where do we go from here? ken karr, cfp mba adam drake, cfa highland investment advisors, llc
Post on 21-Dec-2015
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Where do we go from here?
Ken Karr, CFP MBA Adam Drake, CFA
HIGHLAND INVESTMENT ADVISORS, LLC
Market Worries Global Recession Financial System Dysfunction Corporate & Consumer Credit Contraction Diminished Confidence Uncertain Global Response
Political, Fiscal, and Monetary
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Where Are We Now? Markets still work - for every seller
there is a buyer. Highest expected returns occur
when perceived risks are the greatest.
Paranoia running rampant. Valuations are depressed… but this
is good news for investors.
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Fear still elevated, but moderating
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The Chicago Board Options Exchange (CBOE) Volatility Index, a popular measure of the volatility of S&P 500, is often referred to as the fear index.
Index hit all-time high in late October, but has since moderated slightly.
Volatility… a paradigm revisited
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Are Valuations Low or Just “Fair”?
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0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0x
5x
10x
15x
20x
25x
30x
35x
S&P 500 (bars, left)
P/E Ratio (line, right)
LONG Term, Valuations Look Attractive
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10 Year Trailing P/E Ratio Since 1881
0
5
10
15
20
25
30
35
40
45
50
1881
1885
1889
1893
1897
1901
1905
1909
1913
1917
1921
1925
1929
1933
1937
1941
1945
1949
1953
1957
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
Credit Market Dysfunction
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2009
Q1
2008
Q1
2007
Q1
2006
Q1
2005
Q1
2004
Q1
2003
Q1
2002
Q1
2001
Q1
2000
Q1
1999
Q1
1998
Q1
1997
Q1
1996
Q1
1995
Q1
1994
Q1
1993
Q1
1992
Q1
1991
Q1
1990
Q1
1989
Q1
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%Spreads (right)
10 Year Treasury
AAA Corporate Bonds
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Economy Has Stalled
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
GDP Growth (left)
Unemployment (right)
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The Market’s Response To Crisis
-17%
18%
-2%
18%
-1%
-4%
7%
10%
7%6%
-2%
12%11%
12%
10%
7% 7%
12%
October 1987:Stock Market Crash
August 1989:US Savings
and Loan Crisis
September 1998:Asian ContagionRussian Crisis
Long-Term Capital Management Collapse
March 2000:Dot-Com Crash
September 2001:
Terrorist AttackAfter One Year
After Three Years
After Five Years
Annualized Return:October 1973:
OPEC Oil Embargo
Performance of a Normal Balanced Strategy: 60% Stocks, 40% Bonds
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1925 1930 1935 1940 1945 1950 1960 1965 1970 1975 1980 1985 1990 2000 2005
Average Duration:Bull Market: 32 MonthsBear Market: 11 Months
Months = Duration of Bull/Bear Mkt. % = Total Return for the Bull/Bear Mkt.
44 months193%
34 mos.-83%
2 months92%
6 months100%
3 months26%
4 months12%
23 months133%
6 mos.-30%
2 mos.-19%
6 mos.-21%
4 mos.-10%
9 months61%
5 months22%
4 mos.-16%
31 mos.-30%
49 months210%
6 months-22%
116 months491%
13 mos.-50%
5 mos.12%
7 months-10%
5 months-15%
48 mos.105%
6 mos.-22%
9 mos.55%
15 mos.35%
20 mos.-17%
61 months282%
3 mos.-30%
30 mos.71%
2 mos.-15%
92 months355%
24 mos.63%
14 months-40%
61 months108%
8 mos.-16% 19 mos.
-29% 21 months-43%
3 mos.-11%
5 mos.-15%
25 months-45%
43 months90%
26 mos.52%
30 mos.76%
33 mos.86%
14 mos.-14%
S1370.5
Bull And Bear MarketsS&P 500 Index (USD) Monthly Returns: January 1926-December 2008
S&P 500$2,048
Long-Term Returns vs. Short-Term Volatility
S1388.2
April 1999 Daily ReturnsTotal Month of April Return: 3.9%
During this month, the S&P 500 had 10 days of negative returns out of 21 trading days.
1999 Monthly ReturnsTotal Annual Return: 21%
During this year, the S&P 500 had 5 out of 12 months with negative returns.
• Even during periods of positive stock returns, investors may experience substantial volatility.
• Short-term volatility is a typical characteristic of stock market investing.
• Long-term returns are the sum of short-term volatility.
J F M A M J J A S O N D
1 15 30
-2.24%
-0.49%
-3.11% -2.36% -3.12% -2.74%
21.04%
“You already paid for the risk,
you might as well stick around
for the return.”
David Booth, CEO
Dimensional Fund Advisors
HIGHLAND INVESTMENT ADVISORS, LLC
Highland Investment Advisors Portfolio Management Solutions Diversification is the antidote to risk Structure is the strategy Risk and return are related Low costs mean you keep more of what you
make Ignore market noise!
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