The Goldilocks Conundrum · 2017-05-26 · Belfort, the founder of the brokerage firm Stratton Oakmont, which functioned as a boiler room selling pennystocksinthe1990s.Idon’twanttogiveawaythe

PINNACLEJanuary 2014

MONTHLY

Forget the Glitz... SuccessfulInvesting is Hard WorkKen Solow

Rick VollaroCarl NobleSean DillonSauro Locatelli

The Goldilocks

Five Ways to Resolve a DivorceSolon Vlasto

Conundrum

Page 1Pinnacleadvisory.comJanuary 2014

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Table of Contents

Market ReviewRick VollaroCarl Noble, CFASean Dillon, CMTSauro Locatelli

8

Forget the Glitz: SuccessfulInvesting is Hard WorkKen Solow, CFP®, CLU®, ChFC®

2

Five Ways to Resolve a DivorceSolon Vlasto, CFP®

5


Forget the Glitz... SuccessfulInvesting is Hard Work

If you are looking for a movie about power, money,sex, drugs, yachts, Lamborghinis, high-pressure salestactics, stockmanipulation, sex, and drugs (did Imen-tion sex anddrugs?) then go see the newMartin Scors-ese movie, The Wolf of Wall Street, starring LeonardoDiCaprio. The film is based on the memoirs of JordanBelfort, the founder of the brokerage firm StrattonOakmont, which functioned as a boiler room sellingpennystocks in the1990s. Idon’twant togiveaway theending, but I will say that if you enjoy watchingunimaginableamountsof corruptionanddebauchery,you are going to love it.

All of which gets me thinking about the admittedlyboring world of our Pinnacle investment analysts.

Ken Solow, CFP®,CLU®, ChFC®Founding Partner


To my knowledge Martin Scorsese has never ap-proached themaboutdoing amovie, and for good rea-son. The realworld of riskmanaging our client portfo-lios entails a lot of hard work and a sound investmentprocess. To illustratemy point, I present to you a sam-ple from the company network where analysts savetheir presentations for our weekly Wednesday meet-ings. This collection gives only a glimpse of the vol-umes of research being done by the team, since muchof it resides in individual folders for eachanalyst.Nev-ertheless, if you were a Pinnacle employee and couldlog into the company network, you’d find these pre-sentations made by the analysts from Aug 28th toNovember 27th of this year.While it probably isn’t thebasis for a rivetingHollywood screenplay, I thought itmight be illustrative to take a look.

Here are a few of the highlights:

Aug 28th – Data Dump

RickVollaro sendsaround148 slides to the investmentteam for study. Randomly looking at slides in thedeckreveals that slide #148 is about the Australian Dollar,slide #63 is “% Contribution to GDP from InventoryInvestment,” and slide # 18 is “Composition of retailand food services.”

Aug 29th – Gold and Commodities around crisisevents

This is a 10- slidepresentation showing the investmentperformance of gold and commodities after a varietyof crises throughout history.

Aug 29th – Sector Review and Other Stuff

20 slides in this presentation including Syria, a pro-posed trade for Gold, a review of Brazil, and variousU.S. sector slides.

Sept. 5th – U.S. Sector Review

46 slides presented by analyst Carl Noble, 14 of whichwereon theTech sector and23 coveredConsumerDis-

cretionary. Slide#35 is a recommendation thatwecon-tinue to overweight the Discretionary sector whilekeeping a watch on Homebuilders.

Sept. 13th – Consumer Confidence

14 slides in this presentation. Randomly picking slide#8 shows the Bloomberg Consumer Comfort Indexand it’s components.

Sept. 23rd – U.S. Dollar

18 slides about the investment characteristics of theU.S. dollar. Again randomly picking on slide #8: It is achart of U.S. Dollar versus Japanese and Euro Real In-terest Rate Differentials. (Riveting!) Chart #9 is muchtamer, showing Inflation versus the U.S. dollar.

Sept. 25th – Financials

24 slides. Slide #11 is a chart showing that JP Morganrepresents 8%of the holdings of XLF, the financial sec-tor ETF we own in client portfolios.

Oct. 1 – Yet another data dump from Rick Vollaro

157 slides… heaven help us.

Oct. 1 – Performance Attribution

10 slides. SauroLocatelli ’smonthly look at the driversof Pinnacle portfolio returns. Slide #8 shows that ourunder allocation to Telecom Services and to Utilitieswas a big winner for the month.

