investment and financial planning vision investment services, inc. module 5

Investment and Financial Planning

Vision Investment Services, Inc.Module 5

Our Program

• Styles of investing

• An introduction to portfolio management

• Financial Planning Tools and Techniques—Retirement Planning

• Financial Planning Tools and Techniques—College Funding

Styles of Investing

• Growth investing

• Value investing

• Top-down vs. bottom up

• Active vs. passive

• Quant investing

• Momentum investing

• Contrarian investing

• Asset allocation

• Dividend strategies

• Cyclical and sector rotation strategies

• The impact of technology

• Theme or sector investing

Growth Investing

Styles of InvestingStyles of Investing

$0.40

$0.80

$1.20

$1.60

1985 1987 1989 1991 1993 1995 1997 1999

.01 .01 .02 .03 .04 .06.10

.15.20 .23

.29

.43

.66

.84

1.42

Microsoft (MSFT)

Diluted Earnings Per Share 1985-2002

2001

1.71

1.38 1.41

Value Investing• Out-of-favor companies

• Attractive values as defined by:

– Below average price/earnings ratio

– Below average price/book ratio

EastmanEastmanKodakKodak

EastmanEastmanKodakKodak

PhotoIndustry

PhotoIndustry

Price/Earnings Ratio Price/Book Ratio

11.3

14.1

2.632.79


Eastman Kodak Eastman Kodak Vs. IndustryVs. Industry

Top Down Vs. Bottom Up

Top Down• Macro economy• Sectors• Industries• Stock screening

criteria• Manager themes• Individual stock

ideas Bottom Up• Individual stock

selection• Manager themes


Active Vs. Passive

Active

• Managers seek to beat benchmarks

– Total return

– Risk-adjusted return

• All bottom-up strategies are active

• Top-down strategies overweight or underweight sectors vs. benchmark

Passive

• Managers seek to mirror benchmarks

• Index funds

• Sector weightings and characteristics match benchmark

• Low cost, low turnover


Quant Investing


Basic Materials 3.87 1.09Energy 5.92 0.97Consumer Non-Cyclicals 9.24 0.97Consumer Cyclicals 8.09 1.05Consumer Services 5.35 0.99Industrials 3.16 0.91Utilities 2.36 1.13Transportation 1.68 0.86Health Care 15.09 1.01Technology 15.73 0.95Telecommunications 3.89 1.05Commercial Services 3.55 0.97Financial Services 22.09 1.02

% of Stocks Rel. to S&P 500

Benchmark: S&P 500 Index

Expected tracking error: 3-4%

Sector

Momentum Investing

• Hot stocks, industries and sectors

• High revenue growth

• Positive earnings stories

• Steady dividend growth


The HerdThe Herd

Identify trends in progress and participate

Contrarian Investing

• Markets are generally efficient

• The herd is over-reacting

• The herd is filled with small investors, who are usually wrong

• The herd creates inefficiencies and opportunities


The HerdThe Herd

ContrarianContrarian

Asset Allocation

Cash20%

Bonds35%

Stocks30%

Other15%

Cash10%

Bonds25%

Stocks50%

Other15%

Conservative Model Aggressive Model


Dividend Strategies

Philip Morris 6.32%

JP Morgan Chase 5.67%

General Motors 5.43%

Eastman Kodak 5.14%

SBC Comm. 3.98%

DuPont 3.30%

Honeywell 3.13%

General Electric 3.12%

Caterpillar 3.06%

AT&% 2.87%

Dogs of 2002 Dogs of 2003Div. Yield12/31/02

Div. Yield12/31/01


Eastman Kodak

6.12%

Philip Morris

5.06%

General Motors

4.12%

JP Morgan Chase

3.74%

DuPont

3.29%

Caterpillar

2.68%

SBC Comm.

2.61%

International Paper

2.48%

Merck

2.38%

ExxonMobile

2.34%

Cyclical and Sector Rotation Strategies


RecessionRecession

ExpansionExpansion

EnergyEnergy

RetailingRetailingHealth CareHealth Care

FinancialFinancial

Real EstateReal Estate

The Impact of Technology

• More information faster

• Use of computer models

• Programmed trading strategies

• Internet trading and lower transaction costs

• Day traders and high turnover strategies


Sector, Theme and Regional Investing

Sector

• Banking

• Communications

• Energy

• Gold

• Technology


Theme

• Defense against terrorism

• Biotech breakthrough

• Aging of America

• Socially responsible

Region

• Asia

• Emerging economies

• Europe

• Latin America

• Pacific Rim

investment and financial planning vision investment services, inc. module 5

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