Fagan Associates Commentary

Everyone wants diversification when their favorite asset class or stock is moving lower. No one wants such diversification when the asset that they love is rolling along. This point has been driven home recently with the commodity pullback. Many energy stocks are 10% below their fifty-two week highs and no one is buying gold all of a sudden.
It is wise to continue to own assets that seem to be “underperforming’ if they make sense to achieving your investment goals. If, we, as investment advisors knew exactly when stock and bond markets were going to turn in and out of favor then we would not need such diversification.
We have taken some of our energy holdings “off the table” recently but still own a solid stake in companies such as Exxon and Conoco. We don’t profess to be market timers but we had gotten a bit too committed to the energy sector given the almost direct move higher that the sector had made.
Investment portfolios are like “gardens” (Dennis likes to say) you can’t always have every plant and flower in bloom at the same time.

No one should get kicked when they’re down (though they might decidedly deserve to be) and so we won’t kick Lenn Dykstra when he’s down - nor we will we remind you of the compliments and trust thrown his way by uber promoter Jim Cramer on CNBC. We wil point to our article of July 9th, 2009 so you can read what we wrote some 20 months ago. (commentary entitled “Nails”)

We are big internet researchers. We love to read and contemplate research material relating to stocks. Some of our favorite moments come when we “bad mouth” some inane comment on CNBC. In short, we tend to overdose the financial business and that can be a worrisome thing.
We are however practical and some of our best ideas and philosophies have come from novels, friends, parents and totally business-less areas.
Life can be like that too. Never ignore the potential for happiness, a friendship or a fun day/evening wherever you may find them. Both of us have off beat hobbies that might draw a snicker or two from MACHO friends but those hobbies can provide great sources of relaxation and enjoyment.
Similarly, our philosophies for clients come from unusual sources.
One of Dennis’ favorites is from a garden journal which advises diversifying  blooming seasons on flowers and plants so as to always have something in bloom. The thought is simple for a garden but at times difficult to implement for investors as we tend to be rewarded by the most timely of movers.
We enjoy a diverse stream of information which provides philosphies that at times are more practical than many other financial pundits. For that reason, at times when we are discussing topics that are seemingly unrelated to the markets we find philosophies as helpful in investing as they are in life.

The stock market is kind of like the weather in London.  The outlook changes constantly.  Just a couple of days ago investors were flocking to the Consumer NonDurables and Health Care.  Now, with solid earnings reports from Intel and rail giant, CSX, they are now moving back toward companies that are economically sensitive like Technology, Industrials and Basic Materials. 

We think the latter move has more staying power and would not use a day like today when these sectors are strong but rather one in which they are out of favor.  We are certainly not saying that the U.S. Economy is humming on all cylinders, but rather that Treasury and the Federal Reserve is pursuing dollar policy that will make U.S. Companies more competitive abroad, especially in the emerging markets like China, Inda and Brazil.

Never ever admit it.
Never think it could be possible.
But - - — in investing it pays to consider that you might be wrong. Infintesimal as that possiblity might be, it is there. If only some of our investment gurus would take that into account when making proclamations of truth not predictions!!
“Interest rates will go up”- “The stock market will go down” - these “FACTS” have left many an investor waiting for these occurences some two years after hearing them and adjusting their investments accordingly.
Our advice is to make HUGE investment changes slowly and incrementally. These incremental changes won’t leave you on the outside looking in at market advances (both stock and bond)

The U.S. stock market looks to open sharply lower as foreign markets tumble.  In fact, the NIKKEI, the Japanese stock index fell more than ten percent as troubles with their nuclear reactors mounted.  For a period of time, this should reduce investor appetite for risk and increase investor demand for liquidity.  Add to this the collective call for some profit-taking after a more than thirty percent run-up from last August lows and troubles in the Middle East and you have the recipe for a bit more downside risk.

What’s an investor to do?  First and foremost, don’t panic.  Event driven pullbacks are historically violent and short-lived.  So far, this one has been violent and we will have the answer to the “short-lived” within the next couple of weeks.    With this in mind, we believe that bargains will be created but we are not there yet.  Once again, don’t panic.  Dont’ “sell everything.”  At Fagan Associates, we allocate assets according to the objectives of the client and firmly believe that this is the most efficient way to help our clients achieve these objectives over time.  We are also aware that events, perhaps not to the magnitude like the one in Japan occur periodically encourage investors to look beyond the next several days/weeks and to their objectives.  With information provided by the client, we believe we have positioned the client appropriately, even with disruptions like the ones noted above.

Its hard to keep this market down. The Dow is now up better than 5% this year despite rising oil prices, tensions in the Middle East and Mid West.

It is hard to imagine continued gains with US gas at $4 gallon and interest rates on mortgages running higher but the market has baffled experts before. Portugal, Ireland and Greece were last year’s “bear” market ignition but those worries passed. The market is due for some downside but we would not be selling here except for the most nimble traders.
It seems to us  that the “most nimble” traders frequently end up skewered and at Fagan Associates we  prefer moves of moderation and balance- diversification.

Finding a bull in bonds is impossible. The “bubble” in bonds has been forecast and averted frequently over the past two years. Keep maturities short, buy some high yield bonds and inflation protected funds/etfs. It is a time to be cautious in the bond market as risk greatly outweighs reward. Caution however doesn’t mean you should completeley ignore this asset class.

Good morning!  The U.S. Stock Market is closed today.  However, global markets are open and most are experiencing fractional losses, reacting to the uncertainty of how far tensions in the Middle East and Northern Africa, specifically in Tunisia, Libya and Bahrain will spread.  There is a certain domino effect occurring and there is also question as to whether that ultimate ends up on the doorsteps of Saudi Arabia and perhaps even China.  As of Monday morning, understandably gold and oil are both rising, a trend that we believe will most likely continue.

At this time, we believe that to make substantial changes to portfolios is a little premature.  The U.S. Economy remains solidly in an uptrend.  That said, we will keep a keen eye on portfolios.

Finally, let’s not forget why there are uprisings in the Middle East — a lack of freedom, economic opportunity and rising prices.

Knicks’ coach Mike D’Antoni has asked Garden - Knick fans NOT to chant Melo’s (Carmello Anthony) name during the game as it is a distraction for the current players. We find it odd that professional basketball players would be distracted by anything chanted from the stands. Investors can learn from the Knicks’ coach.
Over the past 2 years or so, the Dow has gone from 9,000 to 7,000 and now to 12,000. Over that timeframe investors have had to digest and weather countless “bubbles” and proclamations of some “Armageddonesque new normal” in employment, housing and international politics. Its too bad that in in this frigid winter we can’t harness some of the hot, useless air coming from investment advisors.
Our advice has been and continues to be that investors must know their objectives and risk appetites and invest accordingly.
Strangely enough, all the proclamations of some fabled “new normal” make tried and true investment techniques more appealing.

The market has performed great since its August pullback. After rummaging around the 10,000 mark  - the Dow now sits around 11,800 or an advance of roughly 18%.

Is it crazy to think that the market could easily decline some 8-10% solely on profit taking? NOT AT ALL.
We believe that a 10% correction would be healthy for investors and the market and inject some needed fear and skepticism into the market.
Our advice is to continue to dollar cost average into the market, own good things, favor larger over smaller cap stocks and US over international (not to the exclusion of the others).