Oct. 2 – Fixed Income Options and Ireland

18 slides where slides 5 to 18 were all about introduc-ing the team to Irelandas apossible investment for ouraccounts. Slide #8 showed a breakdown in the hold-ings for EIRL (the ETF for investing in Ireland) whereCRH PLC represents 25.96% of the holdings.


Oct. 30 – Defensive Sector Review

10 slides presented by Rick Vollaro. Slide #4 is titled“Bubbling up, or Just Bouncing?” Slide #6 is titled“Earnings don’t seem to be the driver.”

Nov.14 – Consumer Discretionary

A 66 slide presentation by Sauro Locatelli. Slide #15 is“Consensus Forecasts of Operating Earnings PerShare,” and slide #28 is “Household net worth versusU.S. consumer spending.”

Nov. 27 – Mexico

Carl Noble shares 28 slides on our southern neighbor.Slide#8 showsUnemploymentRates, Slide#11 showsIndustrial Production, and Slide #21 is titled, “Valua-tion looks Overvalued.”

Pinnacle’s investment process is all about coming upwith high probability forecasts for the broad market,

sectors, industries, countries, or business cycles. Wedevelop our forecast using a variety of tools that helpus to evaluate the weight of the evidence. Once weperform that analysis, Rick Vollaro has to determinethe level of conviction we have in our forecast; onlythen do we change the asset allocation of our portfo-lios.

To the extent that we rely on qualitative decisionmak-ing, it is basedonourexperience,wisdom,knowledge,and ‘right-brained intuition.’ Iwrite about thisprocessinChapter8 (“Becomingan InvestmentExpert”)ofmybook, Buy and Hold is Dead (AGAIN). If you want tobecome one, then I’d argue that there’s no substitutefor simply hunkering down and doing the work. Lotsof it. Over and over again.

In that regard, our investment analysts may not looklikeLeonardoDiCaprio, but they are stars in their ownright.

FADE TO BLACK

Ken Solow, CFP®, CLU, ChFC is a FoundingPartner at Pinnacle Advisory Group.

Email: [email protected]: pinnacleadvisory.com/ksolow/


Five Ways to Resolve a Divorce

Oneof thebiggestmistakespeoplemakewhen they’refacing a divorce is failing to explore their options for aresolution. Contrary to popular assumption, there areactually severalways to resolve a divorce, eachwith itsown strengths and weaknesses.

Let's take a look at them...

Solon Vlasto, CFP®Wealth Manager


Litigation

Litigation is what most people think of when it comesto resolving a divorce. The legal representatives foreach party fight out the issues, and the process mayend up in court with a judge deciding on any unre-solved matters. This method can be very expensive,with retainers of $20,000 starting out; if the court getsinvolved and things escalate, it may be the costliestway to get through a divorce.

There is a significant benefit, though: You will havesomeoneworking exclusively on your side. This is im-portant if theotherspouse isexpectedtobeuncoopera-tive. Nevertheless, it’s hard to say there are any “win-ners” when a divorce goes through litigation.

Mediation

Mediation is a comparatively inexpensive and non-adversarial approach to resolving a divorce. In a di-vorce where the couple wants to work together andsimplyneedssomeguidance fromanexperiencedpro-fessional, this method can work well. Attorneys mayrepresentoneorbothparties, or theymaybeconsultedlater.

The mediator has gone through training, which in-cludes both classwork and an apprenticeship period;they are often attorneys who prefer a less contentiousenvironment.Heorshe is trainedtodrawout thewish-es andconcernsof eachparty, and the coupledevelopstheir own solution with the guidance of the mediator.The mediator does not provide the resolution, butcoaches the couple so they can create their own. Expe-rience has shown that if a solution is developed by thecouple themselves, both sides aremore likely to honorthe agreement.

Arbitration

Onealternative tomediation isarbitration. It is similar,

in that both spouses discuss and outline their ownwishes. Where arbitration differs is that the arbitratorwill make the final – and often legally-binding -- deci-sions regarding the details of the divorce.

Arbitration is a good option when there is an imbal-ance of power between spouses, in the case of mentalillness, orwhen there’s a history of substance abuse. Itis alsopreferablewhen there’s adeadlockand the fam-ily is willing to accept a third party’s decision.

