The Lack of Animal Sprits

The retail investor is still like a “deer in the headlights” frozen in what action to take in their portfolios. Bond buyers exist and cash tends to be the largest allocation in most portfolios.

I can remember when the Dow Jones hit 1,000 and investors were saying the market was too high. Again at 10,000 everyone was celebrating and then getting out of the market. I have always judged markets reaching all-time highs by applying the Rule of 20. The Rule of 20 states that when you use 20 as a high P/E threshold then subtracting the current inflation rate (which is really about 2.8 %) you get the reality Price/Earnings (currently roughly 17.2). That is where the P/E of the S&P should be but we are at 14.8 by most calculations. That means that the market still has room to run.

Valuation and Monetary Supply are two very important factors in valuating markets and both of these are still very positive. What we need is as excuse for the high degree of cash to find its way back into the market and that may be a small correction to get the “markets to high group” back in the game.

Thanks for reading and would welcome your views.



About billriley

Chief Executive Officer, Chief Compliance Officer A co-founder and shareholder, William Riley is a 33 year industry veteran, who observed, many years ago, that over time institutional investors typically outperform individual investors while accepting less risk. In his role as Chief Executive Officer, Bill works tirelessly to make the wealth management strategies used by the world’s wealthiest families and largest institutions available to our firm’s individual clients. Bill combines fundamental and technical analysis to minimize investment portfolio risk and maximize potential returns. He uses a variety of non-correlated asset classes, including alternative investments, to minimize portfolio volatility and seek absolute returns in down or flat markets. Finally, Bill believes in a comprehensive approach to wealth management that fully coordinates and seamlessly integrates portfolio management, risk management and asset protection, trust, estate, tax and charitable planning. Prior to co-founding Riley Wealth Management ,LLC, Bill held management positions at Merrill Lynch, UBS, Raymond James, Paine Webber and J.C. Bradford. Bill founded Fort Worth branches for Raymond James and J.C. Bradford. Prior to entering the financial services industry, Bill ran his families closely held businesses. Bill’s experience operating family businesses combined with his wealth management experience makes him uniquely qualified to advise entrepreneurs and business owners on a variety of matters including complex and sensitive issues relating to business succession. Bill’s degrees and designations included a Masters Degree in Business Administration (MBA), the Chartered Financial Consultant designation (ChFC), the Chartered Life Underwriter designation (CLU) and the Wealth Management Specialist designation (WMS). A Fort Worth native, Bill is a TCU alum and active in many civic and charitable organizations. Bill and his wife, Marsha, now reside in Colleyville, and they have four grown children and four grandchildren. When he is not working on portfolios or studying financial markets, Bill can be found on the golf courses of Ridglea Country Club.
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