Portfolio Manager: Felix Narhi, CFA

Transcription

1 Portfolio Manager: Felix Narhi, CFA

2 Pop Quiz: Do You Know How The Stock Market Really Works Over the Long-Term? Question 1: What percentage of stocks beat their benchmark index over their life time?

3 Pop Quiz: Do You Know How The Stock Market Really Works Over the Long-Term? Question 2: What percentage of stocks have a negative return over their lifetime?

4 Pop Quiz: Do You Know How The Stock Market Really Works Over the Long-Term? Question 3: What percentage of stocks lose essentially all of their value?

5 Answers to Stock Market Pop Quiz 1. What percentage of stocks beat their benchmark index over their lifetime? Answer: 36%. 2. What percentage of stocks have a negative return over their lifetime? Answer: 39%. Almost 2 out of 5 stocks lost money. 3. What percentage of stocks lose essentially all of their value? Answer: 18.5% of stocks lost at least 75% of their value. Source: The Capitalism Distribution The Realities of Individual Common Stock Returns (Russell 3000: ) by Blackstar Funds

6 Individual Stocks Returns vs. the Market Fat Tails Are Extremely Important For Focused Investors Source: The Capitalism Distribution The Realities of Individual Common Stock Returns (Russell 3000: ) by Blackstar Funds

7 The Top 25% of Individual Stocks Drove ALL of the Market s Long-Term Returns Source: The Capitalism Distribution The Realities of Individual Common Stock Returns (Russell 3000: ) by Blackstar Funds

8 Two Things We Know to be True in the Stock Market 1. Mean reversion is one of the most reliable forces in the stock market. 2. Stocks will reflect the performance of the underlying businesses in the long run.

9 AVOID Catastrophic Risk & Stupidity There are really just two rules of investing. Rule 1: Don t lose money. Rule 2: Don t forget rule number one. - Warren Buffett Berkshire Hathaway Chairman & CEO

10 TRADE Bob Around Stocks (aka Close the Discount) There is a time to go long. There is a time to go short. And there is a time to go fishing. - Jesse Livermore ( ) Famed American stock trader

11 BUY & HOLD Compounders To make money in stocks you must have the vision to see them, the courage to buy them and the patience to hold them. - George F. Baker ( ) U.S. financier and philanthropist

12 Aligning Your Investment Strategy With How the Market Really Works AVOID (If Possible) TRADE (Opportunistically) BUY & HOLD (Be Patient) Unrealistic lottery tickets Source: The Capitalism Distribution The Realities of Individual Common Stock Returns (Russell 3000: ) by Blackstar Funds

13 Compounders vs. Bob Around Stocks Look similar over short-term, but big difference over long-term (10 year stock charts) Syntel (Compounder) vs. S&P500 Broadcom (Bob Around) vs. S&P500 Note: You need to have strong contrarian instincts and be very good at trading to get the same return from Bob Around (BRCM) as you can by just owning a Compounder (SYNT).

14 What Do Compounders Tend to Have in Common? Most big returns racked up while smaller (cap) They spend more time hitting 52-week highs Moderately more likely to be Info Tech Have more predictive attributes than average

15 Examples in the Pender US Fund AVOID Examples Start-up biotechs (Catastrophic Risk) Herbalife - HLF ( Too Hard pile) Mining companies (No Circle of Competence) TRADE Bob Around Stocks (0-3 years) Broadcom - BRCM (Sold out in Q214) Posco - PKX (Initiated in Q414) Strayer Education - STRA (Initiated in Q114) BUY & HOLD Compounders (+3 years) Syntel SYNT (Initiated Q313) Markel MKL (Initiated Q313) Post Holdings POST (Initiated Q314)

16 Summary: Decision-Making Framework for a Focused Investor Avoid stocks that: don t fall in your circle of competence exhibit warning signs of potential catastrophic risk are in the too hard pile This will eliminate +80% of your investable universe. Be opportunistic & trade Bob Around stocks But ignore them most of time (and go fishing!) Be patient with Compounders

17 Ultimately it is the individual stocks that determine the market. - Sir John Templeton 2014 PenderFund Capital Management Ltd. All rights reserved. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The content of this presentation is intended for information purposes only and does not constitute an offer to buy or sell products or services of Pender nor is it intended as investment and/or financial advice on any subject matter. All information is gathered from sources believed to be reliable, but we make no warranty as to their accuracy. Pender s mutual funds are only available in those provinces that have approved the Simplified Prospectus for distribution.