Timeless Keys To Investment Success
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“Timeless Keys to Investment Success”
Lowell Pratt, CFA
Russ Floyd, CFA
President
Portfolio Manager
“Timeless Keys to Investment Success”
RUSS:
The past 18 months have been extremely volatile and confusing to investors. Are we truly living in unprecedented times?
“Timeless Keys to Investment Success”
Major Asset Class "Real" Returns $1,000,000 $491,014
STOCKS $100,000 $10,000 BONDS $1,000
$1,556
$100 $10
GOLD
$2.80
$1
“Timeless Keys to Investment Success”
09 20
96 19
83 19
70 19
57 19
44 19
31 19
18 19
05 19
92 18
79 18
66 18
53 18
40 18
27 18
14 18
18
01
$0
Major Asset Class "Real" Returns $1,000,000 $491,014
STOCKS $100,000 $10,000 BONDS $1,000
$1,556
$100 $10
GOLD
$2.80
$1
“Timeless Keys to Investment Success”
09 20
96 19
83 19
70 19
57 19
44 19
31 19
18 19
05 19
92 18
79 18
66 18
53 18
40 18
27 18
14 18
18
01
$0
Stock Price to Trend Line Ratio 10
Event War of 1812 Civil War Civil War WWI Great Depression Great Depression
Year 1814 1857 1859 1920 1931 1932
P/TL 0.59 0.57 0.57 0.58 0.61 0.58
Next 3yr 80% 46% 124% 67% 63% 125%
Event WWII WWII Cold War Oil Crisis 81-'81 Recession 08'-09 Recession
1.99
Year 1941 1942 1948 1974 1981 2009
P/TL 0.62 0.61 0.62 0.59 0.60 0.58
2.02
Next 3yr Trend Line Value translated to S&P 500 57% 2009 1,500 2012 1,800 100% 72% 41% 36% ???
1.87
1.83
1.8 5
1 1801
1814
1827
0.59
War of 1812
1840
1853
1866
0.57
Civil War
1879
1892
1905
1918
0.58
WWI
1931
1944
0.58 0.61
1957
0.62
The Great Cold Depression War WWII
0.1
“Timeless Keys to Investment Success”
1970
0.59
1983
0.60
Oil Crisis '81-'82 Recession
1996
2009
0.58
'08-'09 Recession
RUSS:
Stepping away from the financial markets, please comment on the broader underpinnings of the US economy and what we should expect ahead?
“Timeless Keys to Investment Success”
Real S&P 500 vs. Real GDP 100
“Never bet against the US economy” ‐ Warren Buffet
10
1 1949
1954
1959
1964
1969
1974
1979
Real GDP
1984
1989
Real S&P 500
“Timeless Keys to Investment Success”
1994
1999
2004
2009
Recessions from 1949 to Present 100
10
1 1949
1954
1959
1964
1969
1974
Recession
1979
1984
Real GDP
“Timeless Keys to Investment Success”
1989
1994
1999
Real S&P 500
2004
2009
RUSS:
As a follow-up to the last question, what is your perspective on the global economy and markets?
