Jay Blanchard • NEXT Financial Group, Inc. - Tackling the herd through sentiment indicators by Linda Ferentchak - Conflicting data adds to market uncertainty - Social Security strategies as prospect "hot buttons" (Richard D'Ambola, Questar Capital Corporation)

1. Data fuels market
uncertainty pg. 7
Social Security
strategies pg. 3
Sentiment indicators
track the herd pg. 4
Ready
climb
pg. 8
Jay blanchard
August 7, 2014 | Volume 3 | Issue 6
First magazine focused on active investment management

3. $50,000 a year. We were able to show
them a filing strategy that would
result in a $20,000 annual increase in
income when both were age 70, all of
this within government guidelines.
This is not rocket science once
you fully understand the statutes and
the many options available. But the
key points are how few clients and
prospects understand it, how un-
der-marketed the knowledge is, and
how powerful a draw it can be for en-
tering into important conversations
with prospects.”
ver the past few years, it
has become increasingly
difficult to differentiate advisory ser-
vices holding seminars for pre-retirees
and retirees. Conducting these semi-
nars is important because they can lead
to meetings where we give prospects a
‘second opinion’ on their planning and
investment strategies and introduce
core concepts of our practice such as
active investment management.
About a year ago, we shifted our
seminar strategy to lead with Social
Security filing strategies. This has
been very successful in generating
attendance and having follow-up
conversations.
We feel this area is overlooked by
many advisors and people are hungry
for information. The complexities of
Social Security can have a real impact
on retirees’ income streams and sur-
vivor benefits, and people find tre-
mendous value when a professional
can help them navigate it.
Here is one example: A man and
his wife came in for a meeting after
a seminar and had been planning a
pretty standard claiming strategy at
age 66, taking full benefits at about
Social Security strategies
as prospect “hot button”
Richard D’Ambola
Succasunna, NJ
Questar Capital Corporation
Senior Financial Planner,
Dunn’s Financial Review, Inc.
O“
Securities offered through Questar Capital Corporation (QCC), Member FINRA, SIPC. Advisory Services offered through Questar Asset
Management (QAM), a Registered Investment Advisor. Dunn’s Financial Review is independent of QCC and QAM.
Read text only
Last week’s results
VIEWER RESPONSE
Approximately how much of your
time is spent on administrative/
regulatory compliance tasks?
-Vote to see results
This week’s poll
78% of younger investors
say their relationship with
their financial advisor is
enhanced by:
Answer: About 20%.
On average, financial advisors spent
one in every five hours of their time
on administrative/regulatory compli-
ance tasks.
Source: NATIXIS/Core Data Research
2013 Global Survey of Financial
Advisors
0%
40%
30%30%
10%
20%
30%
40% or more
POLLS
VOTE
Technology
Face-to-face meetings
Regular mailings
August 7, 2014 | proactiveadvisormagazine.com 3
TIPS & TOOLS

4. ne of the more fascinating elements
of market analysis is sentiment or the
behavior of the crowd and its impact
on the market cycle.
According to the Efficient Market Theory, it
is impossible to “beat the market.” The efficien-
cy of the market causes existing share prices to
incorporate and reflect all relevant information
as soon as that information becomes known.
There’s no room for pricing inefficiencies that
an investor might exploit.
There is a tremendous appeal to the Efficient
Market Theory. It’s logical and it doesn’t
demand much from us as investors, because it
clearly says there is little we can do other than
ride the market.
The problem is that according to the
theory, market bubbles, i.e., inefficiencies,
should not occur. But they do. While there
have been market crashes due to external
factors, such as the outbreak of war, bubble
markets by and large are emotionally driven.
Emotions are messy. They are hard to calculate,
hard to predict and inconsistent. And they matter.
The quote above is from the preface of
the 1852 edition of Extraordinary Popular
Delusions and the Madness of Crowds,
originally published in 1841. The author,
Charles Mackay, chronicles some of the
most extraordinary market bubbles of
history, including the Mississippi Scheme,
the South Sea Bubble and “Tulip Mania,”
along with other manias from fads to
Read text only
Tracking the herd
through sentiment indicators
O
By Linda Ferentchak
“Men, it has been well said,
think in herds; it will be seen that they
go mad in herds, while they only recover
their senses slowly, one by one.”
– Charles Mackay, Extraordinary Popular
Delusions and the Madness of Crowds
proactiveadvisormagazine.com | August 7, 20144

