the future for investors - siegel - group 4.ppt

7/24/2019 The Future for Investors - Siegel - Group 4.ppt

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The Future for

Investors

by Jeremy Siegel

Kevin Kranzler

Lisa LajeunesseRay Ng

John Schmidt


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Agenda

Who is Jeremy Siegel?

Part 1: The Growth Trap

Part 2: Overvaluig the !ery "ew Part #: Sour$es o% Sharehol&er!alue

Part ': The (ge Wave Part ): Port%olio Strategies

Overall *oo+ ,eview


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Jeremy Seigel, Ph.D.

Pro%essor o% -ia$e at theWharto S$hool o% the

.iversity o% Pesylvaia ,e$eive& may awar&s over his$areer

The Seior /vestmet Strategy(&visor o% Wis&om Tree/vestmets /$0


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Part 1

The GrowthTrap


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The Growth Trap

veryoe wats to beat themar+et3 4 ivest i the e5t

big thig0

6owever7 as Siegel poits out7

pursuig returs throughgrowth $otiually &isappoitsivestors0


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Example

Growth Measures IBM Standard Oil of NJ AdvantageRevenue Per Share 12.19% 8.04% IBM

Dividends Per Share 9.19% 7.11% IBM

Earnings Per Share 10.94% 7.47% IBM

Sectr !r"th 14.#$% 14.22% IBM

&a'(e 1.1) *nnua( !r"th Rates+ 19$0200,


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What at!ally happened"

/*8: 91 iitial ivestmetbe$ame 9;


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#ow i$ thi$ po$$i%le"

Return Measures IBM Standard Oil Advantage

of NJ

Price *--reciatin 11.41% 8.77% IBM

Dividend Return 2.18% $.19% Standard i(

/

Total Return 13.3! 1"."#! Standard Oil

of NJ

&a'(e 1.,) Surce / Returns / IBM and Standard i( /

Standard i( / + 19$0200,


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What matter$&

=og>term returs o sto$+&epe&s ot o the a$tual

growth o% its earigs but ohow those earigs $ompare towhat ivestors e5pe$te&


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'oo(ing )or the *orporateEl Dorado

The Gol&e $ompay that$otiually per%orms better

tha the mar+ets Siegel $ompute& the P@ ratio%or all ) %irms o the S4P

a& $ompute& their pri$es


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What Siegel +o!nd

6igh P@ sto$+s ear lower returs a& lowP@ sto$+s ear high returs7 o average

19$7 Initia( 200, Investent *nnua( Rate

Investent 3a(ue / Return

ighest Priced Stc5s 61+000 6$#+##1 9.17%SP $00 Benchar5 61+000 61,0+7#8 11.18%

"est Priced Stc5s 61+000 642#+4#8 14.07%


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*harateri$ti$ o) *orp ElDorado-$

arigs e5pe$tatios are olyslightly above average7 but a$tualearigs growth was $osi&erably large

"o P@ ratio was above 2A (ll pai& $ostat a& risig &ivi&e&s

8ost have high Buality bra& amere$ogiCe& pro&u$ts that are mar+ete&

worl&wi&e Dosumer have trust i their pro&u$tBuality


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Ran$ #%%3 Na&e A''u&ulation Annual

of (1%%% Return

1 Phi((i- Mrris 64+#2#+402 19.7$%

2 *''tt a's 61+281+,,$ 1#.$1%

, Brist(Mers S:ui'' 61+209+44$ 1#.,#%4 &tsie R(( Industries 61+090+9$$ 1#.11%

$ P/i;er 61+0$4+82, 1#.0,%

#


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Setor Growth

/vestmet strategies base&o i&ustry@se$tor are

growig i popularity

8orga Staley 4 Gol&ma

Sa$hs


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S!mmary

Eo ot be se&u$e& by that hotew $ompay or ivestors

Overwhelmig &ema& %orsto$+s overvalues thosesto$+s whi$h lowers the

retur %or ivestors


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Part /0eral!ing the 2ery

+ew


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#ow To Spot a 3!%%le

10F !aluatios are $riti$al

20F "ever -all i =ove with your

Sto$+ #0F *eware o% =arge7 =ittleow Dompaies

'0F (voi& Triple Eigit P@,atios

)0F "ever Sell Short i a *ubble


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4e$pon$e to Wall StreetJo!rnal Artile