“Timeless Keys to Investment Success”
ec -9 Ju 4 n9 D 5 ec -9 Ju 5 n9 D 6 ec -9 Ju 6 n9 D 7 ec -9 Ju 7 n9 D 8 ec -9 Ju 8 n9 D 9 ec -9 Ju 9 n0 D 0 ec -0 Ju 0 n0 D 1 ec -0 Ju 1 n0 D 2 ec -0 Ju 2 n0 D 3 ec -0 Ju 3 n0 D 4 ec -0 Ju 4 n0 D 5 ec -0 Ju 5 n0 D 6 ec -0 Ju 6 n0 D 7 ec -0 Ju 7 n0 D 8 ec -0 Ju 8 n09
D
S&P 500 v. EAFE (Europe, Australasia and the Far East)
400
350
300
250
200
150
100
50
0
EAFE S&P 500
“Timeless Keys to Investment Success”
US vs. BRIC GDP BRIC = Brazil, Russia, India, China 16,000
12,000 10,000 8,000 6,000 4,000 2,000 0 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08
GDP (Millions of USD)
14,000
Year
United States
BRIC
“Timeless Keys to Investment Success”
ec -9 Ju 4 n9 D 5 ec -9 Ju 5 n9 D 6 ec -9 Ju 6 n9 D 7 ec -9 Ju 7 n9 D 8 ec -9 Ju 8 n9 D 9 ec -9 Ju 9 n0 D 0 ec -0 Ju 0 n0 D 1 ec -0 Ju 1 n0 D 2 ec -0 Ju 2 n0 D 3 ec -0 Ju 3 n0 D 4 ec -0 Ju 4 n0 D 5 ec -0 Ju 5 n0 D 6 ec -0 Ju 6 n0 D 7 ec -0 Ju 7 n0 D 8 ec -0 Ju 8 n09
D
S&P 500 v. BRIC (Brazil, Russia, India and China)
500
450
400
350
300
250
200
150
100
50
0
BRIC S&P 500
“Timeless Keys to Investment Success”
RUSS:
Many long-term investors remain concerned about the stability of the stock market. What is the merit of sitting on the sidelines until the dust settles?
“Timeless Keys to Investment Success”
O ct -8 6 O ct -8 7 O ct -8 8 O ct -8 9 O ct -9 0 O ct -9 1 O ct -9 2 O ct -9 3 O ct -9 4 O ct -9 5 O ct -9 6 O ct -9 7 O ct -9 8 O ct -9 9 O ct -0 0 O ct -0 1 O ct -0 2 O ct -0 3 O ct -0 4 O ct -0 5 O ct -0 6 O ct -0 7 O ct -0 8 O ct -0 9
VIX - The Investor Fear Gauge
160
140
120
100
80
60
40
20
0
“Timeless Keys to Investment Success”
O ct -5 O 3 ct -5 O 5 ct -5 O 7 ct -5 O 9 ct -6 O 1 ct -6 O 3 ct -6 O 5 ct -6 O 7 ct -6 O 9 ct -7 O 1 ct -7 O 3 ct -7 O 5 ct -7 O 7 ct -7 O 9 ct -8 O 1 ct -8 O 3 ct -8 O 5 ct -8 O 7 ct -8 O 9 ct -9 O 1 ct -9 O 3 ct -9 O 5 ct -9 O 7 ct -9 O 9 ct -0 O 1 ct -0 O 3 ct -0 O 5 ct -0 O 7 ct -0 9
Credit Spread
6
5
4
3
2
1
0
-1
AAA - 20yrTB BBB - 20yrTB
“Timeless Keys to Investment Success”
RUSS:
Some more adventurous investors attempt to take advantage of the market’s volatility by active market-timing strategies. What are the prospects of this type of approach?
“Timeless Keys to Investment Success”
Money Market v. Wilshire 5000 (Billions) $4,000
$15,000
$3,900
$14,000
$3,800
$13,000
$3,700
$12,000
$3,600
$11,000
$3,500
$10,000
$3,400
$9,000
$3,300
$8,000
$3,200
$7,000
$3,100
$6,000
$3,000
Ja
n-
F e 08 bM 08 ar -0 Ap 8 rM 08 ay Ju 08 n0 Ju 8 lAu 08 gSe 08 p0 O 8 ct N 08 ov D 08 ec J a 08 nF e 09 bM 09 ar -0 Ap 9 rM 09 ay Ju 09 n0 Ju 9 lAu 09 gSe 09 p09
$16,000
Wilshire
Money Mkt
“Timeless Keys to Investment Success”
RUSS:
How does Burney manage money in this type of market?
