Fagan Associates Commentary

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).

I didn’t want my New Year’s resolutions to get confused with Dennis’ as his are all related to self improvement. ( A lot of room for success there to be sure). I just jotted a few things professionally and personally that I am looking to accomplish or things that I anticipate for 2011.

1. At some point during 2011 I would like to increase my holdings in zero coupon bonds. They are solid holdings in retirement accounts and offest more volatile stock holdings nicely. We both believe that rates are heading higher so I will wait and look for 5.5% or so on long zero coupon bonds.

2. I am going to try and pay less attention to the main stream media — especially TV. I am not anti-television just think that the level of coverage for sports and business has become sensationalized. Accuracy has taken a back seat to ratings - shows like “jacked up” and “stop trading” are designed to grab headlines rather than provide information and insight.

3. Find entertainment and things to do that are easier on my body and my nerves. This is a stressful business (as many are) and most of my hobbies/outside activities are physically stressful. More bird watching ( the dork emerges) and reading are likely.

4. Find investments that benefit from an aging population that requires more care, lives longer and stays active longer. Not just your standard health care companies are my thought here.

5. Bigger is better - I want to consciously increase my large caps holdings as opposed to the smaller caps based on the underperformance of the latter.

6. Continue to center investments on companies whose products and services I utilize. Yes, this could dovetail unfortunately with the “aging population” resolution!

Thought our readers and listeners would find some of these interesting and if nothing else they satisfied my 7th resolution which was to share my thoughts more frequently in this forum

CHRIS

We host a radio show on WGY and thus our answers to simple questions can run on. Here’s a post to simplify things.
1. Stocks - Big over small. US over developed ex- US.
2. Bonds - short over long, junk over quality.
3. Gold- topping (but it takes time)
4. Interest rates heading higher but in fits and starts.
5. Invest don’t trade.
6. Patience over plunging.

These are just a few of the credos that we expect to live by in 2011- as always situations change so be alert.

Best wishes to all for a Happy, Healthy, Prosperous 2011!

First off, everyone wants an Apple ITouch and a pair of $125 Nikes for holiday gifts. These are both companies that we own shares in so that makes us happy BUT the point is that sometimes the drab, boring gifts are the ones that are the most thoughtful.

Give your kid a FirstAId kit for his car and you get that invincible smirk that only an 18-year old can give their parent. Savings bonds for college and you get the “where’s my Abercrombie gift certificate expression”.  These are gifts that require maturity to appreciate much like certain investments of late.

We have received inquiries lately as to the performance of bonds and bond funds. They have seen some principal leakage and we expect that to continue - no full fledged bleeding just some downside to these positions. In short, we hold these investments as ballast to our equity position and while we would like every investment to be an “apple” that would be far too risky and volatile for most portfolios. We are taking heart in the fact that at this time bonds and stocks are moving in opposite directions hence stock gains are more than offsetting those minor bond losses.

We have also added junk bond and inflation protected securities to many portfolios. Ourt advice to bond investors is to “be short- be greedy”. Look for lower grade bonds and keep your maturities shorter.

Like that first aid kit, bonds take an emergency to be most appreciated (think spring 2008).

Happy Holidays