Highlights from 25 years of dedicated service at Paragon Capital Management. Celebrate with us as we look back at the events that shaped us and the finance industry.
September 1998, Howard Jacobson decided to create Paragon Capital Management, LLC to manage money for himself and some of his friends and long-time clients. His goal was to be at $100 million in assets under management by the end of his first year. He was advised that this was not realistic and would not happen that quickly. On October 2, 1998, Howard sent a letter out to his friends and former clients as the stock market was dropping reassuring them that even though he was not managing their money anymore, that he had confidence in the economy and the stock market. The market hit the low on October 7, just five days later! A copy of that letter is attached as the last page of this newsletter as a reminder that even before Paragon was managing their money, Howard and Paragon always put the best interests of our clients first.
Howard did not quite get to $100 million in the first year, but he did get really close and Paragon was off and running. Today we continue to do very little in advertising; instead, counting on word of mouth and referrals to grow our business. We are excited to celebrate 25 years with you, our clients and friends. We will remember 25 major themes that affected the markets and our lives in the last 25 years in this newsletter and conclude this celebration with our dinner on October 18th. You should have all received multiple emails about the dinner in Kansas City (and a zoom link for those far away) to celebrate with us and to listen to John Tousley, Managing Director of Goldman Sachs, as he shares his thoughts on the markets going into the year-end.
Now let’s take a stroll down memory lane!
If it wasn’t for firms like Charles Schwab creating discount investment brokers and online investment brokerage services, disrupting the industry, and allowing firms like Paragon to exist and compete in today’s world. We have seen firms like Schwab drive down trading costs from thousands of dollars per trade at the wire-houses, to $49.99 to $29.99, $19.99, $14.99, $9.99 and eventually to where we are today, which is $0 commissions on a majority of trading.
Many of you have heard us discuss Long-Term Capital Management’s collapse as it came back around to the financial crisis in 2008 with Lehman Bros and Bear Stearns. But in 1998 LTCM was an American hedge fund managing $126 billion that was heavily leveraged to Russia. If not for a $3.6 billion bailout orchestrated by the Federal Reserve, we could have seen a global financial crisis.
The 1990s will also be remembered for the technology stock bubble and the IPO (initial public offering) boom and bust. Stocks were going public at a record pace and anything with “.com” in the name were taking off like a rocket to the moon, until March 2000 when it all came crashing down with the Nasdaq dropping over 80% and the S&P 500 dropping 50% over the next 30 months finally bottoming in 2003.
In 2001, the markets officially stopped quoting stocks in 1/8th of a dollar and were fully using decimals. Our President, Craig Novorr, starting in 1996 on an investment trading desk, remembers the process starting in 1997 and the havoc it created on Wall Street with trading profits being squeezed and systems having to be reconfigured. He can still count in 1/8th in his sleep!
This remains one of the most horrific days in US history as we experienced a major terrorist attack on U.S. soil. I am sure we can all remember exactly where we were when that first plane struck the tower. If you have not been to the memorial in NY, I highly recommend it, it is both an emotional and powerful remembrance of all those who lost their lives that day and a tribute to all of the heroes that were involved in the aftermath.
December 12, 2001, still in the tech crash, Enron became the largest corporate failure in US history.
The poster child for this was Country Wide Financial, who packaged sub-prime mortgages and resold them. A great recap of this event is the movie and book, The Big Short.
January 2007, while the largest technology conference in the world was happening in Las Vegas, Steve Jobs announced at Apple’s annual meeting the introduction of the iPhone. At the time, Blackberry ruled the business and phone community, and many did not think the iPhone would be able to compete. iPhone now accounts for 50% of Apples revenue and Blackberry is just a memory.
September 15, 2008, Lehman Brothers filed for bankruptcy. They were a 158-year-old investment bank. The largest money market fund, Reserve Primary Fund, owned a large position in Lehman Brothers commercial paper and “broke the buck.” They put a 7-day freeze on redemptions meaning investors were unable to access their money. The Federal Reserve had to step in and guarantee money market funds. Also, at the same time the Federal Reserve participated in the $182 billion bailout of insurance giant AIG.
