InvestorRecovery

Kit

Twelve months on. How individual investors can recuperate and

thrive in current market conditions.

A s we s lo w ly e me rg e f ro m o n e o f th e wo rs tma rke t cra s h e s in h is to ry a n d a s th e d u s t s lo w lys e t t le s a ro u n d t h e e c o n o mi c , s o c ia l a n d f in a n cia lme ltd o wn , i t i s t im e to a s s e s s th e d a ma g e fo r o n e ,b u t a ls o to p o s i t io n o u rs e lve s to ma ke t h e m o s t o fth e p o te n t ia l th e b e a r ma rke t h a s cre a te d .

Th e o b j e c t i ve o f th is b r i e f g u id e is to g i ve y o u ,a s a n in d i v id u a l in ve s to r, t h e m o t iva t io n a n d t o o lsto s la p th e b e a r a n d g ra b th e b u l l b y i t s h o rn s .

Assessing the real damage 3

Emotional collateral 5

Opportunities 7

Basic principles and tools 9

Action plan 13

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Assessing the damage

2008 in numbersWealth vanis hed: US$ 3 0 tr i l l io nYears of prof i t s los t : 1 0A s s et clas s es negat ive ly a f fected : 9 8 %Tota l ex pecte d banking wri te-do w ns : US$ 1 . 2 tr io

The year 2008 will go down in history as one of the worst years forindividual investors world wide. After several years of growth and oftengreed, markets across the board came crashing with a speed and forcerarely seen before. Unless you have been stranded on a deserted Island, thenet wealth will have gone down anywhere between 20 and 50% in 2008.

Almost all asset types, classes and regions were affected in one of thesteepest and deepest market crash the world has ever experienced, raisingserious doubts about one of finance’s most anchored believes:diversification.

World equities were amongst the worst hit asset class. The US marketwas down 34% (S&P500), Europe 41% (FTSE Eurofirst 300) and Japan 40%(Nikkei 225).

Bonds, which, along with Gold traditionally serve as an escape routeto safety when equities are hit, did not fair well either, with investmentgrade bonds down 7%. US Treasuries were one of the only asset classes toactually make money in 2008, up almost 14% for the year.

On the commodities side, Brent Crude Oil shot up more than 60% inthe first half of the year to almost US$150 a barrel before diving to US$40at the end of the year, a net 51% drop for 2008. Gold, which you wouldexpect to do well in times of uncertainties and high volatility, had a flatyear.

Real estate, which in 2007 had a grandiose decade across the board,also lost ground in 2008, anywhere between 5 and 20% depending on thecountry.

Hedge funds, which were sold on the basis that they “hedge” againstpotential losses in other, more traditional asset classes like equities andbonds, had their worst year on record with a 17% loss on average (CreditSuisse/Tremont Hedge Fund Index).

Finally, currencies had a very mixed year, with high levels of volatility.The two big net losers in the second half of the year against the US dollar,were the Brazilian real (-46%) and the British pound (-38%).

There is much to be said about 2008 and the leading elements to it,but nothing can be done about it. The only thing we can do as individualinvestors is position ourselves now to profit from vacuum and opportunitiesthe crisis has created. But to do that, we first need to get over the currentpsychological state of mind most investors find themselves. It takes courageand determination to rise from the carnage and charge again.

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-80% -60% -40% -20% 0% 20% 40% 60% 80%

Brent Crude Oil

European Equities

Japan Equities

US Equities

Wheat

Aluminium

Hedge Funds

Global Real Estate

Corporate Bonds

Gold

US Treasuries

Cocoa

Figure 1 - 2008 in numbers

Financial Times for: Brent Crude Oil, European Equit ies (FTSE Eurofirst 300), Japan Equities (Nikkei 225 Average), US equity (S&P500), Wheat, Aluminium, Gold and cocoa. EPRA for Global Real Estate (EPRA/NAREIT Global Index). iShares for Corporate Investment Grade Bond (iBoxx $ Investment Grade Corporate Bond Fund). Credit Suisse/Tremont Hedge Index for Hedge fund (Credit Suisse/Tremont Hedge Fund Index). Merrill Lunch for US Treasuries (US Treasury Master Index)

SOURCE

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Emotional collateral

Naturally, the fear of stock markets and investments in general ishigh among the public at the moment. Facing significant potential losses,most invertors are currently entrenched in their defensive position,promising themselves never to become greedy again.