Collaborative Divorce

Collaborative divorce takes a team-based approach:The couple hires an attorney trained in collaborativelaw and agrees towork towards awin-win solution inanon-adversarialmanner.Whenrelevant, the collabo-rative team is often rounded out with a mental healthprofessional, a child expert, and a financial advisor.The couplesworkwith the collaborative team to reacha fair compromise. If either spouse decides to termi-nate the process and go to court, the entire collabora-tive team is released, so they’re motivated to find anacceptable outcome.

Collaborative divorce is less expensive than litigation,is private, and is far less stressful. (Financier T. BoonePickens discusses his own experience here.)

Pro Se Divorce

Put simply, Pro Sedivorce iswhenyou ‘do it yourself.’To savemoney some couples try to resolve divorce ontheir own without hiring an attorney. If the divorce isnot adversarial, thismay be an option, but you shouldbe familiar with state procedures, laws, and the rulesof your local court -- youwill be expected to follow thesame process an attorney would.

There are a number of potential pitfalls with Pro Sedivorce, and once final it will be very difficult (if notimpossible) to revisit the agreement. Often there areissues with taxes, retirement plans, and missed assets


Solon Vlasto, CFP® is a Wealth Manager atPinnacle Advisory Group.

Email: [email protected]: pinnacleadvisory.com/svlasto/

where the short-term savings of avoiding an attorneybecomes much more costly in the long run.

Every divorce is unique, and the best approach in onecasemay notwork in another. Some of the resolutionsIdescribedmaybemodifiedor combined to suit a cou-ple’s needs. For instance, some attorneys offer amenuof services to keep costs down for relatively simpledivorces.Ultimately, theperson facingdivorce shouldtake the time toexplore thevariousapproaches, to findwhich best fits his or her individual situation.


When we decided to ride the central bank liquidity wave in2013, we knew there was a chance the market could have apretty good year, but like most investors we were pleasantlysurprised with the gains that the U.S. stock market delivered.Including dividends, the S&P 500 Index soared by 32%,well inexcess of what even the most optimistic prognosticators envi-sioned at the start of the year.

Uponcloserexamination,notall stocksmarkets,norasset class-es, fared as well. While international stocks in developedmar-ketsgainedroughly23%(MSCIEAFEIndex), emergingmarketstocks closed out the year with losses of close to 2% (MSCIEmergingMarkets Index). It was also a rough year for holdersofgovernmentbondsandother interest ratesensitivesectors,astheU.S. aggregate bond index lost approximately 2% (BarclaysAggregate Bond Index), with longer-dated bonds fairing farworse as yields normalized across the globe. Broad commodityindexes were among the worst performers, losing roughly-9.5% (Dow Jones/UBS Commodity Index) over the course ofthe year.

Rick Vollaro

Chief Investment

Officer

Carl Noble

Senior Analyst

Sean Dillon

Technical Analyst

Sauro Locatelli

Quantitative Analyst

MARKET REVIEW


What Lies Ahead?

While 2013 ended with a momentum driven rally forU.S. stocks, investors must recognize that the year isnow in the rearview mirror. It’s time for investors toassesswhatmay lie ahead for the investing landscape.Here’s how we are viewing the start of 2014…

The Goldilocks Conundrum

2014startswithamajorquestionmarkforall investors.The issue comesdown to an inflectionpoint in theU.S.business cycle, and what that means for the FederalReserve in regards to its large scale asset purchasepro-gram (LSAP) -- also known as quantitative easing(QE).

Economic Landscape isMostly Encourag-

ing

The good news is that the economic landscape in thedeveloped world appears to be picking up. Last yearthe U.S. economy was very resilient as it found a wayto grind through the fiscal cliff, the sequester, and an-other round of budget negotiations that dampenedconfidence in the recovery for a brief period. This year,with some momentum behind it and less of a fiscaldrag in store, theU.S. economyappears poised for fur-ther improvement (barring an unforeseen shock). Eu-ropean economies also appear to be slowly healing,thoughwith large divergences betweenGermany andFrance starting to appear, and a periphery that contin-ues to slowly lift from the depressionary ashes. Theone soft spot in the globe still involves emergingmar-kets countries, where China is muddling through arebalancing phase andmany other parts of the regionare suffering from higher rates, weak commodityprices, and higher inflation than what is found in thedeveloped world. Interestingly, the region may get alift from improving growth in developed markets,which would be a reversal of the dynamic of the pastdecade that saw emerging countries act as the enginefor global growth.

