out a bottom or not.  However, let us also emphatically state that STOCK MARKET BOTTOMS ARE A PROCESS AND NOT AN EVENT.  They take time.  There are both updays and downdays amidst a lot of volatility as we have witnessed over the past couple of weeks.  On the up days investors will be tempted to chase and buy on the down days investors will be tempted to sell everything and run for cover.

We will maintain our discipline, maintain proper asset allocation according to the objectives of our clients and let the stock market come to us.  We suggest you do the same.

Good morning.  Futures indicate that stocks will open around two percent lower as a result of a lackluster response by the European Central Bank (ECB) regarding burgeoning debt in Italy and Spain as well as the downgrade of U.S. sovereign debt by Standard & Poor’s from AAA to AA+. 

Coming into this Summer with the then pending debate over the debt-ceiling, issues in Europe and the potential for a debt downgrade, depending on the client needs, we have taken a number of steps including raising cash, moving to more conservative positions, selling peripheral positions and making certan that the investments we decide to hold are in strong fundamental and technical positions if they are individual securities or if mutual funds, are those with strong management tenure and performance.

The above will not prevent losses should stocks continue to sell off.  However, at this time, we believe that it is time to sort through the rubble and look to add to positions on weakness.  This past week was similar to an earthquake.  Keep in mind that after earthquakes there are several weeks of aftershocks.  With this in mind, be ready to buy on some of these aftershocks, but always keeping some powder dry in case there is more trouble to come.

Good morning.  A better than expected Nonfarm Payroll report should push stocks higher at the open and also help to quell some of the negative sentiment on Wall Street and Main Street.  For the month of July, U.S. Payrolls rose by 117,000 far above the 85,000 which represented the consensus estimate.  Furthermore, Private Sector Payrolls rose by 154,000 while the Public Sector shed 37,000 jobs, its ninth consecutive month of job losses. 

This is a step in the right direction for the stock market and should help put a floor under stocks by providing support from bargain hunters.  One step at a time.  The next step could be taken after the Open Market Committee of the Federal Reserve meets this coming Tuesday.

Our plan of action is to continue to invest in quality securities that will benefit from a modestly growing economy while also holding some cash, where appropriate.  As we somewhat presciently noted yesterday, this is the time to look for opportunity and not to run for cover.

As always, please feel free to contact us with any concerns, questions or clarification at 518-279-1044.

The strike/lockout by the NFL or the NFLPA ended with a cavalcade of back slapping and praise from one party about the other. We saw Kevin Mawae extolling the virtues of Patriot owner Robert Kraft. This was an acrimonious negotiation that was labelled  ”millionaire players and billionaire owners determining how to split trillions of dollars”.
There are some similarities between what went on there and the current stalemate in Washington.

Both sides NEED to compromise and work towards a solution and not one that involves their side winning or losing. The hyperbole and “class warfare” has a place in American politics unfortunately but it seems that we are faced daily with anti-Union commentary as well as anti-”jetsetter” commentary.

For investors, this is a time to realize that decisions made today may seem right in two days or two weeks but not two years from now. Make decisions to sell and/or buy incrementally. This might make you miss the grand “ALL IN” moment that the World Series of Poker has made famous but also save you from even harder decsions when all the dust has settled around the “debt ceiling issue”

Both of us are looking forward to seeing Washington politicos patting each other on the back (like the NFL constituency) soon for a job well done. We also believe that they will be alone in that back patting because more and more the American people is tired of the bickering and hypocrisy that is Washington.

Politicians have the uncanny ability to do absolutely the wrong thing at the wrong time.  See the initial voting down of the Troubled Asset Relief Program (TARP) a couple of years ago.  That is why the deadline for raising the debt-ceiling may pass without an initial solution.  That said, should the markets drop, politicians also have the uncanny ability to do the right thing when their reelection is in jeopardy.  This is why we would view a drop in the stock markets as a buying opportunity.  One caveat, there appears to be more idealogues at the fringes on both sides of the aisles.  These are the wildcards that, despite a drop in the markets, may nonetheless hold their ground.

We have several plans of action that range from holding conservative assets that we believe will not be impacted by any debt default to holding cash.  What we choose to do for our clients depends upon their objectives, time frame and tolerance to risk.

Fast Faster Fastest.
Foolish More Foolish Most Foolish.
The financial media glorifies the day trader. It glorifes and publicizes the one-liner, the quick quipper and the idea that individuals can outrun the crowd and earn huge returns by fast trading and quick decisions. We believe that more thought is required and sometimes quick trading without careful thought opens a “pandora’s box” and leaves investors holding a “pandora’s bag”- owning shares not a portolio of investments.
Slow it down. There’s nothing wrong about  thinking things through before doing them. Every investment doesn’t need to be bought with the idea of selling it later during that same CNBC fast money show.
Buy a dividend payer (FNFG, COP, MO,VZ), Buy a conservative allocation fund (PRPFX, VWELX). Buy an intermediate bond fund (PYGNX, MWTRX). Buy a blue chip stock with decades of dividend hikes (EMR, MCD, PEP, MMM).
But above all don’t react to urges by the financial media to move more quickly- we equate more quickly to more recklessly. In an era of faster, we think you should move your money more slowly, more wisely and more selfishly. Invest to accomplish your own goals and not to satisfy a financial advisor’s “gotta decide today” urging.
Our advice - “slow it down” and make choices wisely, move forward but with an idea on where you are going.