When enough investors (institutional and individuals) exit themarkets at the same time, what follows naturally is a systemic failure of allinvestment vehicles, even those fairing well in stormy weather, asinvestors cash in and hide from most asset classes, preferring the relativesafety of cash or gold. Hordes of panicking investors flee the marketsdriving markets further down, driving more and more investors to panicand exit at even lower valuations. But these times of correction arenatural and necessary, as they purge the excesses of the boom period.

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Although we have certainly passed the emotional panic stage (seefigure 2) which struck the markets in October 2008, we are still very muchin the uncertainty and depression stage, where the pain is still too vivid formost investors to dare coming back in a significant manner. Because painemotionally feels twice as bad and reward feels good, it will be a whilebefore individual investors start investing again. And when they do,institutional investors will probably have absorbed most of the upsidealready. The trick here is to move before and despite the masses.

Behavioural finance explains much of the sheep-like attitude ofindividual investors throughout the market cycles, and you as an individualinvestor should know the underlying principles of behavioural finance andbenefit from it. As Guru investor, billionaire and the world’s secondwealthiest person Warren Buffets puts it: “Be fearful when others andgreedy and greedy when others are fearful”.

The turning point (bottom) in equity markets came in March thisyear, and equities have shown an amazing resistance to pessimism, albeitfrom very low levels. The US index (S&P500) is up 26% so far this year,while the UK index is up 34% and the Japanese Nikkei up 36%. China andRussia are up 56 and 85% respectively.

But there are still plenty of reasons for private investors to be scared,sitting usually on realised (or not) losses of between 20 and 50%.Unemployment is high, economic data still fragile despite whatGovernment data want us to believe, all-mighty consumers are depressed,staying home and not doing what they are supposed to do, consuming andhence driving the economic machine forward. There is also a very highchance that markets will experience a serious correction in the last quarterof 2009, if not another crash.

So it will be some time before individual investors and the majority ofthe cash world wide return confidently and in flood to financial markets. Ifthere is a double dip crash as expected, the emotional damage to individualinvestors will be even greater, and that will be the time for you as a smartinvestor to get back in. But for that, you need to get over your potentiallosses, and start getting greedy again.

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Figure 2 - Emotional stages of investors through market cycles

Period of maximumfinancial risk

Period of maximumfinancial Opportunity

Optimism

Excitement

Thrill

EuphoriaAnxiety

Denial

Desperation

Panic

Depression

Hope

Relief

Rational market value

Optimism

Fear Panic sell-off

Euphoric irrationalpurchase

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Most markets and assets world wide may be between 20 and 50%up from their March low, but they still have a long way to go, even just toget back to their 2007 levels. In the history of financial markets in general,they have always gone back to their previous high, and passed it, andchances are that they will in the future.

With that in mind, and leaving aside time for now, why wouldanyone not rush back to markets which have lost so much in the past twoyears? Because most investors still feel the pain, and by the time they willfind the courage (and greed) to get back into it, most of the cake will havebeen eaten by institutional investors and those individual ones smart andcourageous enough to go against the horde. So once in your life as anindividual investor, stand up and walk again the road of volatile assetclasses before everyone else does.

Finding the courage to do it, you need to understand the potentialupside markets today have to offer, and wake up the greedy monster inyou. Let’s just look at a few examples. The US index S&P500 reached itsmost recent bottom of 680 at the beginning of March. At the time ofwriting (end of August 2009), it is at 1,000. That’s a 47% growth from itslow. If we believe that the index will at least get back to its previous all-time high of 1,600 in October 2007, this means that there is still apotential 60% growth from where we are right now, and that is just to getback to where it previously was.

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Of course the question time, and whether investing in US or othermarkets is the right thing to do in the long run are fundamental elements,but it just goes to show that there is serious potential upside lookingforward and almost anywhere you look (see “What’s Hot, What’s Not” liston page 14).

If you look at slightly more volatile equity markets and turn toemerging markets, the Chinese Hang Seng Index is up 78% since March thisyear, but still needs to grow 56% just to get back to its October 2007 level.And it is pretty clear to everyone that the Chinese market will go way aboveits previous high.

Most equity markets, commodities, distressed securities, etc… offersimilar potential growth. Choosing which ones to go back in is of coursecritical. The road ahead is full of uncertainties: inflation, bankruptcies, socialunrest, economic data and unemployment to name just a few. But one thingis for sure: staying in cash will not get you out of your current situation.

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Opportunities

“Be fearful when others are greedy and greedywhen others are fearful”.

Warren Buffet

World’s second wealthiest person (Forbes, 2009 ranking)

For you to profit from the current situation in style andcontrol, you need a adhere to a few principles.

