None Shall Pass (well, almost none)

The news came on Monday. Around 10:00 a.m., I saw an email from CFA Institute pop up in my in-box. Heart hammering wildly, I uttered a four-letter word and clicked on the message. Leaning into the monitor, I quickly scanned the message until I saw another four-letter word – the sweetest one imaginable to a CFA candidate: 

Pass.

My jaw dropped to the ground, and I leaned in closer to read it again. Pass.  I couldn’t believe it. I still can’t, to some degree. But there it was – I had passed Level 2 of the CFA examination. One floor below me, my coworker and fellow blogger Harli was having a similar experience. We called each other and shared our good news, after which there was much jubilation and general merriment (i.e., lots of eating and drinking – and yes, we waited until after 5 p.m. to do the latter, thank you very much). I later discovered that another member of the Parsec family (CEO Bart Boyer’s son, Travis) had also passed Level 2. As Bart said, “Three from Parsec – that’s statistically significant!”

Sadly, I can’t say that a majority of my fellow test-takers were enjoying the same elation. According to the CFA Institute, the pass rate for Level 2 this year was a paltry 39%, lower than last year’s 41% and the second-lowest in history. Not to mention the fact that this year saw a record number of applicants – 139,900 candidates enrolled for all three exams, 52,500 of whom took Level 2. To put that in perspective, there are only 89,630 CFA charterholders in the world right now (a charterholder being someone who has passed all three exams and who meets the professional and ethical standards required by the CFA Institute). The CFAI website describes the Chartered Financial Analyst program as a graduate-level, self-study program that requires candidates to learn and apply investment knowledge, and includes such topics as asset valuation, financial statement analysis, economics, portfolio management, and ethics. To quote the website, “it is recognized globally as the gold standard investment credential.”

Now, before anyone calls a demolition crew to widen the doors so I can fit my big head through, I have to tell you it is not normally within my comfort zone to brag about myself. Quite the contrary, I was raised to be modest to a fault and always downplay my accomplishments. But I just can’t keep quiet about this one. After spending the last few years studying during lunch hours, the kids’ naps, and at night after the kids (and husbands) are in bed, I think we’re entitled to a little horn-tooting. Granted, we’re not finished yet – still one more level to go, but hey, we’re 2/3 of the way there. As Bill (one of Parsec’s managing partners and a CFA charterholder who knows well the pain) put it, we can at least see light at the end of the tunnel – and it sure looks good.

Sarah DerGarabedian

Research and Trading Associate

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Thirty Years of Progress

Parsec is celebrating its 30th anniversary this year!  It is a remarkable achievement – and we have you, our clients, to thank for it.

It is hard to believe that all this began in 1980.  I doubt many of you would pick that year as the time to start a business.  Interest rates were around 16 percent.  Unemployment was high.  The country was in the midst of a recession.

It was in this environment that Bart Boyer decided to move from Minnesota to Asheville and start an investment management firm.  Parsec’s first office was in the lower level of his home.  Now, we have expanded to every floor in the building we occupy in downtown Asheville.  We have an office in Charlotte.

I am fortunate enough to have been here for almost 18 of those years.  I have witnessed the remarkable changes and growth our firm has experienced.  In the upcoming newsletter, I will share some stories with you about our journey.  Please stay tuned!

Cristy Freeman, AAMS
Senior Operations Associate

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Do December Job Losses Mean “Double Dip”?

This morning we received a disappointing jobs report from the Department of Labor indicating that U.S. employers cut 85,000 jobs during the month of December. Since the consensus of analysts was expecting a loss of only 10,000 jobs, one can only wonder if this disappointing news means the end of positive jobs data.

As we move into this economic recovery we must remember that one piece of data does not a trend make. In fact, we have seen most indicators (leading, coincidental and lagging) improve over the last 6-9 months. When reviewing economic data, it is very difficult to make any conclusion from a single piece of data. Instead, it can be more important to follow the trend of data to get a sense of whether the economy is improving or weakening. During 2009, monthly job losses moderated substantially. Employment losses in the first quarter of 2009 averaged 691,000 per month, compared with an average loss of 69,000 per month in the fourth quarter. In following the recent trend, it is clear that the economy is strengthening.

We must remember that it is the job of the news people to shock us in order to ensure that we “tune in” tomorrow. Buried in today’s headlines, we learned that the US Labor market actually added 4,000 jobs in November rather than losing 11,000 as initially reported. This marked the first job growth in two years. This is excellent news that, along with the current trend, should indicate job growth for quarters to come.

