U.S. bull market:“Long-in-the-tooth”? • pg. 7

TechnologyGood for business • pg. 3

Market philosophydrives active management pg. 4

September 11, 2014 | Volume 3 | Issue 11

First magazine focused on active investment management

Jong OhAssetprotectionthat leavesa legacypg. 8

to customizing financial planning soft-

ware with enhanced client access. Small

things like eliminating steps in data

entry can add up to many hours saved

across our entire client base.

I plan to get more active with social

media, with compliant-friendly broad

Twitter messaging that can then be

tailored to our practice. There is also

a data-mining program to scan social

media ‘news’ of clients or prospects

to create timely CRM messaging. For

example, if the system alerts me that

Client X just announced a new grand-

child on Facebook, I will be able to

personally follow that up with an

email or phone call.”

think it is important to take

advantage of any edge that

technology can provide, especially with

younger clients who are tech-savvy.

This can cover virtually all areas of the

practice.

We completed a website redesign

and are using the developer’s sugges-

tions on how to move higher in local

Google rankings. I also partner with

a third-party endorser for prospect-

ing leads through an Internet-based

program. I use another provider for

market commentary for my newslet-

ter—pushed out electronically to cli-

ents and prospects. There are other rel-

atively simple technologies to use with

clients, like virtual meeting platforms

for presentations or webinars, or web-

based CRM that can integrate with

financial planning software. I have

started using the voice recognition

feature on my smartphone to record

quick notes right after client review

meetings.

Our broker/dealer, WRP Investments,

Inc., recently announced that they

would be combining forces with Sterne

Agee Financial Services, Inc. Working

together, they will have a very robust

technology group that can help with

everything from more streamlined port-

folio or strategy comparisons, to single

e-signatures for multiple documents,

Technology enhances firmand client communications

Rich RalstonPensacola, FL

WRP Investments, Inc.Parkway Financial Group

I“

Richard Ralston is a Registered Representative and Investment Advisor Representatives of, and offers securities and advisory services through WRP Investments, Inc., member FINRA and SIPC. Securities and advisory services are supervised by WRP Investments, Inc. from 4407 Belmont Ave., Youngstown OH 44505, (330) 759-2023. Parkway Financial Group is not affiliated with WRP Investments, Inc.

Last week’s results

VIEWER RESPONSE

How have you found employees in the last three years?

Vote to see results

This week’s poll

What percentage of Americans are interested in receiving financial advice?

Good old word-of-mouth is still how most jobs are filled. More financial advisors have found new employees through referrals from outside sources and other employees.

0% 0%0%

Referrals from other employees

Through college placements

Internet advertising

Read text only

VOTE20%35%50%More than 65%

Referrals from outside sources

LinkedIn

0%

100%

September 11, 2014 | proactiveadvisormagazine.com 3

TIPS & TOOLSPOLLS

Active management comes in different varieties—from traditional market timing, to dynamic asset allocation, core and satellite strategies, absolute return, sector rotation and as many variations on the theme as there are ways to build an investment portfolio. But ultimately, every approach starts with a philosophy of how financial markets work.

How does the portfolio manager arrive at his or her market philosophy? Like most aspects of investing, there is no absolute right or wrong approach. Active asset man-agers have seen an explosion in computing power over the past twenty years, affording an unimagined level of sophistication in modelling, backtesting, algorithms, and da-ta-driven portfolio management. But active management still must start with a “market philosophy”—and a variety of “timeless” analytical tools can be used to help managers in strategy development consistent with that philosophy.

Read text only

Market Philosophy Where active management begins

How do you get there

from here? 10 analytical

approaches to the

investment decision.

By Linda Ferentchak

proactiveadvisormagazine.com | September 11, 20144

Here is a look at ten broad analytical approaches that underlie much of active management:

(1) Fundamental approaches have a fore-casting aspect and look at valuation measures, earnings growth, dividend projections, market opportunities and more to identify sectors, geo-graphic markets, or individual securities that can be expected to increase in value, preferably faster than the market as a whole. A fundamen-tal approach may also consider the economic or business cycle to assess which asset classes or sectors will benefit from current and upcoming market conditions. When active managers use fundamental analysis, it is typically blended with market data-based tools.