Passing Through the Goldilocks Zone?

Over the past five years, very slow economic funda-mentals may have cast considerable skepticism overthe rally off of the 2009 bottom, but they also drove thecentral banks around the world to open up the mone-tary spigots in an attempt to boost growth rates. Inhindsight the environment we’ve been living throughhasbeengoldilocks for riskassets.Theoddmixof slowbut not recessionary growth rates, flush liquidity, andplenty of doubt ended up being the perfect recipe forrisk assets to explode higher.

This year many economic fundamentals appearpoised to break to the upside. Third quarter GDPwasover 4% last year, and though the fourth quarter mayhave reversed course a bit due to the budget debate,the economy seemed to accelerate again late in thefourth quarter. Here’s the conundrum: Better funda-mentals are typically considered good for markets asthey are good for sales, earnings, and the overallwealth affect. However, if better growth compels theFed towithdraw stimulusmore quickly, how can any-one confidently predict how markets will react?

Overall, liquiditywill still increase thisyear, even if it’stoa lesserdegree.Andeven if that’s thecase, theFeder-al Funds rate will likely remain near 0% well beyondany near-term improvements in the economy. Never-theless, markets can be finicky and don’t alwaysworkoff of absolute levels. Instead, they often respond tochanges at the margin. The Fed has already signaledthat it will reduce the LSAP program by $10 billion/month, and the assumption is that as long as economicgrowth can stomach the reduction, they will continueto gradually wind the bond buying program downduring the course of 2014. In other words, the rate ofgrowth in their balance sheet is about to start slowing.

We don’t pretend to know exactly how markets willdigest this change. Itmaybe that the economy is readyto stand on its own two feet, and that the reduction ofQE is a healthy byproduct of a better economy. Per-hapsChairmanBernankehasactuallymanaged to cre-


ate a virtuous cycle despite an army of critics that tookevery opportunity to trash the Fed and the unprece-dentedpoliciesof the last fewyears.Ontheotherhand,one look at a chart of QE and the S&P 500 reveals thatevery time the Fed has ended one of their previousQEcampaigns (QE1, QE2, Operation Twist, etc.) the envi-ronment quickly turned more volatile for stocks.Rather than digging in to either the bullish or bearishcamp, we acknowledge that it’s hard to have muchconviction in a particular market direction at a timewhen the Federal Reserve is beginning towithdraw itsexperimental medicine.

Valuation is Now Expensive

We’ve repeatedly said that valuation is not agood tim-ing indicator,but investorsare foolish to ignore itat theextremes. Formanymonthswe’ve beenwriting aboutthe dichotomy between absolute and relative valua-tion levels, with the conclusion that the market wasneither as overvalued as the bears would state, nor asundervaluedasmanybullsbelieved.After the tremen-dous gains of the past fewyears, our proprietary valu-ationmodel is now firmly signaling that the market isovervalued. The model’s reading is something wehave takennoticeof recently, though itsmessage is stillnot extreme enough to force major reductions in port-folio volatility.What it does imply is that themarginofsafety in U.S. stocks has deteriorated markedly fromwhat it was just a few years ago.

The message that comes through loud and clear fromvaluation is that now is not the time to throw cautionto the wind and load up on portfolio risk. Instead, itmight be time to begin pruning some of the robustgains that have accrued in recent years.

Technicals: Healthy Trends but Frothy

Markets

Currently theU.S. andmanyotherdevelopedmarketsare in solid uptrends, while emerging markets, com-

modities, and many parts of the fixed income marketnow appear to be in down trends. The old marketadage is that “the trend is your friend.” If the positivetechnical storystartswithveryhealthy trends indevel-oped markets, the negative is that intermediate-termsentiment looks complacent, and in the near-termstocks appear to be in overbought territory. Like valu-ation, extended sentiment is not a great timing indica-tor, but it does serve awarning that the environment isripe for changewhenanappropriate catalystmaterial-izes.

Quant Models are Constructive

Our quantitative model for the U.S. equity market isstill flashingmildly bullish signals, and seems to be intune with many of the third party models we follow.This serves as a good confirmation that it is too early toget overly defensive.

Pullback to the Breakout Zone?

