A quick look at this volatile week

Over the last two weeks the market decided to catch up; from no volatility to an unusual amount of volatility. Historically, it is not unusual to see this in September and October. However, we are just 3.5% off the all-time high of the S&P.  This is not a correction; that would take a 7 to 10 % drawdown. The fears that are bothering investors really have no basis. In fact, there are a lot more positives than negatives in the underling economy.

With a three day weekend coming up maybe this will give investors a chance to reevaluate their positions and redeploy cash into what is now a much oversold market. I will be sending out a more in-depth explanation of the current fate of the market Tuesday. With the 10 year note at 2.3% why would you want to not stay in stocks?


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A Mini Correction

The consolidation (which was expected) seems to be ending as I write this on Thursday afternoon. The minor pullback will be discussed as the week plays out. I even had a prospect call and see if we were getting out of the market because of the Ebola scare. All I know is stocks just got cheaper.

Historically, the fourth quarter has been very favorable for equities. In fact the S&P 500 has made more than half of the index gains over the past 25 years during the final three months of the year. Since 1989 the S&P is up 612% with 52% coming from the fourth quarter with the third quarter being the worst.

So here are three things that might make this a winning quarter:

  1. Sell in May goes the other way
  2. The Presidential Cycle
  3. The Santa Claus Rally

The S&P just extended is winning streak to seven straight quarters, and it’s reasonable to wonder just how long it can continue. Some investors are also worried that the Federal Reserve’s winding down its economic stimulus, or QE.

History is on our side and this pullback was needed.


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September Lessons

It is very easy for investors to become complacent with the returns experienced over the last twelve months. As we close out September we come back to the reality that volatility still exist and markets will fluctuate. Last week was an excellent example with 200 points swings in the Dow over a period of 48 hours. Many investors were asking last Thursday if this was the big correction. By Friday morning the tide and turned and the “never mind” seemed to be the conversation of the day.

So what did we learn? Volatility is not a bad thing and can present excellent buying opportunities. That a 200 point decline in percentage points is only about 2%; hardly a doom and gloom event. Timing a market is impossible. Just think how you would feel last Friday afternoon if you would have sold out on Thursday.

We are now entering the strongest part of the seasonality of markets. Remember the old saying of sell in May and buy after Labor Day? Also, we have the midterm elections and beginning of 18 months of political focus which has been historically positive for the markets. Therefore, this minor selloff is actually a positive if history is to be believed.


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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.




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Natural Behavior Discover Process

We are introducing a new program to learn more about the “financial behaviors” that affect our investment decisions and attitudes. We are sending a short quiz that would identify your personality traits and beliefs and create a report showing how they affect your approach to finances.


Please contact us to receive your Financial DNA Natural Behavior Discover Process questionnaires – one for each of you – to assess your “natural behavior.”  Completing this questionnaire is completely optional, but I hope you will each answer the questions and return them to me for analysis.  The Financial DNA system will take your answers and compile reports showing your individual results and compare your results as a couple.


The questionnaire is meant to be completed fairly quickly, within 15 to 30 minutes, so do not worry too long over any one question! There is no correct answer or passing grade. 

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Forty Years of Investor Mistakes: A Financial Advisor’s Guide to Avoiding Pitfalls



Amazon has my book up for presale! The Amazon blurb reads:

“TOOLS TO DEVELOP A LIFELONG INCOME, FREE OF FEAR IN HIS FORTY YEARS AS A FINANCIAL AND RETIREMENT ADVISOR, Bill Riley has seen it all. He has seen his industry neglect the very people it purports to serve. Riley has a better way. And in Forty Years of Investor Mistakes he shares what you need to know now – before it’s too late. Riley wants to spare you the mistakes that he oft en sees among people preparing for retirement – or who already are there. Those mistakes can turn dreams into drudgery, as so many retirees learned so well in recent years, as their proud portfolios dwindled. It didn’t have to be that way. Riley understands how troubling this new phase of life can be, but he also knows you deserve the fulfillment you worked so hard to attain. He has helped countless clients make the most of their savings and develop a lifelong income, free of fear, so they can reach their goals confidently. In fact, it all starts with goals. He does far more than analyze your finances. He gets inside your head. For what purpose did you save that money? Riley focuses first on helping you figure out where you are going with your life – because it’s only when you see that destination that he can best help you get there. Along the way, Riley will make sure you have enough to live well, day by day. With discipline and dedication to fundamentals, he can keep you out of trouble in tough economic times and help you to flourish in the good times. He rallies decades of experience and teamwork to create a retirement plan designed just for you. In Forty Years of Investor Mistakes Bill Riley shows you the better way – the culture of caring, as he calls it. He brings you the kind of retirement planning that will help you to live well, sleep well, and preserve your legacy for generations to come.” 

If you would like to purchase an advance copy please visit Amazon

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Where do you think this Market is going?

I am asked this question several times a week. Since I adjust to the market and do not predict it, let me give you a possible scenario. Volatility has returned, the S&P 500 has fallen more than 4% and the doomsayers and short sellers are expounding that the bubble has burst.

Now that we are back to within 1% of its all-time high their calls have been somewhat muted. I have no intention of trying to market time but I believe this market has a long way to run before the bulls stop making money.

There is no doubt that this bull market is getting mature and I don’t see a retirement plan for the bull forthcoming. The bull is now some 63 months old. That is longer than nine of the 15 bull markets since 1871.

However, it still has five more months to go until it is average in terms of length-and 41 months before it reaches the post-World War II average. Bull markets have been getting longer since the end of the War-a lot longer. Starting with the   beginning in1949, bull markets have lasted an average of 104 months or nearly 9 years. The current 5 years doesn’t seem so old, does it? There has been seven bull markets (including this one) since 1949 and the current one only places seventh in terms of length.

From the low in 2009 at 66.79, to the all-time high of 1897.28, the S&P has risen 185%. That is above the 163% average since 1871. However, the modern bull (since the end of WWII) has averaged 259% gains.

Three bull markets gained less than 100% while the other three were up 391%,414% and 516%, respectfully. Could the fact that the current one broke through the 100% barrier mean that it’s headed significantly higher?

This is just an observation but if the market simply performed according to ache average modern day bull market, it would last another 3 ½ years and rise 74%.


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