(2) Pattern recognition is among the oldest of the active investment approaches and includes charting techniques such as candlesticks, head and shoulders formations, multiple bottoms, and price support and resistance. Data analysis is used largely to identify patterns today, but there remains an art to successful pattern rec-ognition. Financial markets don’t always play out the same way or in the same time frame. Nevertheless, there are investment managers who have been and are extremely successful with this approach. (see Chart A)

(3) Trend following uses tools, such as moving averages, to determine when a market or market segment is in an up or down trend to position assets accordingly. This approach tends to work best when the market is making a sustained directional move and falters in “trading range” markets. Buy and sell signals also frequently lag market tops and bottoms, making the approach vulnerable to whipsaws. The Golden Cross, when a short-term moving average crosses a long-term moving average, is a classic trend-following indicator. (see Chart B)

to have high relative strength rankings before major price moves. Investments with failing relative strength indicate weakening prices and time to move on. This approach is very differ-ent than one that espouses buying “dips” when prices are falling.

(5) Momentum investing targets investments that are gaining in value faster than competing investments. Chicago money manager Richard Driehaus, widely considered the father of momentum investing, maintained “far more money is made buying high and selling at even higher prices.”  Buying stocks simply because they have risen in price may seem simplistic, but numerous academic studies have shown that it can work very effectively. Momentum analysis is also used to identify whether a sector, index, asset class, or geographic market is in a buy or sell mode.

(6) Overextended/mean reversion analysis strives to determine the difference between normal and “extreme” behavior, i.e. when investors overreact to market information, creating a “bubble” effect. These strategies are based on mean reversion—the tendency of financial markets and investments to return to average values. Typically considered contrarian investment approaches, overextended strategies require taking positions that conflict with the current market mood or direction. They are vulnerable to being too early in entering or exiting market moves and tend to have their greatest effectiveness in trading range markets.

(7) Behavioral finance  is a relatively new field that seeks to anticipate market direction by understanding why and how people make financial decisions. Crowd psychology and sentiment-tracking play a strong role in this

continue on pg. 11

Active asset managers have seen an explosion in computing power

over the past twenty years, affording an unimagined level of sophistication.

Daily

DailySMA (50)

SMA (100)

Chart A: AT&T Double Bottom in February-March, 2014. Two prices testing the same level may indicate a stock or index has reached either a top or bottom.

Chart B: AT&T Golden Cross in April 2014, where the 50-day SMA crosses the 100-day SMA.

(4) Relative strength investment approaches strive to target market leaders by comparing the percentage change in price for a sector or secu-rity over a set number of market days to other investment options. Short-, intermediate- and long-term rankings may be used. Leaders tend

September 11, 2014 | proactiveadvisormagazine.com 5

5000

4000

3000

2000

1000

-1000

0

1928 2014Bull/Bear Markets Since 1928

Leng

th (D

ays)

of

Bul

l/B

ear

Mar

kets

Bull Market Modern Market ReferenceBear Market

U.S. bull market “long-in-the-tooth”—or is it?

ot only has the S&P 500 closed above the 2000 mark for the first time recently, the U.S. equity

bull market has exceeded its 2000th day. The current bull market now ranks 4th in terms of length (as well as strength) and, with a gain approaching 200% at the end of last week (9/5), is just about double the average bull market gain of 105.3%.

Bull and bear markets are determined by a 20% gain or fall in price. For that reason, many count the current bull market as starting March 9, 2009. However, this

N

Source: Bespoke Investment Group

point of view discounts the fact that in 2011 the broad S&P 500 Index did fall 19.4% from market close to market close, and on an intraday high to intraday low basis the decline was 21.6%. So, if one counts the age of the bull rally from the October 3, 2011 bottom instead of 2009, the current bull market is only 1067 days old. Rather than ranking 4th in longevity, it would only rank 9th.