Given that valuation is in expensive territory, environ-mental indicators are flashing red, and there’s greatuncertainty surrounding the stimulus, itwouldn’t be asurprise to see the market take a well-deservedbreather sometime over the next few quarters. Onepossibility for a market pull back is a retreat to thepoint it broke out of last year. This wouldn’t be devas-tating, and would actually be a healthy technical de-velopment. On the S&P 500, this would translate to aretracement back to the neighborhood of the mid- tohigh 1500’s, which is close to 300 points below currentlevels.Anycorrectionclose to thatmagnitudecouldbejust what the doctor ordered to unwind complacencyand take the edge off of extended valuations. As longas the business cycle doesn’t appear to be in danger offizzling out, a material dip would likely set up a greatbuying opportunity for investors.

Portfolio Positioning

Business cycle conditions look solid, established


trends seem to be in place, and the first fewmonths ofthe year are typically very favorable for stocks. Butwith valuations extended, environmental indicatorsflashing red, and a major question mark regardinghow the market will react to less liquidity, we believeit is time to beginmigrating back towards neutral lev-els of portfolio risk.

In early January, we unwound some of the volatilitythat we had accumulated in anticipation of the fourthquarter rally. At present, portfolios are positionedmodestly above neutral levels of volatility, and ourcurrentplan is toslowlyreduce thatvolatilityonralliesas the first quarter progresses. Some in the investmentcommunity believe that momentum may carry thismarket much higher before it falls. It may, but wewould rather approach this inflectionpoint cautiouslyrather than chase further gains. Warren Buffet likes tosay that he tries to be fearful when others are greedyand greedywhen others are fearful. Itmay not be timetobe fearful justyet, butwe’repast thepointwhereoneshould be greedy.


Start�Date End�DateDynamic�

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Dynamic�Conservative�

Growth

Dynamic�Moderate�Growth

Dynamic�Appreciation

Dynamic�Ultra�Appreciation*

S&P�500�Total�Return�Index

Barclays�Capital�U.S.�Aggregate�Bond�Index

10/31/2002 12/31/2002 1.74% 0.82% 0.63% 0.57% Ͳ0.33% 2.04%12/31/2002 12/31/2003 10.09% 17.77% 20.83% 24.78% 28.68% 4.10%12/31/2003 12/31/2004 6.51% 8.70% 9.48% 10.65% 8.16% 10.88% 4.34%12/31/2004 12/31/2005 3.71% 4.35% 5.93% 5.70% 6.36% 4.91% 2.43%12/31/2005 12/31/2006 8.90% 8.88% 10.82% 12.71% 14.20% 15.79% 4.33%12/31/2006 12/31/2007 5.65% 6.61% 7.75% 7.97% 8.45% 5.49% 6.97%12/31/2007 12/31/2008 Ͳ9.86% Ͳ12.58% Ͳ16.93% Ͳ23.84% Ͳ27.72% Ͳ37.00% 5.24%12/31/2008 12/31/2009 9.25% 10.85% 18.68% 23.61% 31.60% 26.46% 5.93%12/31/2009 12/31/2010 5.75% 7.98% 11.06% 11.34% 11.24% 15.06% 6.54%12/31/2010 12/31/2011 4.14% 3.39% 2.10% 0.75% Ͳ2.46% 2.11% 7.84%12/31/2011 12/31/2012 4.83% 6.38% 7.25% 8.64% 11.62% 16.00% 4.22%12/31/2012 12/31/2013 3.47% 10.08% 14.12% 18.11% 24.28% 32.39% Ͳ2.02%

Total�Return�to�12/31/2013 67.45% 98.05% 130.41% 142.03% 103.99% 162.02%�/�97.49%* 65.70%Annualized�to�12/31/2013 4.72% 6.31% 7.76% 8.24% 7.79% 9.01%�/�7.43%* 4.63%

TrailingͲThreeͲMonth 2.26% 4.30% 5.48% 6.68% 8.24% 10.51% Ͳ0.14%TrailingͲOneͲYear 3.47% 10.08% 14.12% 18.11% 24.28% 32.39% Ͳ2.02%TrailingͲThreeͲYear�(Annualized) 4.14% 6.58% 7.71% 8.94% 10.61% 16.18% 3.26%TrailingͲFiveͲYear�(Annualized) 5.47% 7.70% 10.50% 12.21% 14.65% 17.94% 4.44%TrailingͲTenͲYear�(Annualized) 4.10% 5.25% 6.60% 6.79% 7.41% 4.55%