In the early 1980’s we experienced what some call a “double dip” recession. This double dip recession was actually two recessions (Jan. 1980-July 1980 & July 1981-November 1982) separated by a period of rapid economic growth. In fact, the economy recovered so strongly from the 1980 recession that inflation forced the Fed Reserve to increase interest rates to a point that forced the economy into the second recession of 1981-1982. Let’s not forget that the economic period after the recession of 1981-1982 was arguably the strongest period of sustained economic growth in history.

This lesson in history teaches us that a slow and steady recovery may be more sustainable than a quick, inflation driven recovery. Although the trend to economic growth remains intact, the reasonable rate of change may allow the Fed to remain accommodative. This freedom could allow the Fed to raise rates when it feels the economy is stable enough to handle a tighter money supply.

Each and every one of us has either been directly affected or had a friend or family member who has been affected by the worst recession since the 1930’s. Their pain and suffering make us wish for a sharp economic recovery and strong job growth. However, we must not forget that before you can run you must first learn to walk. As long as the trends remain positive we will be running in no time.

Michael J. Ziemer
Partner

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Giving Continues at Parsec

The Parsec Prize for the second quarter 2009 was recently awarded to Big Brothers, Big Sisters of Western North Carolina. The organization has been serving Western North Carolina since 1982 and provides services to eight counties.

Parsec also made donations to the Boys Home of the South, Community Foundation of Western North Carolina, Asheville Community Theater, Caring for Children, and Special Olympics of North Carolina.

As mentioned in a previous newsletter article, Parsec matches a portion of employee donations. Last quarter, our employees supported a variety of non-profit organizations such as the Susan G. Komen Breast Cancer Foundation, the American Red Cross, Western North Carolina Rescue Mission, Helpmate, and Cystic Fibrosis Foundation.

Unfortunately, charities are finding that their organizations’ needs are greater than the available funds. Maintaining our community outreach is important now more than ever. We encourage everyone to support charities whenever they can, through financial contributions and/or volunteer work.

Cristy Freeman, AAMS
Senior Operations Associate

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E-Mail Security

We have all read countless stories about the ever-present threat of identity theft. We all know by now that we should shred confidential documents instead of tossing them, intact, into the recycling bin. We dutifully avoid releasing personal information to strange people. We guard our social security numbers. What about e-mail communications, though?

It is easy to forget that e-mail is rarely a secure communications medium. A few moments of your time can save you hours and hours of frustration later if your identity is stolen. Here are a few tips:

• Never open unsolicited e-mails.
• Never use links in e-mails to go to other sites. Instead, use the web address you know to access the vendor’s site.
• Use anti-virus and firewall software. Regularly run virus scans on your computer.
• Never send confidential information via e-mail.

The last bullet point is very important. We have received e-mails from clients that contained account numbers, dates of birth, and social security numbers. While we may ask you in an e-mail to send the information, we also ask that you call us with it. Please do not hit “reply.”

In turn, we will not e-mail similar information to you. We will call you with the information. For your convenience, we sometimes e-mail account documents to you. We will remove account numbers and other confidential information from the document before sending the information to you. We take the security of your information very seriously.

Cristy Freeman, AAMS®
Senior Operations Associate

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Article in Wall Street Journal, March 20, 2009