-100% -50% 0% 50% 100% 150% 200%

Brent Crude Oil

European Equities

Japan Equities

US Equities

Wheat

Aluminium

Hedge Funds

Global Real Estate

Corporate Bonds

Gold

US Treasuries

Cocoa

Figure 3 - Potential upside

Percentage growth for individual prices to reach their previous three-year high, from their August 25th, 2009 level.Financial Times for: Brent Crude Oil, European Equit ies (FTSE Eurofirst 300), Japan Equities (Nikkei 225 Average), US equity (S&P500), Wheat, Aluminium, Gold and Cocoa.EPRA for Global Real Estate (EPRA/NAREIT Global Index). iShares for Corporate Investment Grade Bond (iBoxx $ Investment Grade Corporate Bond Fund). Credit Suisse/Tremont Hedge Index for Hedge fund (Credit Suisse/Tremont Hedge Fund Index). Merrill Lunch for US Treasuries (US Treasury Master Index)

SOURCE

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There are a few principal rules a smart investor needs to keep inmind, and although they have been tested to their extreme last year, theydo remain very valid.

Principle #1 - Plan

Every journey starts with, yes a single step as Lord Buddha rightlysays, but also with proper planning. This starts with having clear,quantifiable and achievable goals for yourself and family. You need toknow where you want to be financially in 12 months, 5 years, 15 yearsfrom now so you can allocate the appropriate resources and investmentvehicles.

If one of your objectives is to rebuild your cash position within thenext twelve months, set up a separate bank account in the main currencyof your expenses and leave it there. You may not make a fortune withthat, but at least it is (relatively) safe.

If you want to buy the property of your dreams in five years time,now may be a good time to buy something small while property marketsare down and interests low.

If you are planning for your retirement in 15 years from now,dedicate a portion of your monthly income and go crazy on equities andcommodities while they are cheap.

Whatever you do, do not invest without a plan. Not having a plan isthe best way not to achieve it (see figure 5).

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Principle #2 – Diversify

This is certainly one fundamental financial principle that has beentested most in 2008, as even a good diversification was of little use. But theunderlying principle of spreading widely ones asset still remains valid,although diversification needs to be brought to a different level.

While traditional and first-level diversification advocates a spreadbetween equity, bond and cash, you need to reach the nth level ofdiversification, which includes investing in various currencies, alternativeinvestments and real assets.

A good nth-level diversification example is French Bordeaux FirstGrowth collection wines. What I like about this commodity is that the basicsare extremely attractive: on the supply side, the production is extremelylimited each year (usually only a few thousand cases), stock is constantlydepleting as it is being consumed and can never be replenished. On theother hand, consumption of these wines increases as wealthy Chinese starttaking a liking to it. Finally, the intrinsic value of the wine increases overtime until it reaches its peak taste. If you had bought a case of Petrus in2005 for €3,400, you could sell it today for a healthy €23,700, a 600%profit in four years. 2008 is said to be even better…

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Basic principles and tools

“Look beyond what you see”.Wise Monkey Rafiki

The Lion King

Figure 4 - Relationship Between Risk, Reward and Time

lassagnedavyTime

Reward

Long termShort term

Low

High

12

3

4

5

Cash

Government bondsFixed income bondsMoney markets

EM equitiesPrivate equitiesArtFine winesCommoditiesHedge fundsFuturesDerivatives

Global equitiesInvestment propertiesManaged fundsForeign exchange

Emerging market (EM) bondsCorporate bonds

Risk

Reward

Time

Sometimes the entry cost (time, knowledge and fees) prohibitsentering certain niche-markets directly with relatively small amounts, butsome vehicles like unit trusts and ETFs (Exchange Traded Funds) can giveyou an easy and relatively cheap way in.

Principle #3 – Select carefully

There are literally thousands of financial products out there and thefinancial world has made them complicated enough to justify the high feesthey impose on “sophisticated products”. The range of products would takean entire book just to glance over it, but there are two very importantprinciples when choosing the right products for each of your financial goals:(1) If you don’t understand it, don’t buy it (chances are that yourbanker/adviser does not understand them either); (2) Find yourselfsomeone you can truly trust in helping you select the right vehicles, andtrust him. If he has the knowledge and your best interest at heart, you willsave a fortune in time and money. Just make sure he/she has a deepunderstanding of your financial goals.

