Important Smith Barney Disclosures

32
Although the statements of fact and data in this presentation have been obtained from, and are based upon, sources that the firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions included in this presentation constitute the firm’s judgment as of the date of this presentation and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results. The charts depicted within this presentation are for illustrative purposes only and are not indicative of future performance. The data do not reflect the material differences between stocks, bonds, bills and inflation, such as fees (including sales and management fees), expenses or tax consequences. Common stocks generally provide an opportunity for more capital appreciation than fixed income investments but are also subject to greater market fluctuations. Corporate bonds, US Treasury bills and US government bonds fluctuate in value but, if held to maturity, offer a fixed rate of return and a fixed principal value. Government securities are guaranteed as to the timely payment of interest and provide a guaranteed return of principal. The principal value and interest on treasury securities are guaranteed by the US government if held to maturity. The Standard & Poor’s 500 Index is a market capitalization- weighted index of 500 widely held common stocks. Investors cannot directly invest in an index. Actual results may vary based on an investor’s investment objectives and portfolio holdings. Investors may need to seek guidance from their legal and/or tax advisor before investing. To the extent the investments discussed herein represent international securities, you should be aware that there may be additional risks associated with international investing involving foreign economic, political, monetary and/or legal factors. International investing may not be for everyone. Citigroup, Inc., its affiliates and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax- related statements, if any, may have been written in connection with the "promotion or marketing" of the transaction(s) or matters(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor. (c) 2008 Citigroup Global Markets Inc. Smith Barney, Consulting Group and Investment Advisory Services are divisions of Citigroup Global Markets Inc. ("CGMI"). Securities are offered through CGMI. Member SIPC. CGMI and Citibank are affiliated companies under the common control of Citigroup Inc. Smith Barney is a service mark of CGMI and its affiliates and is used and registered throughout the world. Citi and Citi with Arc Design are trademarks and service marks of Citigroup Inc. and its affiliates, and are used and registered throughout the world. Important Smith Barney Disclosures INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

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Page 1: Important Smith Barney Disclosures

Although the statements of fact and data in this presentation have been obtained from, and are based upon, sources that the firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions included in this presentation constitute the firm’s judgment as of the date of this presentation and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

The charts depicted within this presentation are for illustrative purposes only and are not indicative of future performance. The data do not reflect the material differences between stocks, bonds, bills and inflation, such as fees (including sales and management fees), expenses or tax consequences. Common stocks generally provide an opportunity for more capital appreciation than fixed income investments but are also subject to greater market fluctuations. Corporate bonds, US Treasury bills and US government bonds fluctuate in value but, if held to maturity, offer a fixed rate of return and a fixed principal value. Government securities are guaranteed as to the timely payment of interest and provide a guaranteed return of principal. The principal value and interest on treasury securities are guaranteed by the US government if held to maturity. The Standard & Poor’s 500 Index is a market capitalization-weighted index of 500 widely held common stocks. Investors cannot directly invest in an index. Actual results may vary based on an investor’s investment objectives and portfolio holdings. Investors may need to seek guidance from their legal and/or tax advisor before investing.

To the extent the investments discussed herein represent international securities, you should be aware that there may be additional risks associated with international investing involving foreign economic, political, monetary and/or legal factors. International investing may not be for everyone.

Citigroup, Inc., its affiliates and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the "promotion or marketing" of the transaction(s) or matters(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

(c) 2008 Citigroup Global Markets Inc. Smith Barney, Consulting Group and Investment Advisory Services are divisions of Citigroup Global Markets Inc. ("CGMI"). Securities are offered through CGMI. Member SIPC. CGMI and Citibank are affiliated companies under the common control of Citigroup Inc. Smith Barney is a service mark of CGMI and its affiliates and is used and registered throughout the world. Citi and Citi with Arc Design are trademarks and service marks of Citigroup Inc. and its affiliates, and are used and registered throughout the world.