Goo& morig7 8r0 Siegel0 / hopeyou3re happy0 Hou $ost me

91'70 %or o reaso What&o you have agaist this mammoth$ompay? (re you Iealous be$ause

you &i&3t get i o the ru>up?Ei& you wat to buy i $heaper?Hou have o busiess ma+ig&e$isios li+e this0 (%ter all7you3re still a $hil& whe it


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4e$pon$e to Wall Street

Jo!rnal ArtileHou3re a pres$hooler i &iaperswhe it $omes to re$ogiCigopportuities0 *y the way7 whewas the last time you got lai&?Hou3re a party pooper0 Tha+s a

lot7 Ier+0 / suggest you go tothe streeta&visor0$om to rea&about why you3re so wrog i&iot0

Eo you eve +ow how to get a


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/vestig i the "ewest o%the "ew

5P0 4 l ti 4 t


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5P0 4elatie 4et!rn$

=igure #.2 *nnua(i;ed Returns n >ear(9 IP Prt/(is Minus Returns n S

Stc5 Inde?+ Returns Measured &hrugh Dece'er ,1+ 200,


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*reatie De$tr!tion

/ovative etry by etrepreeurs isthe %or$e that sustais e$oomi$growth

> wi+ipe&ia0$om /vestors i /PO3s are a$tually otma+ig moey the grou& %loorF

/% the ew are ot ma+ig moey %or

ivestors the who is attaiigpro%its?

!eture Dapitalists

/vestmet *a+s


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*apital Pig$

Te$hology is a pro&u$tivity$reator7 a& a value &estroyer

Pro%its reiveste& ito the$ompay is moey that is otpai& out i &ivi&e&s7

&estroyig ivestor retur -alla$y o% Dompositio


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*apex 4atio

S A t


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S!e$$ Among$t+ail!re

Wal>8art3s Strategy %orSu$$ess

Southwest (irlies low $oststru$ture

"u$or Steel use o% ew

te$hology


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Winning 6anagement

$osiste$y o% the $ompay7 a& ourability to proIe$t its philosophiesthroughout the whole orgaiCatio7eable& by our la$+ o% layers a&bureau$ra$y

The busiess stru$ture shoul& loo+

to always miimiCe $osts Ee%ie the largest $otrollable $osta& miimiCe it7 this is a $ompay3s$ompetitive a&vatage


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S!mmary

"ever %orget the %u&ametals o%ivestig

Wat$h out %or bubbles /PO3s are a ba& ivestmet %orivestors7

/&ivi&ual $ompay aalysis is

importatK loo+ %or =ower Dape5 ,atios =ow P@ ratios

Wiig maagemet


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Part #:Sour$es o%

Sharehol&er value

i i i


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*orrelation %etween Diidend$and 4et!rn$

6igher &ivi&e& payig$ompaies provi&e greater

returs =ower &ivi&e& payig $ompaiesprovi&e less returs

"ot Iust &ue to e5tra $ash %low


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Diidend$ to *apital Gain$


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P!rpo$e o) Diidend$

Provi&es $re&ibility

/&i$ates real earigsShows stregth i timeo% e$oomi$ &owtur

Pri$e &rops a& &ivi&e&yiel& goes up


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5mportane o) 3ear mar(et$

ne reasn /r the crre(atin

@dividendsAreturnsB

Reinvest @increasedB dividends at ("er-rice


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Phillip 6orri$ Example

Digarette $ompay %a$iglawsuits a& %ier$e $ompetitio

Share pri$e %ell but &ivi&e&srose

,eiveste& &ivi&e&s 3;2>3#Fi$rease& shares by 1L

A01)L aually M traile& mar+et Pri$es re$overe& a& retursmagi%ie&

6 i E i t 2 l


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6ea$!ring Earning$ to 2al!e a*ompany

