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![Page 1: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/1.jpg)
Investment SIGThursday, January 14, 2010
Agenda Market Update Presentation and Discussion on Investment
Diversification Download Demonstration - Ben Anthony Open Discussion on Investment Opportunities
and Cautions Inputs from Attendees:
• Investment Information Exchanges• Preferences for Future Subjects
![Page 2: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/2.jpg)
Investment SIGThursday, January 14, 2010
Agenda Market Update
![Page 3: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/3.jpg)
Market Update
Market Update
• Yahoo Finance • DJIA stock trends
• Vanguard Total Bond Index (VBTLX)
![Page 4: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/4.jpg)
Investment SIGThursday, January 14, 2010
Agenda Market Update Presentation and Discussion on
Investment Diversification
![Page 5: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/5.jpg)
Investment Diversification
Reduce Risk
And Increase Return
![Page 6: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/6.jpg)
Diversification (The Theory)
Modern Portfolio Theory (MPT) Invented circa 1950 by Harry Markowitz
• (He received the Nobel Prize in Economics in 1990)
Told how to combine stocks in a portfolio to give the least risk for the return sought
He found that a portfolio of risky stocks could be purchased in such a way so that the whole portfolio was less risky than the individual stocks in it.
![Page 7: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/7.jpg)
Diversification(More onThe Theory)
The key is to select securities that have correlation coefficients that are less than
one. How can you tell the correlation?
• MPT uses R Squared, Beta, and Alpha to measure this for mutual funds• R Squared of 100 correlates exactly with a
referenced index. A 25 means it is only moves about 25% in the same direction as the index
![Page 8: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/8.jpg)
Diversification(More onThe Theory)
How can you tell the correlation?• MPT uses R Squared, Beta, and Alpha to measure
this for mutual funds• R Squared of 100 correlates exactly with a referenced
index. A 25 means it is only moves about 25% in the same direction as the index
• Beta measures the volatility or degree of movement with the index. A 1.5 Beta means that if the index moves up 10 points, the mutual fund moves up 15 points
• Alpha measures the performance or contribution of a mutual fund manager relative to the indes
![Page 9: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/9.jpg)
Diversification(More onThe theory)
Most important is the allocation of investments according to asset classes such as:• Stocks, Bonds, Cash, Commodities, Real Estate, Gold
Also, next allocate with in the asset classes to:• Geography (Developed and / or Emerging Markets)
• Sectors of the economy
![Page 10: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/10.jpg)
Diversification (The Practice)
Does it work? There are many successful examples of the
application of the MPT since it was developed• Studies show that the volatility of a portfolio of a
single stock portfolio can be reduced 40% by increasing the portfolio to 20 stocks.
• However, the best effect is to mix the most risky with safest investments—especially if they don’t have correlations approaching one.
![Page 11: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/11.jpg)
Diversification(The Practice)
Does it work? One must balance risk and returns. A
totally risk free portfolio will be eroded by inflation over the years
Look for middle ground between asset preservation and potential gain
![Page 12: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/12.jpg)
Diversification(The Practice)
NOTE:
• Although a rising tide floats all boats • A Tsunami will upset nearly all boats and sink
many.
However, even though diversification becomes temporarily thwarted by a financial panic, when markets recover to “normal times” diversification becomes ever more importance to recover your losses in a rational way
![Page 13: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/13.jpg)
Diversification(The Practice)
Does it Work?
• All 12 Morningstar stock sectors suffered double digit losses for 2008 but:• The average Financial stock lost 40%
• The average Health care stock lost 20%
![Page 14: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/14.jpg)
Diversification(The Practice)
Does it work? In the 2008 a Vanguard 500 index
mutual fund lost 37% With a mix of 80 %Vanguard 500 and of
20% the Vanguard Total Bond, a portfolio would have lost 29%
A mix of 60% / 40% would have lost 20%
![Page 15: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/15.jpg)
Diversification(The Practice)
How do you diversify?• Assess your own risk tolerance
• Decide what asset classes are OK for you and what percent to put in them• There are web sites that offer calculators for asset
allocation and comparisons for age standards
![Page 16: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/16.jpg)
Diversification(The Practice)
How do you diversify? (Keep the theory in mind ):• Decide how much to put into bonds
• Decide the amount for equities and which of the 12 Equity Sectors you wish to invest in and in what proportion
• Decide geographically where you want to invest
![Page 17: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/17.jpg)
Diversification(The Practice)
How do you diversify? Some Tools:• You can construct model portfolios in several
web sites to watch the performance hypothetically if you choose.
• The calculators will show your allocation percentages for your portfolio and compare them with standards for your age
![Page 18: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/18.jpg)
Diversification(The Practice)
How do you diversify? Some Tools:• Morningstar has a portfolio X-Ray tool that will
analyze you entire portfolio, including mutual funds and ETFs.
• It will show how many dollars you have in various categories and in every stock in your mutual fund portfolio as well.