Important Smith Barney Disclosures

INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

Page 2: Important Smith Barney Disclosures

Market Volatility and theLong-Term Investor

The Elm Street Group at Smith Barney

August 2008

Page 3: Important Smith Barney Disclosures

11,500

12,000

12,500

13,000

13,500

14,000

14,500

10/9

/07

10/1

6/07

10/2

3/07

10/3

0/07

11/6

/07

11/1

3/07

11/2

0/07

11/2

7/07

12/4

/07

12/1

1/07

12/1

8/07

12/2

5/07

1/1/

08

1/8/

08

1/15

/08

1/22

/08

Dow Jones Industrial Average: 10/9/07 to 1/22/08

Source: Smith Barney

-15.5%

The Recent Correction

Page 4: Important Smith Barney Disclosures

Dow Jones Industrial Average: 10/9/02 to 1/22/08

+64%

Source: Smith Barney

The Correction in Medium-Term Focus

2002 2003 2004 2005 2006 2007 20087,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

-15.5%

Page 5: Important Smith Barney Disclosures

Dow Jones Industrial Average: 12/31/77 to 1/22/08

+1340%

Source: Smith Barney

The Correction in Long-Term Focus

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

77 80 82 84 86 88 90 92 94 98 00 02 0496 06 08

-15.5%

Page 6: Important Smith Barney Disclosures

0%

10%

20%

30%

40%

Jan 1

-82

Jan 1

-84

Jan 1

-86

Jan 1

-88

Jan 1

-90

Jan 1

-92

Jan 1

-94

Jan 1

-96

Jan 1

-98

Jan 1

-00

Jan 1

-02

Jan 1

-04

Jan 1

-06

Jan-1

7-08

300 point swings in the Dow in percentage terms over time

Feb. 5, 2008: 2.45%

Source: Smith Barney

Get the Point?

Page 7: Important Smith Barney Disclosures

Dow Jones Industrial Average on a Log Scale

1987 Crash

Source: Smith Barney

A Clearer Perspective

74 76 78 80 82 84 86 88 90 94 96 98 0092 02 04 06 08

1973-74 Bear

Market

2000 to 2002 Bear Market

Page 8: Important Smith Barney Disclosures

Is the Market Getting Riskier?

“Postponing an attractive purchase because

of fear of what the general market might do

will, over the years, prove very costly.”

Philip A. Fisher

Page 9: Important Smith Barney Disclosures

0

25

50

75

100

125

150

77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07

30-Year Average:

57

Daily Moves in the S&P 500 Index of More Than 1%

Source: Smith Barney

Volatility Cycles

Page 10: Important Smith Barney Disclosures

77 8373

473743

0

20

40

60

80

100

12/77 - 12/87 12/87 - 12/97 12/97 - 12/07

Positive Monthly Returns Negative Monthly Returns

Monthly Returns on the S&P 500December 1977 Through December 2007

Source: Smith Barney

What About the Down Side?

Num

ber o

f Mon

thly

Ret

urns

Page 11: Important Smith Barney Disclosures

A Look at Some Other Popular Asset Classes

• Treasury Bonds

• Corporate Bonds

• Treasury Bills

• Other Cash Instruments

Page 12: Important Smith Barney Disclosures

$0

$1

$10

$100

$1,000

$10,000

$100,000

1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2007

Cumulative Return on an Invested Dollar: 1926 Through 2007

Small Cap Large Cap LT Gov Bonds T-Bills Inflation

$15,092

$3,255

$77

$20$12

Source: Smith Barney

And the Winner Is . . .