No matter which date one settles on for the current bull, it is a fact that the typical bull/bear market cycle has lengthened

over time, as seen in the chart below. Bespoke Investment Group observes, “Early on for the S&P, when the U.S. was still a developing country, bull and bear markets occurred much more frequently. As the economy and therefore the market has developed and matured, the bull/bear market volatility has decreased much in the same way a low-market cap growth stock grows into a big blue-chip.” (Note: the accompanying chart shows the start date for the current bull as 2009.)

Read text only

LENGTH OF BULL AND BEAR MARKETS FOR THE S&P 500 SINCE 1928

7September 11, 2014 | proactiveadvisormagazine.com

TOPPING THE CHARTS

Jong Oh

Life Member, Million Dollar Round Table

Member, Ed Slott’s Elite IRA Advisor Group

BS, Biology, Eastern University

Married and mother to four children

Read text only

Jong Oh Asset

protectionthat leaves

a legacyBy David WismerPhotography by Michael Branscom

8 proactiveadvisormagazine.com | September 11, 2014

Proactive Advisor Magazine: What motivated you to get into the advisory business?

Jong Oh: Originally from Korea, I attended college here in the U.S. and have been a resi-dent for over 40 years. I received a tremendous opportunity to build my own business and I want to pay that back to the Korean-American community. Working as a financial advisor allows me to do that.

How did your career progress?

After college, where I studied the sciences, I decided to switch paths and entered the insurance business. It was a natural thing over time to evolve into a full financial planning and investment advisory practice.

After a lot of hard work, licensing, and training, I eventually started my own practice in 2000 called Professional Insurance and Financial Services. My kids think that is a pretty corny name, but I think it reflects what is important to me and my clients. I want to provide top-notch and professional products and services to all of my clients.

Can you tell me a little about your client base?

My business is 99.9% based on referrals. My clients come from all walks of life but there are two main types. I have quite a few affluent pro-fessionals, especially in the medical field, and I have many small business owners of Korean descent. But my practice is not limited in any way and I welcome every client.

Is there a cultural distinction with your Korean-American clients?

Yes, definitely. I can say that just about all of my clients have sacrificed a lot to get where they are today. It is part of the culture to want to protect what you have and to leave a legacy for your children and their children. Koreans tend

to be frugal and are very concerned with saving what they have earned.

There are also some beliefs of older gen-erations of Koreans that are old-fashioned, but have to be dealt with. Some people are superstitious about life insurance, thinking it is bad luck. And many people grew up with a dis-trust of trying to get advice from big financial institutions, more due to the language barrier than anything else. So a lot of people were used to managing their own money, either through investing in their businesses or just keeping it in bank accounts or CDs. They also do not like to owe anyone money, so paying off a mortgage is very important.

Have those attitudes had an influence on how you run your practice?

The biggest thing is to try and quickly es-tablish a relationship built around trust. Using another aspect of Korean culture, I tell clients that I am like a matchmaker. I am trying to find the best match between their dreams and vision for the future and ways to make their wealth grow. I also emphasize that one of my important goals is to help them transfer their assets to the next generation in a tax-efficient way. They can relate to that.

How about in terms of your overall investment philosophy?

That also plays into the cultural distinctions. I am a conservative investor myself. But I have always been open to learning about new meth-ods and communicating those to my clients.

You cannot stay ahead of inflation by parking your money in cash accounts and CDs. When I learned more about active money management, I became a convert.

A lot of my clients saw what traditional asset management did to people’s investment accounts in 2001 and 2008, even if they were not invested in stocks themselves. They are fearful about the markets—telling me that a return of zero is better than a 30% loss of their assets. Having actively risk-managed accounts is a way I can help them overcome this fear.

Please explain.

How do I deal with market risk and my cli-ents’ fear of the markets? That is my dilemma—and active management provides the solution.

The world is changing fast and is so unpre-dictable. The markets can be volatile, but we need to find ways to beat inflation over the long-term. An active money management approach gives me the confidence that my clients’ money is being watched over constantly by professionals in ways that I could never do myself.

continue on pg. 10

“It is part of the culture to want to protect what you have and to leave a legacy

for your children andtheir children.”