Best�Quarter 5.60% 8.07% 10.31% 12.76% 17.58% 15.93% 4.58%Worst�Quarter Ͳ6.05% Ͳ6.05% Ͳ7.30% Ͳ11.95% Ͳ14.23% Ͳ21.94% Ͳ2.44%Average�Negative�Quarter Ͳ1.51% Ͳ2.10% Ͳ2.73% Ͳ4.17% Ͳ5.32% Ͳ6.70% Ͳ0.80%

Best�ThreeͲYear�Period 8.10% 11.48% 14.40% 17.12% 19.52% 25.56% 8.87%Worst�ThreeͲYear�Period Ͳ0.40% Ͳ1.85% Ͳ3.31% Ͳ6.60% Ͳ8.33% Ͳ15.11% 1.91%Average�Negative�ThreeͲYear�Period Ͳ0.22% Ͳ0.86% Ͳ1.58% Ͳ2.46% Ͳ2.89% Ͳ7.25% #DIV/0!

Risk�Metrics�Vs.�Benchmarks�(Since�Inception)

Beta** 0.21 0.36 0.49 0.63 0.76Correlation 89.42% 93.17% 95.54% 96.66% 96.75%Alpha 0.16% 0.97% 1.60% 1.26% 2.08%Information�Ratio 0.88 1.06 1.09 0.73 0.54Standard�Deviation 4.33% 5.83% 7.63% 9.70% 11.90% 14.51% 3.57%

Comparative�Performance

PinnacleTrailingͲThreeͲ

MonthTrailingͲTwelveͲ

MonthSince�Inception�Annualized

Dynamic�Conservative 2.26% 3.47% 4.72%Dynamic�Conservative�Growth 4.30% 10.08% 6.31%Dynamic�Moderate�Growth 5.48% 14.12% 7.76%Dynamic�Appreciation 6.68% 18.11% 8.24%Dynamic�Ultra�Appreciation* 8.24% 24.28% 7.79%

BenchmarksDC�Benchmark 1.54% 3.27% 5.48%DCG�Benchmark 3.82% 10.58% 6.67%DMG�Benchmark 5.15% 14.98% 7.39%DA�Benchmark 6.50% 19.52% 8.05%DUA�Benchmark* 8.63% 27.08% 7.05%

IndicesS&P�500 10.51% 32.39% 9.01%Dow�Jones�Industrial�Average 10.20% 29.63% 9.01%Nasdaq 11.13% 40.16% 11.96%MSCI�EAFE 5.78% 23.57% 10.17%MSCI�Emerging�Markets 1.86% Ͳ2.41% 15.11%DJ�UBS�Commodity Ͳ1.05% Ͳ9.52% 3.20%Barclays�U.S.�Aggregate�Bond Ͳ0.14% Ͳ2.02% 4.63%ThreeͲMonth�TͲBills 0.01% 0.05% 1.51%

*Inception�06/30/2004**�Measured�against�the�S&P�500�Index,�a�comprehensive�largeͲcap�domestic�index�representing�the�most�significant�source�of�stock�market�risk�for�our�portfolios

All�Returns�Reported�Are�Net�Of�FeesBrokerage�Composites�As�Of�12/31/2013

��Pinnacle�Portfolios�Ͳ�Growth�Of�$10,000.00

Dynamic�Ultra�Appreciation�not�shown�because�of�later�inception�date�(06/30//2004)

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The performance includes all client groups with assets values over $200,000 and nomaterial restriction implementation of the firm’s investment strategy. This applies to the following:Dynamic Conservative, Dynamic Conservative Growth, Dynamic Moderate Growth, Dynamic Appreciation, Dynamic Ultra Appreciation.


Russell 2000 – An unmanaged, market-capitalization weighted index that measures the performance of the 2,000 smallest companies in the Russell 3000 index.

DCG Benchmark - 33% S&P 500 /9% MSCI EAFE Index/3% DJ UBS Commodity Index/49% Barclays Capital U.S. Aggregate Bond/6% 3 Month T-bill IndexDMG Benchmark - 44% S&P 500 /12% MSCI EAFE Index/4% DJ UBS Commodity Index/36% Barclays Capital U.S. Aggregate Bond/4% 3 Month T-bill IndexDA Benchmark - 55% S&P 500 /15% MSCI EAFE Index/5% DJ UBS Commodity Index/23% Barclays Capital U.S. Aggregate Bond/2% 3 Month T-bill IndexDUA Benchmark - 72% S&P 500 /20% MSCI EAFE Index/6% DJ UBS Commodity Index/2% 3 Month T-bill IndexBeta - A measure of systematic risk of a portfolio in comparison to the market or benchmark. It is calculated using a linear regression.Correlation - A statistical measure of how two securities or portfolios tend to move in relation to each other.Alpha - A measure of risk-adjusted performance, defined as the return in excess of a normal return implied by a portfolio's systematic risk, measured by Beta.Information Ratio - A measure of risk-adjusted performance, calculated as the ratio of Alpha over the Standard Deviation of Alpha.Standard Deviation - A measure of risk, defined as the dispersion of a set of returns from its mean.

