Value Investor Forum Presentation 2015 (Print Version)

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The slide deck from my recent presentation at the 2015 Value Investor Forum in Scottsdale, AZ. I have converted colors to assist in printing if needed.

Transcript

  • A Man Looks Into The Abyss, Theres Nothing Staring Back At Him. At That Moment, Man Finds His Character. Lou Mannheim, Wall Street

  • The U.S. Economic Recovery Is Real

    US Job Creation Hits Record Not Seen Since The 1990s

    US Unemployment Rates Falls And Economic Recovery Strengthens.

    An Improving Economy Gives Obama His Game Back

    In Case You Missed ItThe Economy Is Back.

  • -3.0

    2.0

    Personal Income

    Personal Income

    1.4

    1.9

    Employment

    All Employees: Total nonfarm

    0.01.02.03.04.05.06.0

    Industrial Production

    Industrial Production Index

    2.03.04.05.0

    Consumer Spending (PCE)

    Personal Consumption Expenditures

    1.0

    3.0

    5.0

    7.0

    9.0

    Personal Savings Rate

    Personal Saving Rate

    3.0

    3.5

    4.0

    4.5

    5.0

    GDP

    Gross Domestic Product

  • 15.00%

    16.00%

    17.00%

    18.00%

    19.00%

    20.00%

    21.00%

    2007 2008 2009 2010 2011 2012 2013 2014

    Social Benefits As % Of Real Disposable Income

  • $50,000

    $51,000

    $52,000

    $53,000

    $54,000

    $55,000

    $56,000

    $57,000

    $58,000

    $59,000

    Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

    Seasonally Adjusted Median Household Income (March 2013 $)

    Gallup Poll - Family Of Four Living Needs

  • 65

    4

    60

    7

    59

    8

    17

    4

    -95

    8

    13

    6

    56

    -42

    1

    80

    1

    1,2

    54

    12

    2

    93

    8

    12

    0

    52

    2

    36

    7

    19

    0

    71

    0 83

    8

    1,6

    09

    1,3

    65

    1,3

    48

    1,9

    51

    1,2

    98

    80

    6

    62

    5

    1,3

    56

    75

    8

    2,1

    58

    2,2

    82

    2,0

    60 2

    ,30

    9

    1,9

    80 2

    ,29

    4

    1981 1985 1989 1993 1997 2001 2005 2009 2013

    Workers Not In Labor Force Soars

    Annual Chg. To NILF

  • More Than 93 Million Americans No Longer Counted Roughly 80% Of The Population Lives Paycheck-To-Paycheck 1-in-4 Americans On Some Form Of Government Assistance Highest Level On Record Of 70+ Aged Individuals Still Working Equity Ownership In Private Business At Lowest Levels Since 2000 Household Net Worth Lower Today Than In 2007 Household Investments In Financial Assets Lower Today Than In

    2007

  • -8000.0

    -6000.0

    -4000.0

    -2000.0

    0.0

    2000.0

    4000.0

    6000.0

    8000.0

    2009 2010 2011 2012 2013 2014

    Employment Gains Since 2009 - Including/Excluding B/D Adj.

    Cumulative Employment Since 2009 Cumulative Employment W/O B/D Adjustment

    Cumulative Employment Adj For Gallup

    Employment Overstated By3,678,000 Jobs

  • 42.00%

    44.00%

    46.00%

    48.00%

    50.00%

    52.00%

    54.00%

    56.00%

    58.00%

    1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

    Employment To Working-Age Population (16-54)

    Does This ReallyLook Like A 5.6%Unemployment Rate

  • 500.0

    700.0

    900.0

    1100.0

    1300.0

    1500.0

    1700.0

    1900.0

    2100.0

    2007 2008 2009 2010 2011 2012 2013 2014 2015

    S&P 500 Index

    QE1 QE2OperTwist

    QE3

  • REVENUE

    RET

    UR

    N

    SALES

    REWARDDIVIDENDS

    BU

    YBA

    CK

    S

    EPS IN

    VES

    TIN

    G

    EARNINGS

    VALUE

    PR

    ICE/

    EAR

    NIN

    GS

    RISKC

    HEA

    P

    ESTIMATES

    RATIOCAPECAGR

    GROWTH

    RET

    UR

    ND

    OLL

    AR

    INVESTING WITH A LACK OF VALUE

  • 32

    64

    128

    256

    512

    1024

    2048

    4096

    8192

    16384

    32768

    65536

    1965 1973 1981 1989 1997 2005 2013 2021 2029 2037 2045 2053 2061

    S&P

    50

    0 I

    nd

    ex

    Act

    ual

    & P

    roje

    cte

    d (

    Log

    Scal

    e)

    What Analysts Promise & What Happens Likely Very Different

    Actual S&P 500 Projected S&P 500 Expon. (Projected S&P 500)

    7% Annualized Return

  • Capital Not Available,

    25.00%

    Capital Needed For Other Things,

    Psychological Mistakes,

    50.00%

    A recent DALBAR study shows that much of the shortfall in

    investor returns are due to psychological factors such as Loss

    Aversion, Narrow Framing, Herding or Optimism.

