four diverse strategies

Four Diverse

Strategies

Presented by Herb Geissler, Managing Director of The St.Clair Group

Rational Investing Special Interest Group of Pittsburgh AAIIMarch, 2014

Easy to Use

Market Changes from Bull to Bear

Every 15 – 20 years

50% below today’s level

Kuznets’ Infrastructure cycle averages 17.6 years for each

bull or bear phase

With History Suggesting Substantial Downside within Next Few Years

Secular Bear Markets RequireDifferent Strategies Than During

BullsDuring Kuznets’ Bull Markets:

• Find great growth companies• Ride with the Tide (buy and hold)

During Kuznets’ Bear Markets:• Find favored baskets of securities• Timing is Everything (buy and fold)

It’s not what you make;It is what you keep

Avoiding losses is more important than going after big gains

US Economy Sliding Downhill

Production of Goods and Services Been Declining for

Over Two Years

Recovery from Credit Crunch

Is Stalling

Employment Still Stagnant

Claims decreasing as workers leave workforce

All Key Measures Show Continual Weakening Since

1990

Because Rising Federal Debt

Stifles Economic Growth

GreatSociety

Clinton/Gingrich

Contract With America

911 andMid East

Wars

RedistributionOf Wealth

Yet Stock Market Advanced Fearlessly,

Sucking In Money As It Did During Roaring 90s

Market Gains Primarily From

Expanding PE Multiple

QE Provided That Liquidity

Anomaly: Stock market gains despite rising interest rates means over-abundant cash

Operation

Twist

S&P 500

BondInterest

Rate

Resulting in Only Two Corrections During Past Five

Years

Pushing Market Valuation

To A Dangerous Extreme

Q Ratio = Market Valuation to Replacement Cost

Key Points

• Federal spending, funded by debt, chokes economic growth, as dysfunctional Federal Government avoids addressing core problems

• Fed Reserve IOUs (to fund excessive debt) lubricated stock prices, but make inevitable solutions more painful

• Market Valuations are at unsustainable extremes, but can remain so for quite a while

What To Do?

• Keep drinking, as long as bartender keeps pouring cheap drinks• In January 2014, Benny’s Bar “flicked

the lights”, signaling “last call”• Remain sober and watchful to jump

out of harm’s way in rush to exit• Use disciplined decision-making

tools to know when to run for cover

How to do that?

Basic Traits of Successful Investors

1. They look at objective indicators. Removing the emotions from the investing process, they focus on data instead of reacting to events;

2. They are Disciplined:  The data drives decision making with pre-established rules. External factors do not influence them;

3. They have Flexibility:  The best investors are open-minded to new ideas, or revisiting previous thoughts;

4. They are Risk adverse: Not always obvious to investors, it is a crucial part of successful investing.

Investors always will make mistakes, and many of them.The only difference between winners and losers

is that winners have small losses and losers have large losses

Observations by Ned Davis

Easiest Way toOutperform The Market

1. Be in the overall market when it’s going up, to make good gains

Fewer than 1 in 10 financial pros consistently outperform the Indexes (because of their high fees and expenses)

Owning Index ETFs also outperforms stock picking, for many individual investors.

2. Be out of overall market when it’s going down, to avoid losing most of those gains

Financial pros know clients don’t like to pay fees for sitting in cash

Easier said than done????

12 Month Moving AverageHas Been Preferred

WorkhorseBut Had Severe

Drawdowns before Triggering

Tested Each Moving Average

to Isolate the Best One

From January 2007 through June 2013

CAG = Compound Annual Gain

AAG + Average Annual Gain

mmDD = Max Monthly Drawdown

Moving Average Spreadsheet Simplifies Pegging Reversal

PointsExponential Moving Average Monthly

Performance

Color-coded, when

above Price

% Difference to gauge

momentum to spot approaching

reversals

AnnualGain

Timing Market Indexes Beats Buy-and-Hold

2013 29.7% 31.5% 36.8% 8.9% -5.9% 29.7%

Can You Top

This?

Isolate Best ETFin Select Universes

• Relative performance ranking in group average monthly gain for 1, 3, 6 months

• Asset Classes• Industry Sectors• Emerging Markets

• Automate complex spreadsheet to do detailed arithmetic, consistently

• Back-test many variations in weighting• Overlay Market Timer

To diversify your strategies,

Each month, Best ETF Snaps Out in Green

Asset Class TOPs Has Been Outstanding

2013 -1.2% 29.7%

Until 2013, when defensive assets became volatile losers

Best Sector ETF needs a Timer

to Get Out of Harm’s Way

Sector Strategy Provides Great Results with Modest

Draw-Down

2013 18.5% 29.7%

Similarly, Emerging Markets Offer

Strong Gains, but with More Volatility

Monthly Updating is Easy

Month-end Closes from Yahoo Finance

Data is Easily Available

In Summary

• Stock market is at a dangerous extreme• FED keeps pushing the highs, higher• Proven tools to avoid major downturns

are readily available and easy to use.• A few disciplined minutes at end of

every month can protect your wealth

Any Questions?

CDs with spreadsheets and tutorials are available for $50 here or by mail

• Send check to 1792 Taper Drive, 15241Coaching sessions available

• Phone 412-221-7338 to schedule session