![Page 19: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/19.jpg)
Diversification(The Practice)
How do you diversify for a balanced return?• Common mistakes:
• Dividing investments among many stocks or funds that are in the same sector
• If you use advisors or multiple advisors, failing to telling them your total picture may yield a sub optimized diversification
![Page 20: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/20.jpg)
Diversification – 2nd Opinions
Does everyone agree with MPT and Diversification: NO• Warren Buffet: Diversification is protection from
ignorance. Put your eggs in one basket and watch it
• Peter Lynch: Deworsification
• Charlie Munger: Wider investment = mediocre
My Observation about insiders and internal knowledge: Facts do not always predict stock prices.
![Page 21: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/21.jpg)
Investment Diversification
The End
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Investment SIGThursday, January 14, 2010
Agenda Market Update Presentation and Discussion on
Investment Diversification Download Demonstration - Ben
Anthony
![Page 23: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/23.jpg)
Download of MLP Data DemoBy Ben Anthony - MSN Money.com
Secto
r
TIC NameRec Price $ $ Current
Distrib
% Yield Expected Return %
Curr Pricechng from
10 02curr yield
A BPL Buckeye Partners LP 3 47.87 3.65 7.62 12.87A CLMT Calumet Spreciaties Products PzA GLP Global Partners LP 2 24.01 1.95 8.12 11.12A HEP Holly Energy Partners LP 2 37.60 3.14 8.35 14.10A KMP Kinder Morgan Energy Partners LP 1 53.36 4.20 7.87 13.87 55.70 2.34 7.54A KMR Kinder Morgan Management LPA MMP Magellean Midstream Partners LP 2 37.42 2.84 7.59 13.59A NS NuStar Energy LP 2 50.81 4.23 8.36 14.86A SXL Sunco Logistics Partners LP 2 58.96 4.16 7.08 15.81A TPP TEPPCO Partners LP 34.42 2.90 8.45 11.70A TLP Transamentalgne Partners LPB APL Atlas Pipeline Partners LP 2 6.98B CPNO Copano Energy LLC 1 17.53 2.30 13.12 14.08 18.82 1.29 12.22B XTEX Crosstex Energy LP 2 5.00B DPM DCP Midstream Partners LP 1 24.36 2.40 9.85 11.82 25.35 0.99 9.47B EROC Eagle Rock Energy Partners LP 2 4.13 0.10 2.42 -91.44B EXLP Exterran Partners LP 2 17.86 1.85 10.36 20.01B HLND Hiland Partners LPB MWE MarkWest Energy Partners LP 1 23.25 2.56 11.01 11.67 23.84
B MMLP Martin Midstream Partners LP
B KGS Quicksilver Gas Services LP
B RGNC Regency Energy Partners LP 1 19.00 1.78 9.37 13.08B NGLS Targa Resources Partners LP 1 18.50 2.07 11.19 14.94B WES Western Gas Partners LP 1 17.51 1.20 6.85 13.41B WPZ Williams Partners LP 2 22.66 2.54 11.21 13.46C BWP Boardwalk Pipeline Partners LP 2 24.84 1.96 7.89 13.69C CQP Cheniere Energy Partners LPC DEP Duncan Energy Partners LP 2 19.45 1.74 8.95 13.95C EPB El Paso Pipeline Partners LP 1 20.31 1.32 6.50 18.50C ETP Energy Transfer Partners LP 1 41.85 3.58 8.58 12.21C EPD Enterprise Products Partners LP 1 27.82 2.18 7.84 14.34
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Investment SIGThursday, January 14, 2010
Agenda Market Update Presentation and Discussion on
Investment Diversification Download Demonstration - Ben Anthony Open Discussion on Investment
Opportunities and Cautions
![Page 25: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/25.jpg)
Open Discussion
Any one impressed with any specific stocks, bonds, ETFs?
How about Economic Sectors or Geographic areas?• Energy?
• Utilities?
• New Technology?
![Page 26: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/26.jpg)
Investment SIGThursday, January 14, 2010
Agenda Market Update Presentation and Discussion on Investment
Diversification Download Demonstration - Ben Anthony Open Discussion on Investment Opportunities
and Cautions Inputs from Attendees:
• Investment Information Exchanges• Preferences for Future Subjects
![Page 27: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/27.jpg)
Inputs from Attendees
Emails I send as SIG Information Exchanges:• Feed Back?
• Useful?
• What percent of them do you read?
• Suggestions for improvements?
![Page 28: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/28.jpg)
Any Preferences for special subjects for February 11th?
Candidates:• Utilities Sector Investments
• On line sources of investment information
• Investing in breakthrough technologies
• How to find and evaluate investment candidates
• Exchange Traded Funds vs. Mutual Funds
• Index Mutual Funds vs. Managed Mutual Funds
![Page 29: Investment SIG Thursday, January 14, 2010 Agenda Market Update Presentation and Discussion on Investment Diversification Download Demonstration - Ben Anthony.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e4c5503460f94b41a55/html5/thumbnails/29.jpg)
SEE YOU NEXT MONTH
FEBRUARY 11TH
.