"et /$ome M sa$tioe& by-(S*@G((P

Operatig /$ome M re$o$ilesoe>time $ost@reveues 8ore a$$urate > restru$turig

$osts 8aager i&is$retio >amortiCatio


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4ed )lag$ to wath o!t )or

Optio e5peses Eo ot legally have to be re$or&e& ase5peses

"ot a$$urate portrayal i /$omestatemet

Pesio Pla Stru$ture

Serious $laim o %uture earig 6igh ($$ruals

/&i$ate low Buality earigs


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S!mmary

There is a positive$orrelatio betwee &ivi&e&s

a& returs There are umerous ways tovalue a $ompay


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Part 7/

The Age Wae


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3a%y 3oomer$ 8 3a%y 3!$t


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Pro%lem$

=ower pro&u$tivity %rom &e$rease&wor+%or$e

/$rease& &ema& %rom more retirees ,etirees sell their assets &urigretiremet -loo& o% %ia$ial assets o mar+et

Erive pri$es o% eBuities a& bo&s &ow Se$urities3 value is &etermie& bypri$e buyer is willig to pay


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6ore Pro%lem$

,etiremet age is &e$reasig

People are livig loger ,esults i loger o>wor+igtime

Greater pesio@plaig ee&s

-astest age bra$+et growth isage 1N


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Po$$i%le Sol!tion$

,e&u$e bee%its o% pesioplas

Ee$rease the sta&ar& o% livig Dreates geeratioal $o%li$t

/$rease Pro&u$tivity

O%%sets the populatio imbala$e Ei%%i$ult to$reate@pre&i$t@&epe& o


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Po$$i%le Sol!tion$

/$rease /mmigratio /$rease pro&u$tivity

' millio people will bereBuire& to o%%set thepopulatio wave


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The Glo%al Sol!tion

Eevelopig $outries haveopposite populatio wave tha

the Eevelope& $outries /&ia a& Dhia $a supportthe wester $outries withgoo&s a& servi$es@buy assets

8aitai the sta&ar& o%livig i &evelopig $outries


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The Glo%al Sol!tion 9:


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The Glo%al Sol!tion 9;:

able agig atios to eIoyloger retiremet

Dommui$atios revolutio will ai&i e$oomi$ growth M %ree %low o%i%ormatio

-ree tra&e will be$ome

i$reasigly importat (&va$e the globaliCatio o% theworl&3s e$oomi$ system


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S!mmary

*aby boomers retiremet poisea &i%%i$ult trasitio perio&

%or ivestors /vestors must see+ a globalsolutio


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Part


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Glo%al 6ar(et Trend$

Growth Prospe$ts i Dhia 4/&iaGrowth Trap 5ample: *raCil vs0 Dhia

mergig Dhiese $oomy

6ome Buity *ias Dorrelatio o% .S 4 Worl&mar+ets


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World Port)olio

,e$omme&e& (llo$atio base& eBuity

'L %oreig>base& eBuity

6ow to /vest (broa& Global /&e5 -u&s

=ow $ost a& e5$ellet returs 8orga Staley Dapital /teratioal/&e5

8ost i$lusive o>.0S /&e5e& -u&


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Glo%al 5ne$tment Tool$

8SD/ (- /&e5

Eow Joes Wilshire Total

Sto$+ /&e5 !ipers

Spi&ers

Dubes

Eiamo&s


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6S*5 EA+E 5ndex


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+!t!re Strategie$

-uture is bright %orivestors

Growth i emergig mar+ets -uture sto$+ per%orma$e

Sto$+s to pur$hase

/itially broa&est i&e5possible

E>/>! Eire$tives


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D=5=2 Diretie$

Diidend$ *uy sto$+s that have sustaiable

$ash %lows a& retur &ivi&e&s

5nternational ,e$ogiCe shi%t o% e$oomi$ power

2al!ation ($$umulate shares with reasoable

valuatios relative to e5pe$te&growth

(voi& /POs7 hot sto$+s7 must>haveivestmets


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Ta%le 1>.7 2al!ationStrategie$, 1?=@@;


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S!mmary

S!mmary


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0erall 3oo( 4eiew

Overall the boo+ provi&e& may%a$ts

6as pra$ti$al lessos to utiliCei to&ay3s mar+et

This boo+ emphasiCes everythigyou lear i .iversity whe it

$omes to ivestig (llo$atio port%olio a use%ulstrategy give a log time horiCo

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