Some “Other” Wall Streets Embarrassed

ASHEVILLE, N.C. — Bart Boyer’s financial-planning firm, located at 6 Wall St. here, is a few doors from a custom sandal shop, bead store, New Age church and three restaurants that buy ingredients from local farms.
It is a long way from the Wall Street that has become synonymous to many Americans with reckless greed and pushing the economy off a cliff.
“They’ve caused us a lot of distress, ruined a lot of lives,” says Mr. Boyer, chairman and chief executive of Parsec Financial Management Inc. In the first two months of 2009, the firm’s revenue fell 22% from a year earlier.
Anger over runaway trading, financial engineering and compensation by financial companies has a strong resonance along at least 955 country roads, suburban streets and downtown blocks named Wall Street or something close to that. From Abilene, Texas, to south Los Angeles to Zeeland, Mich., these residents and business are wrestling both with the recession and the ignominy of a truly fallen address. (Never mind that most Wall Street financial firms aren’t literally located on Wall Street, nor is The Wall Street Journal.)
“My father’s always joked: ‘My daughter works on Wall Street,'” says Robin Campbell, owner of Dolce Vita, an eclectic boutique halfway on Asheville’s Wall Street that is stocked with handbags, earrings and wine. “Now he doesn’t joke about that.”
On Wall Streets throughout the country, the dominant view is that their New York cousins deserve their ruined reputation.
“If I ran this restaurant like the bankers ran their business, I would no longer have a job,” says Celinda Knight, manager of the Wall Street Bar & Grill, on East Wall Street in Midland, Texas, childhood home of former President George W. Bush.
“They have no idea what’s going on on the ground,” says Ken Olson, principal of Poko Partners, which has a real-estate project under way to revitalize Norwalk, Conn.’s Wall Street, located in a depressed downtown area. “These are people I don’t know, and that’s part of the problem.”
As for more than $165 million in payouts to an American International Group Inc. unit that crippled the insurer, “it’s absolutely beyond disgusting,” says Mr. Boyer, whose firm’s 1,000 clients include doctors and retirees. Parsec’s assets shrank to $749 million at the end of 2008 from slightly more than $1 billion a year earlier.
Last month, Mr. Boyer sent a letter to President Barack Obama suggesting limits on compensation for bank executives.
Asheville’s Wall Street is a one-way, two-block-long lane in the heart of this small city (pop. 73,875) in the Blue Ridge Mountains, about 690 miles by car from New York. During the late 1800s and early 1900s, Asheville flourished as the Vanderbilts, Henry Ford and other luminaries flocked here for its ostensibly curative mountain air. Enduring signs of that heyday include George Vanderbilt’s Biltmore Estate, now a popular tourist attraction and winery.
Named for a stone wall built to retain a hill in the bustling center of town, the Wall Street in Asheville began as a delivery alley. It evolved into an artery of offices, jewelry stores and other small shops. A Flatiron Building, shaped just like the one in Manhattan, housed offices and shops at one end of the street.
The Great Depression brought an abrupt halt to Asheville’s early boom. A new shopping mall in the 1970s further clobbered downtown. When Barry Olen bought an annex to the Flatiron building in 1978, Wall Street and nearby areas were blighted, full of “sleazy bars and pool halls,” he recalls.
Mr. Olen, who believes AIG employees should turn over their bonuses to “people who lost money from their efforts,” helped gradually transform Wall Street into a bohemian enclave and gathering spot for artists, retired baby boomers and other refugees of faster-moving America.
In 1987, Mr. Boyer moved Parsec from a home office to 6 Wall St., several doors down from shops owned by Mr. Olen and his wife. The street name was part of the attraction to the squat 1892 building. “We thought it would be sort of cute to be on little Wall Street,” Mr. Boyer says.
Parsec grew to 29 employees and has clients in 40 U.S. states. In contrast to former Merrill Lynch & Co. Chairman John Thain’s controversial office renovations, Mr. Boyer says he never spent more than $5,000 decorating his own office.
We shampoo the carpet once in a while,” he notes.
“This is the real Wall Street, right here … the one that’s based in reality and has some foundation in sanity,” says chef Mark Rosenstein, sharpening knives and slicing onions in the Market Place, a restaurant he moved into a 5,000-square-foot renovated space in 1990.
When Mr. Rosenstein hands out his business card while traveling, he is quick to explain that his address is “not quite like ‘that’ Wall Street.” AIG’s bonuses are “unconscionable” and “reward failure,” he adds.
As much as people on “other” Wall Streets want to distance themselves from the one known around the world, they can’t escape its economic reach. In January, Asheville’s unemployment rate hit 8.7%, up from 4.4% a year earlier. Tourism, the area’s most important business, is slowing. Once-red-hot mountain real-estate developments are dormant.
At the Market Place, revenue is down about 25% from a year ago. Mr. Rosenstein has given up his salary and offers a three-course meal for the cut-rate price of $29.
On a recent Saturday morning, Early Girl Eatery owner John Stehling said he and his wife had to cut employee hours and took home less than $30,000 last year after closing another restaurant they owned.
“I’m slavin’ away … just to make ends meet,” he says.

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Fiduciary Services

Parsec Financial is a fiduciary, as such we are required to place the interests of our clients in front of all else.   It is a special role that we play, blending together trust, confidence and responsibility in our obligations to our clients.   Many of our competitors are not fiduciaries because of conflicts of interest, either transactional based compensation or revenue sharing agreements from the products they recommend. 

While we are a fiduciary for all our clients, it is very pertinent to our trust clients and retirement plan trustees.  Trustees come to us for help with the procedural prudence that is necessary for them to control their fiduciary liability and obligations.  

The strength of our service resides in our objectivity.  The Fee-only model allows us to embrace the fiduciary standards.  Our credentialed professionals are here to assist you with all aspects of trust and retirement planning. 