5. national delusions. Look closely and their
resemblance to modern times is striking.
Something happens when crowd sentiment
moves toward the extremes. Markets cease
to react logically to information and become
part of the stampeding herd.
The chart from Ned Davis Research
(NDR) shows the relationship of sentiment
to market gains and losses. When sentiment
reaches an extreme, based on historical anal-
ysis of financial markets, a change in market
direction typically follows.
And that presents investors with a challenge.
(1) If the investor believes over-optimism is
fueling the market’s rise, does he step out of the
market until the froth has settled with the goal
of buying back in at the subsequent bottom, or
does he participate with the goal of cashing out
when the market shows signs of reversing?
(2) How does an investor know when the
end may be in sight?
There are numerous mathematical indicators
from overbought/oversold to pattern recogni-
tion, cycle analysis, and more that are used to
determine when the market is overvalued or
undervalued. They are logical, objective and
measureable tools for establishing buy and sell
signals. But using these indicators as a buy or sell
signal has a major vulnerability summed up very
well by the statement, “The market can remain
illogical longer than you or I can remain solvent.”
Sentiment is a way to approach the illogical
aspects of market volatility. Sentiment is a
contrarian indicator. When sentiment reaches
an extreme, it typically indicates a turning
point is at hand.
Sentiment indicators are often used to
adjust the sensitivity of an active management
buy or sell signal. The challenge of active man-
agement is accurately determining a change in
the market’s direction as early in the cycle as
possible. Make the wrong call and a whipsaw
trade may occur. Move too slowly and the man-
ager could miss participating in market gains or
ride a decline down. When the manager knows
market sentiment is not in extreme territory,
there may be more room to tolerate volatility.
At extreme sentiment levels, more hair-trigger
trading signals may be appropriate.
Some of the more common sentiment indi-
cators are produced from consumer and investor
surveys, such as the University of Michigan and
continue on pg. 11
(DAVIS265)
Daily Data 1/03/2006 - 8/04/2014 (Log Scale)
Standard & Poor's 500 Index
Gain/Annum When:
Signal Dates 12/30/1994 - 8/04/2014
Gain/ %
Composite Sentiment is Annum of Time
Above 62.5 -10.3 28.7
41.5 - 62.5 7.2 44.8
* Below 41.5 31.9 26.5
Standard & Poor's 500 Index
Gain/Annum When:
Signal Dates 1/03/2006 - 8/04/2014
Gain/ %
Composite Sentiment is Annum of Time
Above 62.5 -9.6 31.3
41.5 - 62.5 0.6 41.1
* Below 41.5 32.7 27.7
Source: S&P Dow Jones Indices700
741
784
829
877
928
982
1039
1099
1163
1230
1302
1377
1457
1542
1631
1726
1826
1932
700
741
784
829
877
928
982
1039
1099
1163
1230
1302
1377
1457
1542
1631
1726
1826
1932
8/04/2014 = 30.0
Excessive Optimism
Extreme Pessimism
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
2006
M J S D
2007
M J S D
2008
M J S D
2009
M J S D
2010
M J S D
2011
M J S D
2012
M J S D
2013
M J S D
2014
M J
Standard & Poor's 500 Index
NDR Daily Trading Sentiment Composite
Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
.www.ndr.com/vendorinfo/. For data vendor disclaimers refer towww.ndr.com/copyright.htmlSee NDR Disclaimer at
©
August 7, 2014 | proactiveadvisormagazine.com 5

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7. 1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
04/01 06/02 08/03 10/04 12/05 02/07 04/08 06/09 08/10 10/11 12/12 02/14
0.7%
Conflicting data adds
to market uncertainty
ast week was notable for the sheer
number of economic reports, as
well as some very conflicting data
points. Throw in the continuation
of earnings season, ongoing geopolitical
concerns, a Fed statement, and the
financial issues emanating from Argentina
and Portugal, and traders had much to
ponder.
The reaction was not pretty, with the
S&P 500 having its worse week since June
2012—down -2.7% and moving below its
50-day moving average for the first time
since April—and the DJIA slipping into
negative territory for the year (as of Friday,
8/1).
Bespoke Investment Group remarked of
the week, “All told, the data dump seemed
to contribute to volatility as the markets
had a very hard time sorting out the
implications of conflicting signals coming
from business activity, consumer demand,
labor market slack, price pressures, and the
housing market.”
On the plus side, Q2 GDP registered
a preliminary reading of +4.0%, surpassing
expectations of 3.0% growth in the
quarter. The Conference Board’s measure
of Consumer Confidence also surprised to
the upside, as did the ISM Manufacturing
report. On the other side of the ledger,
the Chicago PMI reading was very weak,
coming in at 52.6 versus expectations
of 63.0, the biggest “miss” since 2005.
L
Lukewarm housing-related and labor
market reports added to the mixed picture.
The Fed statement continued to point
toward an improving economy, but not
enough so to justify an acceleration in
the expected timing of interest rate hikes.
The Fed also reiterated its intention to
reduce bond buying in “further measured
steps” and to keep interest rates low for a
“considerable time” after ending purchases.
The market sell-off last week was largely
attributed to macro global concerns and
hints that inflation might be picking up
more rapidly than anticipated—forcing the
Fed into action at an earlier date. Part of the
Fedstatementacknowledgedthis,sayingthe
committee now judges that “the likelihood
of inflation running persistently below two
percent has diminished somewhat.”
One component of this argument
can be found in the chart above, which
notes the increase in the Employment
Cost Index. The ECI, from the Bureau of
Labor Statistics, measures the total cost of
employment. The 0.7% increase quarter-
over-quarter (which translates to 2.5%
annualized) was a significant increase.
According to Bespoke, this spike in the
quarterly reading may indicate good news
in the future for Main Street wage earners,
but potentially “bad news for Wall Street
as corporations would be faced with higher
cost of labor and input costs.”
EMPLOYMENT COST INDEX: QUARTERLY CHANGE
Source: Bespoke Investment Group
August 7, 2014 | proactiveadvisormagazine.com 7
TOPPING THE CHARTS
Read text only