“Timeless Keys to Investment Success”
Size Cycle - Rolling 3-yr Return Differentials 40%
Pro Small-Cap 30% 20% 10% 0% -10% -20%
Pro Large-Cap -30% -40% 1925
1935
1945
1955
1965
1975
“Timeless Keys to Investment Success”
1985
1995
2005
Style Cycle - Rolling 12-mo Return Differentials 80% 60% 40%
Pro Value
20% 0% -20% -40%
Pro Growth
-60%
-80% Dec-79 Dec-82 Dec-85 Dec-88 Dec-91 Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09
“Timeless Keys to Investment Success”
RUSS:
Most advisors no longer buy individual securities and instead use mutual funds. Why does Burney still buy stocks?
“Timeless Keys to Investment Success”
“Timeless Keys to Investment Success”
“Timeless Keys to Investment Success”
“Timeless Keys to Investment Success”
“Timeless Keys to Investment Success”
RUSS:
What does a portfolio with proper Size, Style and Sector exposures look like and how are portfolios with mature positions transitioned to Burney management?
“Timeless Keys to Investment Success”
Reference 3-S Reports
“Timeless Keys to Investment Success”
RUSS:
What are the performance objectives of Burney’s management approach?
“Timeless Keys to Investment Success”
Major Asset Class "Real" Returns $1,000,000 $491,014
STOCKS $100,000 $10,000 BONDS $1,000
$1,556
$100 $10
GOLD
$2.80
$1
“Timeless Keys to Investment Success”
09 20
96 19
83 19
70 19
57 19
44 19
31 19
18 19
05 19
92 18
79 18
66 18
53 18
40 18
27 18
14 18
18
01
$0
LOWELL:
How are client objectives and constraints incorporated in the investment process?
“Timeless Keys to Investment Success”
Enduring Patterns Review • Stocks have great consistency over time (6.5% plus inflation) • Recessions/Panics create “V” mistakes • Size and Style Cycling dominate equity relative return • Stock-picking a productive component “Timeless Keys to Investment Success”
Important Questions • Is your Asset Allocation appropriate? • Are you comfortable with your Size and Style positioning? • Do you have the conviction to execute your investment plan through the market’s extreme emotional states?
“Timeless Keys to Investment Success”
“Timeless Keys to Investment Success”
Lowell Pratt, CFA
Russ Floyd, CFA
President
Portfolio Manager
“Timeless Keys to Investment Success”
RUSS:
The past 18 months have been extremely volatile and confusing to investors. Are we truly living in unprecedented times?
“Timeless Keys to Investment Success”
Major Asset Class "Real" Returns $1,000,000 $491,014
STOCKS $100,000 $10,000 BONDS $1,000
$1,556
$100 $10
GOLD
$2.80
$1
“Timeless Keys to Investment Success”
09 20
96 19
83 19
70 19
57 19
44 19
31 19
18 19
05 19
92 18
79 18
66 18
53 18
40 18
27 18
14 18
18
01
$0
Major Asset Class "Real" Returns $1,000,000 $491,014
STOCKS $100,000 $10,000 BONDS $1,000
$1,556
$100 $10
GOLD
$2.80
$1
“Timeless Keys to Investment Success”
09 20
96 19
83 19
70 19
57 19
44 19
31 19
18 19
05 19
92 18
79 18
66 18
53 18
40 18
27 18
14 18
18
01
$0
Stock Price to Trend Line Ratio 10
Event War of 1812 Civil War Civil War WWI Great Depression Great Depression
Year 1814 1857 1859 1920 1931 1932
P/TL 0.59 0.57 0.57 0.58 0.61 0.58
Next 3yr 80% 46% 124% 67% 63% 125%
Event WWII WWII Cold War Oil Crisis 81-'81 Recession 08'-09 Recession
1.99
Year 1941 1942 1948 1974 1981 2009
P/TL 0.62 0.61 0.62 0.59 0.60 0.58
2.02
Next 3yr Trend Line Value translated to S&P 500 57% 2009 1,500 2012 1,800 100% 72% 41% 36% ???