Disclaimer

Pinnacle Advisory Group, Inc. (hereinafter “Pinnacle”) is an investment advisor registered under the applicable provisions of the U.S. Securities and Exchange Commission (SEC).Pinnacle Dynamic Portfolios

MSCI Emerging Markets Index - An unmanaged, market capitalization weighted index composed of stocks from 26 emerging markets. The countries included in the index are located in Europe, South America, Africa, and Asia.

DJ UBS Commodity Index - This rolling index is composed of futures contracts on 19 physical commodities. It is designed to be a highly liquid and diversified benchmark for the commodity futures market.

Any reference to “Pinnacle’s” portfolio volatility or portfolio performance is based on the actual performance of Pinnacle’s composite portfolio groups. There are five Pinnacle composite portfolios – Dynamic Conservative, Dynamic Conservative Growth, Dynamic Moderate Growth, Dynamic Appreciation, and Dynamic Ultra Appreciation – and each is managed within the constraints of a specific Investment Policy Statement. The composite portfolios are actively managed and the underlying securities and/or percentage holdings in each security can and do change as Pinnacle alters its market outlook based on a continuous evaluation of market and economic conditions. The composite portfolios typically own a diversified mix of no-load or load-waived mutual funds and exchange-traded funds that invest in U.S. and international equities, fixed income securities, and alternative investments such as commodities, real estate, and hedge-fund-like strategies. It is important to note that the returns and volatility shown are accurate representations of past performance, but are not necessarily predictive of future performance or volatility as market conditions can and do change. Returns are calculated using month-end portfolio values. Any and all return or volatility data for the composite portfolios are shown net of all Pinnacle fees and any other related fees (such as fund expense ratios or transaction/trading costs where applicable), include dividends and interest, and are size- and time-weighted. Policy composites include portfolios formerly categorized as “Stock” or “Mutual Fund,” which may have deviated slightly from target model weightings in the past. Policy composite returns may vary from individual Pinnacle client accounts due to deposits orwithdrawals from the account, or other client-driven market timing or security selection issues. Pinnacle composite portfolios may be compared to various asset classes, blends of asset classes, indices, or mutual fund universes. The performance and volatilityof these asset classes are for comparison purposes only and such performance can be materially different than a Pinnacle composite portfolio.

Barclays Capital U.S. Aggregate Bond Index – An unmanaged, intermediate term, market-capitalization weighted index used to represent investment grade bonds being traded in the U.S. The index includes Treasury securities, Government agency bonds, mortgage-backed bonds, corporate bonds, and a small amount of foreign bonds traded in U.S.

S& 500 Total Return Index – An unmanaged, capitalization-weighted index composed of 500 widely held common stocks listed on the NYSE. This index provides a broad snapshot of the overall U.S. equity market . The index selects its companies based upon their market size, liquidity, and sector. Includes reinvestment of all dividends and distributions.

Dow Jones Industrial Average Index (DJIA) - An unmanaged, price-weighted index of 30 widely held stocks traded on the NYSE. The 30 stocks in the Dow Jones Industrial Average are all major factors in their industries and their stocks are widely held by individuals and institutional investors.

NASDAQ – An unmanaged, market-capitalization weighted index. The security types eligible for the index include domestic or foreign common stocks, ordinary shares, ADRs, shares of beneficial interest or limited partnership interests, and tracking stocks.

MSCI EAFE Index - An unmanaged, market capitalization weighted index composed of stocks from 21 developed markets, but excludes those from the U.S. and Canada. The countries included in the index are located in Europe, Australia, Asia, and the Far East.