8. Read text only
plans in case of tumultuous times in the econ-
omy or the markets.”
Can you expand on that?
Well, you don’t start thinking about what
to do when the wings are on fire in a jet …
you should know that already. Same thing with
investments in terms of having active strategies
that are already prepared to react to changes in
market conditions.
Over the last thirteen years we have had two
50% crashes in the market. There is no reason
to think that cannot happen again, no matter
Proactive Advisor Magazine: Jay, you
left the Air Force as a captain and
specialist with satellite communications.
Does anything from that experience
apply to your work as an advisor?
Jay Blanchard: Here is what I tell clients:
“I’m an old Air Force officer. I did get to fly,
though I wasn’t a pilot. The Air Force teaches
the importance of emergency training first.
We were taught how to exit the aircraft very
quickly in case of emergency or even to eject.
Investments are much like that in that we
always need to be prepared with contingency
While retirement may be
an uphill climb for many,
Jay Blanchard applies
active management to
prepare his clients for
the inevitable hills and
valleys of investing.
Ready
climb
Jay blanchard
By david Wismer
8 proactiveadvisormagazine.com | August 7, 2014

9. how well the market is behaving today—and
especially with many big, troubling issues here
at home and abroad.
I am a proactive advisor and not one to
sit and wait. We build into our strategies risk
mitigation, which is especially important
for the retirees and pre-retirees we primarily
work with. People have been told over and
over again that you cannot time the market.
I believe part of that is true, in the sense that
over a very long period of time the market
will mean revert back to its historical averages
and trends. But it is untrue that you cannot
employ strategies to avoid risk and those
major hits to your portfolio. Why wouldn’t
you use strategies that could do that on behalf
of your clients?
How did you first become interested in
active management?
This has been a process that has occurred
over many years. As you see from my back-
ground, I have always been very scientifically-
minded and hyper-inquisitive. The investment
world has been saying for years that buy-and-
hold and traditional allocation models are the
best solutions to investment management.
When you see the pain first-hand that has
been inflicted on people’s portfolios through
these crashes, and the lingering aftereffects, how
can a rational person accept that “solution” as
the only answer? So I have sought out alterna-
tive tactical and risk-managed strategies over the
years and have found some excellent third-party
managers employing those strategies.
Can you talk about the process of intro-
ducing active management to clients?
Certainly, but let me qualify a few things
first. We offer a holistic view of financial
planning to clients so that discussion does not
happen in a vacuum. It is one part of a bigger
discussion around planning issues having to do
with a client’s future needs, goals, and aspira-
tions. And it has to take place within a deep
dive into the very practical matters of taxation,
college planning, expense management, long-
term care, insurance, etc.
It is also colored by their appetite for risk and
what makes the most sense in terms of allocations
between the big buckets of strategic, tactical and
guaranteed investment strategies. I like to keep
that discussion as jargon-free as possible, because
what client can really relate to a phrase such as
“tactical” investment strategies? But I treat clients
as an equal partner, recognizing their intelli-
gence, and thoroughly discussing the differences
between these three distinct approaches.
There is generally a role in most of our cli-
ents’ portfolios for all three of these: longer-term
core equity and bond strategies, highly adaptive
risk-managed active strategies, and strategies
that can offer a guaranteed income stream. It
is all about managing client expectations and
making sure we have the right pieces in place
that will help them meet their overall needs
Let’s drill down on the tactical
active strategies some more.
Sure. We will usually start by running a
Morningstar analysis on their current invest-
ment portfolio and how that has performed
over the last ten years or so. We will also do
something of a risk/return analysis on what
they have been doing investment-wise.
Thisisprettyeye-openingandjustaboutevery
new client will never have seen anything like this
before. I will also take them through some fun-
damental concepts of risk/return curves—using
graphs—and explain how we utilize tactical
active strategies to find the appropriate risk/
continue on pg. 10
Securities & Investment Advisory Services
offered through NEXT Financial Group, Inc.
Member, FINRA/SIPC. The Financial Guys LLC
is not an affiliate of NEXT Financial Group, Inc.
August 7, 2014 | proactiveadvisormagazine.com 9