1.87
1.83
1.8 5
1 1801
1814
1827
0.59
War of 1812
1840
1853
1866
0.57
Civil War
1879
1892
1905
1918
0.58
WWI
1931
1944
0.58 0.61
1957
0.62
The Great Cold Depression War WWII
0.1
“Timeless Keys to Investment Success”
1970
0.59
1983
0.60
Oil Crisis '81-'82 Recession
1996
2009
0.58
'08-'09 Recession
RUSS:
Stepping away from the financial markets, please comment on the broader underpinnings of the US economy and what we should expect ahead?
“Timeless Keys to Investment Success”
Real S&P 500 vs. Real GDP 100
“Never bet against the US economy” ‐ Warren Buffet
10
1 1949
1954
1959
1964
1969
1974
1979
Real GDP
1984
1989
Real S&P 500
“Timeless Keys to Investment Success”
1994
1999
2004
2009
Recessions from 1949 to Present 100
10
1 1949
1954
1959
1964
1969
1974
Recession
1979
1984
Real GDP
“Timeless Keys to Investment Success”
1989
1994
1999
Real S&P 500
2004
2009
RUSS:
As a follow-up to the last question, what is your perspective on the global economy and markets?
“Timeless Keys to Investment Success”
ec -9 Ju 4 n9 D 5 ec -9 Ju 5 n9 D 6 ec -9 Ju 6 n9 D 7 ec -9 Ju 7 n9 D 8 ec -9 Ju 8 n9 D 9 ec -9 Ju 9 n0 D 0 ec -0 Ju 0 n0 D 1 ec -0 Ju 1 n0 D 2 ec -0 Ju 2 n0 D 3 ec -0 Ju 3 n0 D 4 ec -0 Ju 4 n0 D 5 ec -0 Ju 5 n0 D 6 ec -0 Ju 6 n0 D 7 ec -0 Ju 7 n0 D 8 ec -0 Ju 8 n09
D
S&P 500 v. EAFE (Europe, Australasia and the Far East)
400
350
300
250
200
150
100
50
0
EAFE S&P 500
“Timeless Keys to Investment Success”
US vs. BRIC GDP BRIC = Brazil, Russia, India, China 16,000
12,000 10,000 8,000 6,000 4,000 2,000 0 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08
GDP (Millions of USD)
14,000
Year
United States
BRIC
“Timeless Keys to Investment Success”
ec -9 Ju 4 n9 D 5 ec -9 Ju 5 n9 D 6 ec -9 Ju 6 n9 D 7 ec -9 Ju 7 n9 D 8 ec -9 Ju 8 n9 D 9 ec -9 Ju 9 n0 D 0 ec -0 Ju 0 n0 D 1 ec -0 Ju 1 n0 D 2 ec -0 Ju 2 n0 D 3 ec -0 Ju 3 n0 D 4 ec -0 Ju 4 n0 D 5 ec -0 Ju 5 n0 D 6 ec -0 Ju 6 n0 D 7 ec -0 Ju 7 n0 D 8 ec -0 Ju 8 n09
D
S&P 500 v. BRIC (Brazil, Russia, India and China)
500
450
400
350
300
250
200
150
100
50
0
BRIC S&P 500
“Timeless Keys to Investment Success”
RUSS:
Many long-term investors remain concerned about the stability of the stock market. What is the merit of sitting on the sidelines until the dust settles?