Principle #4 – Monitor your performance

You need to be able to know how your investments are doing at alltimes, and that usually goes through online valuation systems. Not that youwant to waste your valuable time on checking your daily positions, but youwant to be able to have a quick look now and then to make sure youroverall portfolio is still in line with your objectives and is performingaccording to your expectations. No one else is responsible for that buy you.

What has become increasingly difficult is to obtain a consolidatedview of ones wealth. People are now more mobile than ever, picking upinvestments in various countries, currencies and investment houses. Buthaving a consolidated view all your assets, tangible and non-tangible, is theonly way to keep on track with your lifetime goals.

Basic principles and tools (cont.)

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Principle #5 – Manage your risk

Understanding what your potential overall downside risk is hasbecome critical in managing your wealth. Individual stock, structured notes,properties, unit trusts, etc all have various levels of risk (institutional,currency, geographical) which you need to understand and quantify.

When buying an individual share, your potential downside is 100%for instance, i.e. losing everything, while buying a house would probablyhave a 70% downside potential as the house would be insured. What youneed to understand is your worst-case scenario: the house burns down, allthe equities you own go bankrupt, you lose your job,… and allocate aprobability of failure to each of the individual events actually happening(endemic risk). You then combine the probability of all events happening atthe same time (systemic risk), and if the probability for it to happen makesyou uncomfortable, adapt your portfolio (into lower risk assets) until youare happy with your overall systemic risk level.

If you use all these tools consistently and rigorously, you should be ina great position to make the best of the current opportunities withoutundue risk. All you need now is a plan.

Figure 5 – Wealth planning and management

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4. Wealth Plan

Performance

RiskControl

Assetallocation Monitoring

Goals

Cash Flow

AssetsLiabilities

Values

1. Goal settingBenefits

Costs

Suitability

2. Product selectionHigh

Low

3. Risk rating

Action plan

To build a solid and smart plan that will help you leverage on thecurrent situation and create substantial wealth for yourself and yourfamily, you need to go through the five steps of this report again:

Assess the damage to your wealth: how bad is it, is it recoverable?What are the lessons learned?

Assess your emotional damage: get out of the fear mode, into thegreed one. Now is the best time to do so.

Identify opportunities: look at which asset classes have been mosthurt and what the future trends might look like. Start your searchwith emerging market equities and commodities, where I see themost mid-long term potential (see page across). Do not act like allother sheep: scared. As a last resort, slap yourself on the face.

Apply the basic principles mentioned in this guide. Have a clear planfor yourself and build the strategy around it. Not the other wayaround.

Just take the red pill and swallow it.

ConclusionThe year of 2008 will go down on record as one of the worst for

individual investors, but 2009 and 2010 will certainly go down as some ofthe best. The best opportunities are available today, right inside the bearmarket, but it takes vision to unravel them and courage to seize them. Youcould save yourself 10 years of investment life necessary for you to reachall your objectives. So get greedy and enjoy the ride! Davy Lassagne.

August 24th, 2009. For more information, please contact davy@e-lassagne.com.For weekly market updates, please visit http://marketupdates.e-lassagne.com .

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What’s Hot

What’s Not

Asset Reason why What you can buy Commodities In general, I am very bullish on commodities. The

little inflation threat we experienced in the second quarter of 2008 was just the tip of the iceberg. Too little investment has gone into natural resources in the past years, and consumption will boom again with every dollar the Chinese and Indians add to their average GDP/head.

JPMorgan Natural Resources, Rogers International Commodity Index, ETF (GSG).

Oil We have been consuming more oil than we produce for decades and we know that current reserves will only last us another 20 to 30 years. What then?

ETF (OIL).

Agriculture Increased world wide consumption, low investment levels in production capacities for years and climate change will push prices higher than most of us may want to fear.

DWS Agribusiness, ETF (DBA or MOO), fertiliser-producing companies.

Water Water will be our next big, big problem. It is so essential we cannot survive more than three days without it, yet the developed world is wasting it and the developing world polluting it. The new gold?

Individual shares of water recycling companies, ETF (CGW), CAAM Aqua Fund.

Commodity producing countries

For the same reasons as the above, countries like Australia, Brazil, Russia, and their currencies will enjoy sustained growth for the many years to come.

A combination of Latin American fund (BlackRock), Russia (Fortis) and Brazil (Fortis)

Private equity Entry fees, tickets and risks are high in this sector but as the established companies struggle, new, smarter and more adaptable entrepreneurs are already building the conglomerates of the future.

A good source can be your local/national entrepreneurs clubs; ETF (PSP).

Asia infrastructure

As part of their economic support package, India and China will invest a total of US641bio over the coming years to boost their infrastructure.