In a tightly knit community in suburban Philadelphia, three generations of Korean-Americans trust Jong Oh to help them protect their assets. Leaving a legacy for their children and grandchildren requires hard work and sacrifice—and managing investment risk.

September 11, 2014 | proactiveadvisormagazine.com 9

M U LT I - M A R K E T+

MULTI-STRATEGY+

MULTI-MANAGER

One p rtfolioD Y N A M I C A L LY R I S K - M A N A G E D

L E A R N M O R E

Past performance does not guarantee future results.

The opportunity for profits

carries with it the possibility of losses.

800-347-3539 | flexibleplan.com

A complete list of all of our recommendations over the last 12 months and Brochure Form ADV Part 2A are available upon request.

When there are changes in market condi-tions, third-party managers can use their process, systems, and strategies to manage risk. And so my goal, like that of my clients, is not to chase the highest returns, but to provide returns that will outperform the most conservative investments over time. We want to leverage and compound fairly slow and steady returns year after year. This works well with the attitudes of the majority of my clients.

How do you explain the concept of active risk management to clients?

I evaluate each client’s risk profile and walk them through the process. While we have some sophisticated tools for that, it also has to be broken down into real terms that can be easily understood.

I will take their investable assets and literally write down what a loss of 20, 30 or 40% might mean to their portfolios in actual dollar terms. I also explain how if one takes a 40% loss to a portfolio, it takes far more than a 40% gain to make it up.

Through this give and take, I can explain the balance between risk and return, and the fact that going for the highest returns with no risk management might take them to a place they do not want to be. The account actively managed over many years should be a better choice—for their comfort level and their returns, rather than trying to ride out the highest highs and lowest lows of pure market returns.

I also stress that the approach I use is very well-diversified. With active management, we are not just diversified with stocks, but with dif-ferent asset classes and strategies both in equities and within asset classes.

Overall, while it takes some explanation, this is an investment approach that fits in very nicely with the needs of my clients, though it is not the only tool I use for managing assets. My clients are not looking to take big chances with their assets, their retirement, or their legacies. The focus of active money management on controlling risk and volatility works well for meeting the needs of my clients.

continued from pg. 9

Jong Oh is a Financial Advisor with Professional Insurance & Financial Services (PIFS) in Blue Bell, PA.

Securities and advisory services offered through FSC Securities Corporation, member FINRA/SIPC. Insurance services offered through PIFS, which is not affiliated with FSC Securities Corporation.

10 proactiveadvisormagazine.com | September 11, 2014

There can be no assurance that any investment product will achieve its investment objective(s). There are risks associated with investing, including the entire loss of principal invested. Investing involves market risk. The investment return and principal value of any investment product will fluctuate with changes in market conditions. Guggenheim Investments represents the investment management businesses of Gug-genheim Partners, LLC. Securities offered through Guggenheim Funds Distributors, LLC. Guggenheim Funds Distributors, LLC is affiliated with Guggenheim Partners, LLC. x0515 #12526

Uncover the True Cost of Trading Mutual Funds and ETFs

The reflexive perception that ETFs cost less, simply based on their low expense ratios, and are more cost-effective than mutual funds, is not entirely true. In addition to an expense ratio, there are additional considerations that should be considered when making an informed choice between ETFs and funds— including spreads and commissions. This informative white paper from Rydex Funds provides an in-depth look at the cost of ownership of no-transaction-fee (NTF) mutual funds and ETFs—with a focus on active investing strategies.

Request your free copy.Call 630.505.3749 or visit guggenheiminvestments.com/rydex

Chicago | New York City | Santa Monica

Rydex Funds

A Comparison of ETFs and Mutual Funds—The True Cost of Investing

approach. Behavioral finance approaches tend to seek assets that are mispriced because of irrational tendencies such as following crowds or overreaction to market fluctuations.

