Paper: Approaching

the Dip

John Kuest

7/13/2016

Voluminous Data Can be Simplified to Inform Business

Decisions

John Kuest

7/13/2016

PMI Talent Triangle

Talents

• Strategic Planning

• Problem Solving

• Business Model

• Risk Management

• Gather Data

• Analysis (Tools)

Strategic Planning

BI - Business Intelligence

Models – Simpler is better

Problem Statement

• We all want to be more secure with our long term finances – we want to be able to retire with less financial worries.

• The investment options faced by individuals are astronomically large. How do we distill the myriad of data into pertinent data and then summarize it into something usable.

• The solution is to condense the data into a suitable form fit into a model that produces high performance actionable recommendations.

Model

Efficient Frontier / Modern Portfolio Theory • The efficient frontier is the set of optimal

portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a given level of expected return. Optimal portfolios that comprise the efficient frontier tend to have a high degree of diversification. Portfolios that lie below and to the right of the frontier are sub-optimal, because they do not provide enough return for the level of risk or have a higher level of risk for the defined rate of return.

Risk Management

Modern Portfolio Theory - A portfolio of highly diversified group of stocks a bonds can produce optimal risk adjusted returns – better returns taking less downside risk.

Two Investments Options

Barclays Aggregate Bond Fund (AGG) and S&P 500 (SPY) 3 year Return, Monthly Data, ending August 2015 At 25% SPY and 75% AGG same risk as all AGG

Risk

Standard deviation is a popular basic mathematical concept to measure risk. Standard deviation measures the average amount by which individual data points differ from the mean. It is calculated by first subtracting the mean from each value, and then squaring, summing and averaging the differences to produce the variance. Standard deviation is the square root of the variance, bringing it back to the original unit of measure and making it simpler to use and easier to interpret.

Stock A

Average Return 10%

Standard Deviation 10%

10 - 1.65*10 = -6.5%

For “Stock A” assuming a normal distribution, 95% of the time the annual return will be greater than a NEGATIVE 6.5%. (5% of the time the annual return is worse than -6.5%)

Risk Interpretation

Screener

Data

Analysis

The Paper

Recessions - Waves

Gre

y b

ars

are

Re

cess

ion

s

Search for best bear market returns– AAII

ETF’s and Mutual Funds

Efficient Frontier Diagram

• 30% Maximum in any one Equity

• Monthly Data from May 2006 to May 2011

Voluminous Data

• 30% Maximum in any one Equity

• Monthly Data from May 2006 to May 2011

Strategic Planning

BI - Business Intelligence

PMI Talent Triangle

Questions?

John Kuest