Invesco Asia Infrastructure, ETF (PXR).

Premium Bordeaux wines

Decreasing non-renewable stock, accelerating status consumption. It’s got to be a winner.

Wine Growth Fund, individual brokers with direct access to négociants.

Asset Reason why What you can buy US Treasuries The country’s deficit, economic climate, military bill

and vision of the world are simply not sustainable. Short US Treasuries.

US dollar Same reasons as above. As the US slowly hands over world dominance, so will its currency.

RMB.

Individual shares

Still many more bankruptcies to come in the industrial and banking world.

Short specific shares, but be cautious, this is a dangerous game.

“I’m trying to free your mind, Neo. But I can onlyshow you the door. You’re the one that has to walkthrough it”. Morpheus, The Matrix

Davy Lassagne has ten years of experience inbanking and finance of which eight as an independentwealth manager based in Singapore. He is currentlyservicing over 100 clients in 16 different countries withJigsaw Wealth Management.

About the author

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By their very nature, forward-looking statements involve inherent risks anduncertainties, both general and specific, and risks exist that predictions, forecasts,projections and other outcomes described or implied in forward-looking statements will notbe achieved. I caution you that a number of important factors could cause results to differmaterially from the plans, objectives, expectations, estimates and intentions expressed insuch forward-looking statements. These factors include (i) market and interest ratefluctuations; (ii) the strength of the global economy in general; (iii) the effects of, andchanges in, fiscal, monetary, trade and tax policies, and currency fluctuations; (iv) politicaland social developments, including war, civil unrest or terrorist activity; (v) the possibility offoreign exchange controls, expropriation, nationalization or confiscation of assets; (vi) theeffects of changes in laws, regulations or accounting policies or practices.

Information and opinions presented in this Site have been obtained or derived fromsources believed to be reliable, but Davy Lassagne makes no representation as to theiraccuracy or completeness. Davy Lassagne maintains the right to delete or modifyinformation in this document without prior notice.

Davy Lassagne may have issued other reports that are inconsistent with, and reachdifferent conclusions from, the information presented in this document.

Risk Considerations

Past performance should not be taken as an indication or guarantee of futureperformance, and no representation or warranty, express or implied, is made regardingfuture performance. Investing entails risks, including possible loss of principal. The price of,value of and income from securities or financial instruments can fall as well as rise. Certaininvestments are subject to high volatility, and may experience sudden and large falls in theirvalue. Losses may equal or exceed your original investment. Foreign currency-denominatedsecurities and financial instruments are subject to fluctuations in exchange rates that mayhave a positive or adverse effect on the value, price or income of such securities or financialinstruments. Some investments may not be readily realisable and it may be difficult to sell orrealise those investments. Similarly it may prove difficult for you to obtain reliableinformation about the value, or risks, to which such an investment is exposed. There are alsospecial risk considerations associated with international and global investing (especiallyemerging markets), small-company investing, single-industry funds or investment strategies,single-country or regional funds or investment strategies, or other special, aggressive orconcentrated investment strategies, such as the use of leverage or derivatives. Investors insecurities effectively assume these risks.

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Davy is licensed by the Monetary Authority of Singapore to provideindependent financial advice to individuals. He specialises on servicingsuccessful executives by providing them with mid to long-term investmentstrategies for their personal and/or their family’s financial planning. Hepublishes a weekly market update on http://marketupdates.e-lassagne.comand appears frequently in the press. He is also co-founder of real assetsinvestment house Avenue Group Pte Ltd.

Previously, Davy served as the country representative of French BankNatexis Banques Populaires and as the President of the French Chamber ofCommerce in Yangon, Myanmar. He also worked at the French TradeCommission in Seoul as a consultant for the French Government to assistFrench companies establish and expand their business in Korea. He holds anMBA in Finance and Strategy from l’Ecole Superieure des SciencesEconomiques et Commerciales (ESSEC) in Paris.

Disclaimers and Cautionary Statement Regarding Forward-LookingInformation

All opinions and estimates expressed in this document constitute my judgment as ofpublication and do not constitute general or specific investment legal, tax or accountingadvice of any kind. This site contains statements that constitute forward-looking statements.In addition, in the future I, and others on my behalf, may make statements that constituteforward-looking statements.

Words such as "believes", "anticipates", "expects", "intends" and "plans" and similarexpressions are intended to identify forward-looking statements but are not the exclusivemeans of identifying such statements. I do not intend to update these forward-lookingstatements except as may be required by applicable laws.