Page 13: Important Smith Barney Disclosures

3.1%3.7%5.4%

10.4%

12.5%

Small Stocks

Large Stocks

LT GovBonds T-Bills Inflation

Annualized Returns: 1926 Through 2007

Source: Smith Barney

Rates of Return

Page 14: Important Smith Barney Disclosures

434443

36

1510

20

11

57

00

10

20

30

40

50

Annual Rolling 5 Year Rolling 10 Year Rolling 20 Year

StocksLT GovBonds

T Bills

Top Performing Asset Class 12/31/45 Through 12/31/07

Source: Smith Barney

Leader of the Pack

Num

ber o

f Per

iods

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Where Do We Go From Here?

“An investor who has all the answers

doesn't even understand the questions.”

Sir John Templeton

Page 16: Important Smith Barney Disclosures

Average: -31.8% 13.7 26.2

Declines of 20% or More in the S&P 500: 1950 Through 2007

864

203

7021

71411

2000-02199019871980-821973-741968-70196619621956-57

-49%-20%-34%-27%-48%-36%-22%-28%-22%

30.5 3 3 19 21 18 8 6 15

Decline(in months)

Recovery(in months)Date

Peak-to-Trough

Source: Smith Barney

The Bear Facts

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The Real Story

“The true objective for any long-term investor

is maximum total real return after taxes.”

Sir John Templeton

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Average:

-34.5% 14.3 42.8

Declines of 20% or More in S&P 500: Total Return After Inflation

?

20

123

29

10

32

2000-02

1987

1973-74

1968-70

1962

1946-48

-47%

-30%

-52%

-35%

-23%

-20%

23

3

21

18

6

15

Decline(in months)

Recovery(in months)Date

Peak-to-Trough

Source: Smith Barney

The Bear Facts II

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72 73 74 75 76 77 78 79 80 81 82 83

$100,000

Investor #3 adds $25,000

$351,758

$244,301

Cumulative Growth of Three PortfoliosDec. 31, 1972 Through September 1984

$93,451

Investor #2 stays in stocks

Investor #1 sells stocks, earns 5% return

Source: Smith Barney

Note: The above represents a hypothetical investment and does not reflect the deduction for investment-management fees or transaction costs. Actual results would be reduced by these costs.

The Case for Waiting Out the Storm

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62 67 72 77 82 87 92 97 02 07

$10,000

$10,000 $10,000

$10,000

$10,000$2.74 million

Stocks Treasury Bills

$502,716

Cumulative GrowthDecember 1961 Through December 2007

$10,000

$10,000

$10,000

Buying at the Top

Source: Smith BarneyNote: The above represents a hypothetical investment and does not reflect the deduction for investment management fees or transaction costs. Actual results would be reduced by these costs.

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62 67 72 77 82 87 92 97 02 07

$10,000

$10,000 $10,000

$10,000

$10,000

$10,000 $3.68 million

$469,367

$10,000

$10,000

Stocks Treasury Bills

Cumulative GrowthDecember 1961 Through December 2007

Buying at the Bottom

Source: Smith BarneyNote: The above represents a hypothetical investment and does not reflect the deduction for investment management fees or transaction costs. Actual results would be reduced by these costs.

Page 22: Important Smith Barney Disclosures

What the Experts Say About Market Timing

“I have never met a person who could forecast the market.” Warren Buffett

“Don’t try to buy at the bottom and sell at the top. This can’t be done—except by liars.”

Bernard Baruch

“There is no basis for assuming the average investor can anticipate market movements more successfully than the general public, of which he is a part.” Benjamin Graham

Page 23: Important Smith Barney Disclosures

And the Losers . . .

“It’s no trick at all to be right on the market.”

Jesse Livermore

A famous Wall Street trader during the

“Roaring ’20s,” Livermore lost his entire

fortune in a failed effort to time the stock

market.

