How to Survive an Anaconda Attack:
Investment Strategies in Volatile Times
Bruce E. Brinkman
Certified Financial PlannerTM, Tax Services
Allen, Gibbs & Houlik, L.C.
May 20, 2009
Lessons from a “black swan”
“We act on the facts and logic when
it comes to our money.”
Fact: Our emotions drive many of the
decisions we make about our finances,
particularly our investments.
Lessons from a “black swan”
“The smarter you are, the more
money you’ll make.”
Fact: Intelligence is a poor indicator of
financial success.
Lessons from a “black swan”
“The more closely you follow your
investments, the more money you’ll
make.”
Fact: The passive investor usually beats
the active trader.
Lessons from a “black swan”
“Stocks outperform bonds
in the long run.”
Fact: Bonds outperformed stocks
from 1968 to 2009.
Lessons from a “black swan”
“More asset classes = lower risk”
Fact: Low correlated assets = lower risk
© 2008 John Trever, Albuquerque Journal
http://editorialcartoonists.com/cartoon/display.cfm/59549
How to survive an anaconda attack
Adapted with permission from Burt White.
How to survive an anaconda attack
The largest recorded anaconda was 37.4 ft
long and weighed more than 500 lbs.
That’s a big snake!
How to survive an anaconda attack
If attacked by an
anaconda, do not
run. The anaconda
is faster than you.
How to survive an anaconda attack
Lie flat on the
ground. Do not
panic. The anaconda
will begin to climb
all over your body.
Be calm.
How to survive an anaconda attack
After the anaconda
has examined you, it
will begin to swallow
you beginning with
your feet. Be calm.
How to survive an anaconda attack
Permit the anaconda
to swallow your feet
and ankles.
Do not panic.
How to survive an anaconda attack
The anaconda will
suck your feet
into its body. Be
still. This will take
a long time.
How to survive an anaconda attack
When the anaconda
has almost fully
swallowed your legs,
calmly remove your
knife and kill the
snake.
How to survive an anaconda attack
Be sure you
have your knife.
How to survive an anaconda attack
If attacked by an anaconda, do not run. The
anaconda is faster than you.
Lie flat on the ground. Do not panic. The anaconda
will begin to climb all over your body. Be calm.
After the anaconda has examined you, it will begin to
swallow you beginning with your feet. Be calm.
Permit the anaconda to swallow your feet and
ankles. Do not panic.
How to survive an anaconda attack
The anaconda will suck your feet into its body. Be
still. This will take a long time.
When the snake has almost fully swallowed your
legs, calmly remove your knife and kill the snake.
Be sure you have your knife.
How to survive a bear market
If attacked by a bear market, do not run. The bear
market is faster than your money.
Lie flat on the ground. Do not panic. The bear market
will begin to climb all over your money. Be calm.
After the bear market has examined your money, it
will begin to swallow your money. Be calm.
How to survive a bear market
The bear market will begin to swallow your money.
Be still. This will take a long time.
When the bear market has almost swallowed your
money, calmly remove your knife and kill the bear
market.
Be sure you have your knife.
How to survive a bear market
What is your knife?
An investment
strategy
A sharp knife
A wide knife
Microsoft
Christmas card,
1978
Diversification?
Portfolio
American Funds
Growth Fund of
America
American Funds
Fundamental
Investors
50/50 “All American”
Portfolio
5-year
return
Standard
deviation
3-year
.61%
18.51
-34.06% -8.55% 2.34%
19.24
-33.16% -8.74% 1.47%
18.87
12-mo.
return
3-year
return
-33.26% -8.92%
Asset-class menu
Equities:
•
•
•
•
•
•
•
Large-cap growth
Large-cap value
Mid-cap
Small-cap
International
Real estate
Alternative
Asset-class menu
Fixed income:
• Cash
• Short-term bonds
• Int./Long-term bonds
The key to diversification: correlation
Correlation to the S&P 500 Index from 1970-2004
Cash
Bonds
REITs
0
Growth stocks
Mid cap stocks
+1
Alternative
No correlation
Foreign stocks
Value stocks
Small cap stocks
High correlation
The key to diversification: correlation
Correlation to the S&P 500 Index from 2006-2009
REITs
Cash
Bonds
0
+1
Alternative
No correlation
Growth stocks
Mid cap stocks
Foreign stocks
Small cap stocks
Value stocks
High correlation
“Big Squeeze” portfolio
Intermediate-term
fixed income (0.5%)
International
(13.3%)
Cash (2.2%)
U.S. large-cap
growth (38.3%)
U.S. smallcap (15.5%)
U.S. midcap (11.9%)
U.S. large-cap
value (18.3%)
The “Big Squeeze”
Total returns
Portfolio
YTD
The Big
Squeeze
3%
12month
3-year 5-year
-32.29% -10.08%
-.69
Standard
deviation
3-year
20.28
“Survivor” portfolio
Cash (10%)
Intermediate-term
fixed income
(10%)
Short-term
fixed income
(20%)
Real
estate/alternative
(10%)
U.S. large-cap growth
(10%)
U.S. large-cap
value (12%)
U.S. smallcap (12%)
International (16%)
The “Survivor”
Total returns
Portfolio
YTD
The Big
Squeeze
3%
The
Survivor
.30%
123-year 5-year
month
Standard
deviation
3-year
-32.29% -10.08%
-0.69
20.28
-19.76%
1.66
14.78
-4.38%
“Survivor II” portfolio
Cash (10%)
Intermediate- term
fixed income
(10%)
U.S. large-cap growth
(8%)
U.S. large-cap
value (10%)
U.S. small-cap
(10%)
Short-term
fixed income
(20%)
International (12%)
Real
estate/alternative
(20%)
Comparison
Total returns
Portfolio
YTD
The Big
Squeeze
3%
The
Survivor
12month 3-year 5-year
Standard
deviation
3-year
-32.29% -10.08%
-0.69%
20.28
.30%
-19.76%
-4.38%
1.66%
14.78
The
Survivor II
2.19%
-16.95%
-3.14%
2.12%
14.09
50/50 “AllAmerican”
7.59%
-33.16%
-8.74%
1.47%
18.87
Bad news:
There are more animals in the jungle
The complete toolbox:
A comprehensive financial plan
© 2008, Joe Heller, Green Bay Press-Gazette
http://www.hellertoon.com/main.html
Questions?
Thank you!
Bruce E. Brinkman
Certified Financial PlannerTM, Tax Services
[email protected]
(316) 267-7231