DC Blend – Comprised of the S&P 500 Total Return Index and Barclays Capital Aggregate Bond Index. 21% S&P 500/6% MSCI EAFE/3% DJ UBS Commodity Index/63% Barclays Capital Aggregate Bond Index/7% 3 Month T-bill Index from 10/31/02 to 8/31/09, and 14%S&P 500/4% MSCI EAFE Index/2% DJ UBS Commodity Index/72% Barclays Capital Aggregate Bond Index/8% 3 Month T-bill Index from 8/31/09 to present.

DisclaimerPinnacle Advisory Group, Inc. (hereinafter “Pinna-cle”) is an investment advisor registered under the ap-plicableprovisionsof theU.S.SecuritiesandExchangeCommission (SEC).

Pinnacle Dynamic PortfoliosAny reference to “Pinnacle’s” portfolio volatility orportfolio performance is based on the actual perfor-manceofPinnacle’s compositeportfolio groups.Thereare fivePinnacle compositeportfolios–DynamicCon-servative (DC), Dynamic Conservative Growth (DCG),DynamicModerateGrowth(DMG),DynamicAppreci-ation(DA), and Dynamic Ultra Appreciation(DUA) –and each ismanagedwithin the constraints of a specif-ic InvestmentPolicyStatement.Thecompositeportfo-liosareactivelymanagedand theunderlying securitiesand/or percentage holdings in each security can anddo change as Pinnacle alters its market outlook basedon a continuous evaluation of market and economicconditions. The composite portfolios typically own adiversified mix of no-load or load-waived mutualfunds and exchange-traded funds that invest in U.S.and international equities, fixed income securities,and alternative investments such as commodities, realestate, and hedge-fund-like strategies.

It is important to note that the returns and volatilityshown are accurate representations of past perfor-mance, but arenotnecessarily predictive of futureper-formance or volatility asmarket conditions can anddochange. Returns are calculated usingmonth-endport-folio values. Any and all return or volatility data for thecomposite portfolios are shownnet of all Pinnacle feesand any other related fees (such as fund expense ratiosor transaction/trading costs where applicable), in-clude dividends and interest, and are size- and time-weighted. Policy composites include portfolios for-merly categorized as “Stock” or “Mutual Fund,” whichmay have deviated slightly from target model weight-ings in the past. Policy composite returns may varyfrom individual Pinnacle client accounts due to de-positsorwithdrawals fromtheaccount,orotherclient-drivenmarket timing or security selection issues. Pin-nacle composite portfolios may be compared to vari-

ous asset classes, blends of asset classes, indices, ormutual funduniverses.Theperformanceandvolatilityof these asset classes are for comparisonpurposesonlyand suchperformance canbematerially different thana Pinnacle composite portfolio.

The material contained in this brochure is providedsolely for informationpurposes only anddoesnot con-stitute investment, legal, or tax advise, nor is it an offerto sell or a solicitation to buy any investment, invest-ment process, strategy, or advice. It has beenpreparedwithoutregardtothe individualcircumstancesandob-jectives of persons who receive it andmay not be suit-able for all individuals. Pinnacle encourages individu-als to seek the advice of a professional advisor. Theappropriateness of particular advice, an investment,orother strategydependsonaperson’sorentities indi-vidualorparticular circumstances.To that end,Pinna-cleclientsareresponsible fornotifyingus, inwriting,ofany changes in their financial situation or their invest-ment objectives which would have an impact on ourcurrentand future service recommendations, orwhichwould necessitate re-evaluation of our past recom-mendations.

The information provided was prepared by Pinnacleonly. The facts, views, analysis, strategies, and opin-ionspresented inthisbrochurehavenotbeenreviewedby any of the individuals or entities other than repre-sentatives of Pinnacle. Pinnacle makes every effort touse, reliable, comprehensive information, but Pinna-cle, its employees, or any affiliated entities, or thirdparties make no warranties or representations of anykind relating to the accuracy, completeness, or timeli-nessof the informationprovidedandshallnotbe liablefor any damages of any kind relating to such informa-tion. Pinnacle has no obligation to inform you whenopinions or information discussed is changed.

The trademarks and service marks contained hereinare the property of their respective owners.Noportionof any information containedhereinmaybe reprinted,sold, or redistributed without the written consent ofPinnacle and/or the individuals or entities mentionedherein.

Documents

The Goldilocks Conundrum · 2017-05-26 · Belfort, the founder of the brokerage firm Stratton Oakmont, which functioned as a boiler room selling pennystocksinthe1990s.Idon’twanttogiveawaythe