Rick Manske, CFP

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Compliance and the Securities Industry

As the compliance officer for Parsec, it is apparent to me that the compliance officers for Madoff were not doing their job. In 2006 the SEC required every securities firm to name a specific person as Chief Compliance Officer. The CCO is required to monitor the firm’s activities and ensure that the business is complying with the various securities regulations.

We have a software system that monitors all e-mails sent and received by employees which are then archived for record-keeping purposes. We are not allowed to electronically send personal client information which would include social security numbers, date-of-birth, account numbers, etc. The software alerts us to suspect e-mails.

Employee trades are carefully monitored and must be pre-approved before any trades are made. Employees must wait until block trades are finished for clients before executing any trades in their own accounts. Parsec receives statements on all employee accounts, including household members, and trades are double-checked each quarter to ensure compliance.

Portfolios are given specific composites (growth, growth and income or balanced, for example) based on the client’s investment objective, and then must be diversified according to guidelines established by our Investment Policy Committee. Sample portfolios from each advisor are reviewed periodically for compliance. If the portfolio is out-of-balance, the advisor is given a certain timeframe to get the portfolio back in compliance. We screen for stocks that are over a 5% weighting and if there is a reason for the overweight position it must be documented in the client’s electronic data file.

All advertisements and correspondence sent to more than one client must be reviewed and approved and a file is kept on all of those items. If we give statistics or certain facts we must have documentation on file to prove those facts. We also must retain records such as trade confirmations and account statements in order to be able to substantiate the performance figures sent to our clients.

Many other areas are routinely checked and a year-end compliance report is a requirement with documentation and “work papers” on the various testing procedures during the year included. I have attended compliance conferences every year and Parsec also retains a compliance consulting firm. We take this matter seriously and we maintain a culture of compliance. If a Ponzi scheme was going on at Madoff Securities and the compliance officer was unaware, he was a compliance officer in name only.

 

 

Barbara Gray, CFP

Partner

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More on Parsec’s Investment Process

This week’s post will focus on some sample questions regarding how we buy and sell stocks.

 

Q:  What factors do you look at when selecting individual stocks?

A:  We review many different pieces of fundamental data as well as published research from a variety of sources.  We then combine and analyze this data in order to draw our own conclusions.  Once we add a company to our coverage universe, we monitor it daily and also review company news, earnings reports and SEC filings as needed. 

 

Q:  You bought XYZ Company and it went down.  Why don’t you sell it?

A:  Stock selection is not an exact science. Sometimes we review a company and the fundamentals look great, then it goes down anyway due to some piece of company-specific news or general market conditions.   In a diversified portfolio, something will virtually always be down.  We do not believe that a short-term adverse price movement by itself is a reason to sell if our investment conviction about a company has not changed.  Although it runs contrary to human nature, many times the right thing to do in the stock market is to not do anything.  We favor low turnover, since academic studies have repeatedly demonstrated that the more investors trade the worse they do. Frequent trading also drives up your transaction costs and creates short–term gains, which are taxed at higher rates.

 

Q:  What would cause Parsec to sell a particular stock?

A:  Sometimes it’s one reason, and sometimes it’s a combination of factors.  Deteriorating fundamentals, loss of confidence in management, increasing debt, declining margins are several potential reasons.  We also look at relative P/E, or the price earnings ratio of a particular stock relative to both the overall market and the company’s own historical range.  We prefer to buy stocks near the low end of the relative P/E range and sell them near the high end.  Our favorite reason to sell part or all of a position is to take profits.

 

Bill Hansen, CFA

Managing Partner

January 30, 2009

 

We have a correction to our most recent newsletter.  I had indicated the size of the upcoming fiscal stimulus program in the millions.  While I wish this was true, the package being debated is $825 billion, many apologies for this over-sight.

 

Rick Manske, CFP

Managing Partner

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Parsec Announces Zero Job Cuts

Parsec Financial, Asheville’s largest independent wealth management firm, announces zero job cuts as it navigates through the 2008-2009 recession. We started the year with 24 employees and we still have 24. Each one of those 24 is an individual whose job is very important to him or her and their family. Never in our 28 year history have we laid off a person for economic reasons.

This is the 14th recession since World War II. It is temporary and we’ll get through it. We are a financially solid, stable firm that is profitable and has very little debt. Clients of our firm, unlike those of many of our competitors, will not experience the discomfort of disruption of service that bankruptcies and mergers entail. Many major financial institutions have had massive layoffs and tremendous write-downs this year, but Parsec is retaining employees and remaining profitable.

Our motto is to always tell the truth; we offer smart, strategic, low cost advice from a locally-owned shareholder firm.

Bart Boyer, CFP®
CEO and Chairman

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