In October 2008, the still unknown identity of Satoshi Nakamoto created Bitcoin in the aftermath of the financial meltdown. There are now over 12,000 digital currencies with a total market capitalization of over $2 trillion.
European debt crisis started in the beginning of 2009 as a fallout from the US financial crisis in 2008.
As a result of the financial crisis, the Federal Reserve initiated Quantitative Easing. The Fed would buy bonds and bundled mortgages. They would also change their stance on guidance and began telling investors exactly what they planned on doing. Sidenote, investors still bet against the Fed even when the Fed tells them what they are planning, which makes no sense. Key phase, “Don’t fight the Fed!”
At 2:32 p.m. est on May 6, 2010, stocks dropped 8% within minutes, while some individual stocks dropped 99% or more. This was caused by a $4.1 billion sell order the market could not handle.
During the last 25 years, China became an economic superpower.
May 2012, Facebook, now Meta, became the first company to go public with a $100 billion valuation.
September 2013, the U.S. started to produce more oil than we imported. We eventually became net exporters of oil.
The rise of Vanguard and the growth of the ETF industry (Exchange Traded Funds) taking money away from individual stocks and mutual funds. Today, passive investing is over $20 billion.
The low interest rate environment we just came out of accelerated the private investing market to what today is well over $6 trillion. Meanwhile the number of publicly traded companies have declined over the last 25 years from approximately 10,000 companies to approximately 4,800 today. U.S. companies backed by private equity have grown in numbers from approximately 1,600 to over 10,100.
Activist investors who have taken large positions and board seats then creating the stock buyback boom. As much as $800 billion in stock buybacks have occurred leading legislators to investigate whether to ban buybacks in the future.
Environment, Social & Governance investing started around 2014 with research focused on finding companies that met certain standards. Today ESG investing accounts for $20 trillion.
June 2016, a British vote to exit the European Union shocked the world.
The acronym for Facebook, Apple, Amazon, Netflix, and Google became a popular phrase during the longest bull-market in history, lasting from 2009 to 2020 or 11 years. S&P 500 went from 676 to 3,386, only getting snapped in March 2020 because of…
March 13, 2020, President Donald Trump declares a public health emergency shutting down the country. The fallout from the economic shock caused 20 million jobs to be lost, the Dow Jones Industrial Average to fall 35% in one month, interest rates to drop to 0% and the highest rate of inflation in 40 years.
Online market chat boards such as Reddit and trading sites such as Robinhood sparked the Meme stock phenomenon with names such as GameStop, AMC theaters, Bed Bath & Beyond and others. There is a current movie, based on a book, called Dumb Money in theaters now that chronicle’s GameStop.
As mentioned above, we have seen inflation hit the highest it has been in 40 years, reaching as high as 8%. The Federal Reserve has aggressively raised interest rates to combat inflation with a goal of returning the inflation rate to 2%.
We have created a studio in our offices to create videos to address current events, create educational videos with our thoughts on the industry and to answer questions that you might have and would like to see a video about! You can find our videos on our website, or on YouTube at https://email@example.com If you subscribe to our channel by hitting the subscribe button, you will be notified when new videos are posted.
We are receiving great feedback on the use of Calendly to book appointments for quarterly reviews. Kelly has been reaching out to schedule meetings with your wealth manager and will continue to proactively reach out throughout the year. Calendly provides updated access to your wealth manager’s calendar and to a meeting time that is convenient for you! These meetings can be in person, by video or by phone.
Also, please share your experiences with friends and family; we love the opportunity to help those you know with their financial success.
Paragon’s offices remain by appointment only. We are all hybrids, working from home and the office, but staying in contact with each other daily. We are available to meet with clients at our office by appointment and are also available to schedule account reviews via phone or video conference.
Whether you feel as if you’ve outgrown your advisor or you just want a fresh perspective on portfolio strategies in our current market, our team of experts is here for you.Let's talk