Page 24: Important Smith Barney Disclosures

3.6%5.2%

7.0%9.0%

11.3%

14.4%

0%

5%

10%

15%

20%

Full Period Less the 10Biggest Up

Days

Less the 20Biggest Up

Days

Less the 30Biggest Up

Days

Less the 40Biggest Up

Days

Less the 50Biggest Up

Days

Annualized Increase in the S&P 500: 1980 Through 2007Net of Dividends

Source: Smith Barney

Easy Boat to Miss

Page 25: Important Smith Barney Disclosures

FollowingDayDate

FollowingYear

FollowingWeek

+5.3% +2.4% +5.1% +3.9% +1.7% +4.7% +2.3% +2.8% +3.3% -1.1%

#1 Oct. 19, 1987#2 Oct. 26, 1987#3 Oct. 27, 1997#4 Aug. 31, 1998#5 Jan. 8, 1988#6 May 28, 1962#7 Sept. 26, 1955#8 Oct. 13, 1989#9 April 14, 2000#10 June 26, 1950

-20.5%-8.3%-6.9%-6.8%-6.8%-6.7%-6.6%-6.1%-5.8%-5.4%

+23.2% +23.6% +21.5% +37.9% +15.3% +26.1% +7.5% -4.8% -12.8% +17.6%

+1.3%+12.3% +7.1% +1.7% +3.6% +3.2% -0.3% +4.1% +5.8% -2.6%

Average:

-8.0% +3.0% +15.5%+3.6%

10 Worst Days for the S&P 500: 1950 Through 2007

Source: Smith Barney

On the Rebound

Decline

Page 26: Important Smith Barney Disclosures

77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07

Buy and Hold Market Timing

$3.87 million

$1.71 million

Returns on a Buy-and-Hold Approach Versus a Market-Timing Strategy

December 1977 Through December 2007

The Costs of Short-Term Investing

Source: Smith BarneyNote: The above represents a hypothetical investment and does not reflect the deduction for investment management fees or transaction costs. Actual results would be reduced by these costs.

Page 27: Important Smith Barney Disclosures

A Bad Time for Bad Timing

• Bear markets can be points of maximum vulnerability to poor market-timing decisions.

• Historically, net cash outflows by investors have marked major market bottoms.

Page 28: Important Smith Barney Disclosures

A Winning Hand

“The stock market is like a gambling

casino where the odds are rigged in

favor of the players.”

Burton Malkiel

Page 29: Important Smith Barney Disclosures

Distribution of Returns on the S&P 500: 1926 Through 2007

-40%-50%

-30%-40%

-20%-30%

-10%-20%

0%-10%

0% +10%

+10% +20%

+20% +30%

+30% +40%

+40% +50%

+50% +60%

1931 1937 19301974

192819351958

1947194819561960197019781984198719921994

1927193619381945195019551975198019851989199119951997

19261944194919521959196419651968197119721979198619881993

19331954

1982

1942194319511961196319671976

1983199619981999

1929193219341939194019461953196219691977198119902000

19411957196619732001

2002

2003

2004

2005

Up Years: 59 (72%)

Down Years: 23 (28%)

2006

Source: Smith Barney

The Odds Favor the Long-Term Investor

2007

Page 30: Important Smith Barney Disclosures

Source: Smith Barney

More Hits Than Misses

Probabilities of Various Annual Returns 1926 Through 2007:

Up 10% or more: about 3 in 5 Up 20% or more: about 2 in 5 Up 30% or more: about 1 in 5

Down 10% or more: 1 in 8 Down 20% or more: 1 in 16 Down 30% or more: 1 in 40

Page 31: Important Smith Barney Disclosures

Positive and Negative Returns on the S&P 500: 1945 Through 2007

Negative ReturnsPositive Returns

One-Year Periods

Five-Year Periods

Ten-Year Periods

485314 5

Source: Smith Barney

Time Pieces

53

Page 32: Important Smith Barney Disclosures

In a Nutshell:

• Volatility is a fact of life in the stock market.

• Over the long run, stocks have offered significantly higher returns than bonds or T-bills.

• Market timing can be an expensive undertaking.

• Historically, the odds have favored the bulls.

“Patience is a necessary ingredient of genius.”

Benjamin Disraeli