(8) Seasonality is an approach to the market that looks not at what the market is doing but what day it is, or in the case of the Presidential Cycle, which year of the president’s four-year term it is. Hulbert Financial Digest maintained in 2003 that the market timing system with the best 20-year record, gaining 13.5% an-nualized, was Norman Fosback’s Seasonality Trading System. A variety of seasonal analytical approaches can be employed depending on the asset class.

(9) Cyclical models are based on the concept that any data series is made up of many repet-itive waves of varying length and amplitudes acting simultaneously. Fourier Analysis and Elliott Wave Theory are two examples. Elliott Wave theory maintains that stock market trends unfold in five waves, three upward pointing, and minor waves that serve as intermediary

corrections. Once a five-wave move is finished in one direction, the market makes a large-sized move in the opposite direction that corrects the entire prior sequence of five waves. Knowing where the market is in the cycle, tells the inves-tor when to go long and then sell or to short a position.

Variations on the themes described above and unique investment systems abound in the financial industry, limited only by the variety of ways individuals view the financial markets. Active investment management strategies may blend elements of many different analytical approaches in a single strategy. There is also a growing emphasis toward moving away from a single all-in-one strategy to an approach, instead, of allocating among analytical ap-proaches based on which individual or blended approaches are producing the best performance in current market conditions.

Keep in mind that these are just some of the basic tools used by active managers to effectuate their market philosophy. Because the investment field attracts some of the best and brightest analytical minds, new and different ways of looking at the financial markets are continually emerging—all with the essential mission of producing strategies with favorable risk/reward relationships.

continued from pg. 5

Active investment management strategies may blend elements of

many different analytical approaches in a single strategy.

(10) Divergence indicators encompass a broad range of market data from the ratio of stocks advancing compared to stocks declining, put call options, volatility, earnings projections, and more with the objective of looking for when these indicators diverge from their norms, given the market’s current action. When the indicator diverges from its typical pattern, it’s a flag to look for confirmation in other indicators.

11September 11, 2014 | proactiveadvisormagazine.com

The opinions and forecasts expressed herein are those of the author and may not actually come to pass. Any opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. The analysis and information in this edition and on our website is for informational purposes only. No part of the material presented in this edition or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any portfolio constitutes a solicitation to purchase or sell securities or any investment program.

EditorDavid Wismer

Associate EditorElizabeth Whitley

Contributing WritersLinda Ferentchak

David Wismer

Graphic DesignerTravis Bramble

Contributing PhotographerMichael Branscom

September 11, 2014Volume 3 | Issue 11

Proactive Advisor Magazine is dedicated to promoting and educating on active investment management. Distribution reaches a wide audience of financial professionals who advise clients on investments and portfolio management. Each issue features an experienced investment advisor who offers insights on active money management, client service, and investment approaches. Additionally, Proactive Advisor Magazine offers an up-close look at a topic with current relevance to the field of active management.

Advertising proactiveadvisormagazine.com/advertising

Reprintsproactiveadvisormagazine.com/reprints

Contactproactiveadvisormagazine.com/contact

Proactive Advisor MagazineCopyright 2014 © Dynamic Performance Publishing, Inc. All rights reserved. Reproduction of printed form, whole or in part, without permission is prohibited.

Performance nonsense: Why past performance is a poor indicator and how to do better An argument for avoiding the performance trap and showing responsibility in managing risk to really protect the client’s portfolio.

How advisors can become thought leadersThought leadership is, unquestionably, one of the most

powerful and cost-effective business development strategies for most financial professionals.

When “mean” means “nice” for stock bullsCan the premium in stock earnings yields over Treasury rates persist?

Financial advisors have mixed record with client 401(k)s

Americans with financial advisors typically make higher contributions to 401(k) retirement plans and generally have clearer financial goals

than their peers—but many advisors need to do much more.

Warning to wealth managers: “Don’t be creepy”

Advisors need to be careful with how they use advances in data-mining for their messaging to prospects—especially

when it comes to personal data.

Why a market correction now would be best scenario for bullsWhy a normal (and overdue) correction now, to cool off stock valuations and investor euphoria, may help postpone the next bear market.

Stay connected

12

L NKS WEEK