“Timeless Keys to Investment Success”
O ct -8 6 O ct -8 7 O ct -8 8 O ct -8 9 O ct -9 0 O ct -9 1 O ct -9 2 O ct -9 3 O ct -9 4 O ct -9 5 O ct -9 6 O ct -9 7 O ct -9 8 O ct -9 9 O ct -0 0 O ct -0 1 O ct -0 2 O ct -0 3 O ct -0 4 O ct -0 5 O ct -0 6 O ct -0 7 O ct -0 8 O ct -0 9
VIX - The Investor Fear Gauge
160
140
120
100
80
60
40
20
0
“Timeless Keys to Investment Success”
O ct -5 O 3 ct -5 O 5 ct -5 O 7 ct -5 O 9 ct -6 O 1 ct -6 O 3 ct -6 O 5 ct -6 O 7 ct -6 O 9 ct -7 O 1 ct -7 O 3 ct -7 O 5 ct -7 O 7 ct -7 O 9 ct -8 O 1 ct -8 O 3 ct -8 O 5 ct -8 O 7 ct -8 O 9 ct -9 O 1 ct -9 O 3 ct -9 O 5 ct -9 O 7 ct -9 O 9 ct -0 O 1 ct -0 O 3 ct -0 O 5 ct -0 O 7 ct -0 9
Credit Spread
6
5
4
3
2
1
0
-1
AAA - 20yrTB BBB - 20yrTB
“Timeless Keys to Investment Success”
RUSS:
Some more adventurous investors attempt to take advantage of the market’s volatility by active market-timing strategies. What are the prospects of this type of approach?
“Timeless Keys to Investment Success”
Money Market v. Wilshire 5000 (Billions) $4,000
$15,000
$3,900
$14,000
$3,800
$13,000
$3,700
$12,000
$3,600
$11,000
$3,500
$10,000
$3,400
$9,000
$3,300
$8,000
$3,200
$7,000
$3,100
$6,000
$3,000
Ja
n-
F e 08 bM 08 ar -0 Ap 8 rM 08 ay Ju 08 n0 Ju 8 lAu 08 gSe 08 p0 O 8 ct N 08 ov D 08 ec J a 08 nF e 09 bM 09 ar -0 Ap 9 rM 09 ay Ju 09 n0 Ju 9 lAu 09 gSe 09 p09
$16,000
Wilshire
Money Mkt
“Timeless Keys to Investment Success”
RUSS:
How does Burney manage money in this type of market?
“Timeless Keys to Investment Success”
Size Cycle - Rolling 3-yr Return Differentials 40%
Pro Small-Cap 30% 20% 10% 0% -10% -20%
Pro Large-Cap -30% -40% 1925
1935
1945
1955
1965
1975
“Timeless Keys to Investment Success”
1985
1995
2005
Style Cycle - Rolling 12-mo Return Differentials 80% 60% 40%
Pro Value
20% 0% -20% -40%
Pro Growth
-60%
-80% Dec-79 Dec-82 Dec-85 Dec-88 Dec-91 Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09
“Timeless Keys to Investment Success”
RUSS:
Most advisors no longer buy individual securities and instead use mutual funds. Why does Burney still buy stocks?
“Timeless Keys to Investment Success”
“Timeless Keys to Investment Success”
“Timeless Keys to Investment Success”
“Timeless Keys to Investment Success”
“Timeless Keys to Investment Success”
RUSS:
What does a portfolio with proper Size, Style and Sector exposures look like and how are portfolios with mature positions transitioned to Burney management?
“Timeless Keys to Investment Success”
Reference 3-S Reports
“Timeless Keys to Investment Success”
RUSS:
What are the performance objectives of Burney’s management approach?
“Timeless Keys to Investment Success”
Major Asset Class "Real" Returns $1,000,000 $491,014
STOCKS $100,000 $10,000 BONDS $1,000
$1,556
$100 $10
GOLD
$2.80
$1
“Timeless Keys to Investment Success”
09 20
96 19
83 19
70 19
57 19
44 19
31 19
18 19
05 19
92 18
79 18
66 18
53 18
40 18
27 18
14 18
18
01
$0
LOWELL:
How are client objectives and constraints incorporated in the investment process?
“Timeless Keys to Investment Success”
Enduring Patterns Review • Stocks have great consistency over time (6.5% plus inflation) • Recessions/Panics create “V” mistakes • Size and Style Cycling dominate equity relative return • Stock-picking a productive component “Timeless Keys to Investment Success”
Important Questions • Is your Asset Allocation appropriate? • Are you comfortable with your Size and Style positioning? • Do you have the conviction to execute your investment plan through the market’s extreme emotional states?
“Timeless Keys to Investment Success”
“Timeless Keys to Investment Success”
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