Mid-Year Update

Can you believe that six months of 2014 has passed? Television journalists have been busy keeping us informed of new all time’s highs and have hosted a continual parade of the bears predicating the big correction. The problem is that when the reality is good; the only way to get our attention is to say something different even if there is very little proven analysis to back up their doomy predictions.

 I use the following market conditions to remain levelheaded among all the noise. The first and the most important is valuation. Valuation is very tough to gauge in this environment. In the 1990s when stocks gave us about the same returns as they have this year you could buy treasuries to offset, but that does not exist today. Stocks are priced to have low returns but treasuries are priced to have no returns.

At the present there are various P/E models that attempt to give us what the valuation of the markets currently exhibit. My caveat with valuation is that holding a lot of cash based upon valuations alone can dramatically affect your performance. This is an example of market timing which I have yet to find any proven process for success.

The subject of monetary conditions for predicting the market is very difficult when the effective rates are zero. Historically, as rates go down stocks go up but it is hard to find in the last thirty years conditions where rates have stayed this low for this long.

The sentiment of individual investor is extremely perplexing. I have never seen a very health bull market so underappreciated as this one. However, sentiment is improving which suggest that the point of maximum optimism for this bull market occurred in January of this year and that correction risk is elevated. The point of maximum optimism doesn’t mean a bear market is looming, but it suggests that we are in the later stages of the bull market.

This bull market isn’t over, but the risk of notable corrections elevated. This does not mean we are going to crash but locking is some profits on extended positions is prudent and remain patient for the next opportunity. Since of process of rebalancing is a major point of our models we practice the profit taking is automatic.

Thanks

Bill

 

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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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