10. M U LT I - M A R K E T
+
MULTI-STRATEGY
+
MULTI-MANAGER
One p rtfolio
D Y N A M I C A L LY R I S K - M A N A G E D
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Past performance does not guarantee future results.
The opportunity for profits
carries with it the possibility of losses.
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A complete list of all of our recommendations over the last 12 months and Brochure Form ADV Part 2A are available upon request.
matters. I have developed an initiative called
Wealth to Women that specifically addresses
the needs of this audience. This fits in well with
my overall philosophy and value proposition of
empowering people to feel confident in their
financial decision-making.
return profile for a specific strategy or blend of
strategies. This takes some time to explain, but it
is a highly effective presentation. When they see
where a combination of tactical strategies falls in
terms of returns, with lower risk than they are
now exposed to, that becomes clear as day from
a conceptual standpoint.
I will also explain some statistics around
the market’s historical performance, showing
the percentages of how often markets are in
bull, bear, and sideways markets. Again, this
is an eye-opener, and once they understand
that, I will explain how the tactical strategies
are formulated to perform under any market
conditions—that we are employing third-party
managers who do nothing but analyze and react
to current market conditions.
This really starts making sense to clients and
I feel confident then that they will be open to
exploring a variety of strategy combinations,
depending on their specific needs. Setting the
appropriate expectations and understanding of
strategies becomes especially important when it
comes time for client review meetings.
No matter what the overall market may be
doing, we will have in place a well-diversified
strategy combination, with each element doing
what it is supposed to be doing. It is impossible
to predict the future, or future returns, but I
am firmly convinced that a well-diversified
combination of strategies will perform the best,
with managed risk, over market cycles.
Excellent, Jay. How do you get the word
out to prospective clients?
Our firm, The Financial Guys, LLC, is very
active in marketing in the Buffalo, New York
area. I help to line up guest speakers and occa-
sionally appear myself on our radio show, which
is the top-rated business talk show in western
New York. This show focuses on personal fi-
nance, local economic issues and topical national
matters. It has been terrific for name awareness
and lead generation, as well as providing a real
service to the community. I also do a lot in
terms of seminars and speaking engagements,
and have a special interest in women’s financial
continued from pg. 9
Photography:KCKratt
10 proactiveadvisormagazine.com | August 7, 2014

11. 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-
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Conference Board consumer confidence surveys
or the American Association of Individual
Investors survey. By the simple nature of the
survey process, their results tend to lag current
sentiment levels and are also vulnerable to the
fact that respondents sometimes answer the way
they believe the interviewer wants to hear or the
way they think others may respond.
To overcome the lag time and potential
bias of the survey methodology, analysts look
for ways to confirm investor sentiment by the
actions of investors. Market breadth is one such
tool. Market breadth compares the number of
companies advancing in price relative to the
number declining. When more companies are
rising in value, sentiment is bullish.
Money flows in and out of stocks, put-
call ratios, volatility, momentum, and other
technical factors are also considered indicators
of investor sentiment. In the prior chart, NDR
combines a number of technical indicators to
create its Daily Trading Sentiment Composite.
These are often complemented by the NDR
Crowd Sentiment Poll, which is a more sub-
jective tool.
The key to using these indicators is to un-
derstand that sentiment has historically only
worked as an indicator at the real extremes. The
investor needs to know more than just whether
or not the market is bullish or bearish, but
whether or not sentiment is increasing, at what
rate, and how this compares to prior market
turning points. And then there’s the matter of
the black swans—unexpected events that sud-
denly change market dynamics.
There is also the perspective that historical
works such as Mackay’s are not a reflection of
modern thought processes or available informa-
tion. Does the crowd mentality carry the same
power today? Certainly many economists and
experienced market observers think so.
“Asset price bubbles and crashes
are here to stay. They appear to be a
consequence of human nature.”
– John C. Williams, President,
Federal Reserve Bank of San Francisco,
September 9, 2013.
While active management strives to be an
objective approach based on mathematical
models to generate buy and sell decisions that
can be replicated consistently over time, it must
also accommodate the illogical aspects of the
market as well. Sentiment indicators are one
means of fine-tuning the active management
model to take into account human nature.
continued from pg. 5
When the manager knows market sentiment
is not in extreme territory, there may be more
room to tolerate volatility.
11August 7, 2014 | proactiveadvisormagazine.com

12. 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.
Editor
David Wismer
Marketing Coordinator
Elizabeth Whitley
Contributing Writers
Linda Ferentchak
David Wismer
Graphic Designer
Travis Bramble
Contributing Photographer
KC Kratt
August 7, 2014
Volume 3 | Issue 6
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