    There are actually three primary causes for the chronic

    shortfall for both equity and fixed income investors:

  • -6000

    -4000

    -2000

    0

    2000

    4000

    6000

    8000

    10000

    32

    64

    128

    256

    512

    1024

    2048

    4096

    8192

    16384

    32768

    65536

    1965 1973 1981 1989 1997 2005 2013 2021 2029 2037 2045 2053 2061

    Act

    ual

    Vs.

    Pro

    mis

    ed

    Re

    turn

    sTh

    ou

    san

    ds

    S&P

    50

    0 I

    nd

    ex

    Act

    ual

    & P

    roje

    cte

    d (

    Log

    Scal

    e)

    Impact Of Bear Markets Are Have Substantial Effects On Outcomes

    Promised Growth Of $10000 At 7% Actual Growth Of $10000 Return Gap

    Actual S&P 500 Projected S&P 500 Expon. (Projected S&P 500)

  • 010

    20

    30

    40

    50

    64.00

    128.00

    256.00

    512.00

    1,024.00

    2,048.00

    Jan-1871

    Jan-1886

    Jan-1901

    Jan-1916

    Jan-1931

    Jan-1946

    Jan-1961

    Jan-1976

    Jan-1991

    Jan-2006

    Real S&P 500 Index With Recessions(Robert Shiller Real Price Data)

    Recessions S&P 500 (Real Price) Expon. (S&P 500 (Real Price))

  • 35

    2126

    19 1723 20

    32

    1811

    43

    9

    2126

    20

    49

    79

    3644

    38

    23

    105

    35

    57

    11

    91

    119

    72 70

    Mar

    -18

    79

    May

    -18

    85

    Ap

    r-1

    88

    8

    May

    -18

    91

    Jun

    -18

    94

    Jun

    -18

    97

    Dec

    -19

    00

    Au

    g-1

    90

    4

    Jun

    -19

    08

    Jan

    -19

    12

    Dec

    -19

    14

    Mar

    -19

    19

    Jul-

    19

    21

    Jul-

    19

    24

    No

    v-1

    927

    Mar

    -19

    33

    Jun

    -19

    38

    Oct

    -19

    45

    Oct

    -19

    49

    May

    -19

    54

    Ap

    r-1

    95

    8

    Oct

    -19

    60

    No

    v-1

    970

    Mar

    -19

    75

    Jul-

    19

    80

    No

    v-1

    98

    2

    Mar

    -19

    91

    Sep

    -20

    01

    Jun

    -20

    09

    Historical Economic Recoveries Average 40 Months

    Recovery Length - No Of Months

  • -

    20.00

    40.00

    60.00

    80.00

    100.00

    120.00

    140.00

    160.00

    180.00

    200.00

    1936 1943 1950 1957 1964 1971 1978 1985 1992 1999 2006 2013 2020

    Earnings Reversion - The Never Foreseen DangerPost S&P Revisions (2015)

    S&P 500 Earnings as of 06/01/14 EPS Growth Rate Lower Bound (5% Trough to Trough)EPS Growth Rate (6% Peak To Peak) Earnings Growth Trend LineS&P 500 Earnings as of 3/1/15 (Post-Rev)

    2014 Estimates

    Analysts NEVER sawthe earnings reversions

    STREETTALKLIVE.COM

    2015 Estimates

    2020 Estimates

    The current slope of estimated earnings growthhas never occurred in history.

    2015 Actual

  • 05

    10

    15

    20

    25

    30

    35

    40

    45

    50

    -5%

    0%

    5%

    10%

    15%

    20%

    25%

    30%

    CA

    PE

    Ro

    llin

    g 2

    0-Y

    ear

    Ret

    urn

    s

    S&P 500 Real Rolling 20-Year Annualized Returns CAPE Valuations

  • -100.00%

    -80.00%

    -60.00%

    -40.00%

    -20.00%

    0.00%

    20.00%

    40.00%

    60.00%

    80.00%

    100.00%

    2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

    Actual & Est. YoY % Change In Reported EPS

    Tap

    er B

    egin

    s

    QE-

    1

    QE-

    2

    QE-

    3

    Op

    . Tw

    ist

    Esti

    mat

    es

    No

    Q

    E

    24

    2.5

    4%

    78

    8.1

    9%7

    93

    .48

    %4

    73

    .05

    %

  • 64.00

    128.00

    256.00

    512.00

    1,024.00

    2,048.00

    1909 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009

    Real S&P 500 Index With Record Highs(Robert Shiller Real Price Data)

    Real S&P 500 Index

  • 300.0

    500.0

    700.0

    900.0

    1100.0

    1300.0

    1500.0

    1700.0

    1900.0

    2100.0

    1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

    S&P 500 Index Linear (S&P 500 Index)

    Phase 1

    Phase 1

    Phase 1

    Phase 2

    Phase 3

    Phase 2

    Phase 2

    Phase 3

    Phase 3

  • 20000

    40000

    80000

    160000

    320000

    640000

    1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

    MISSING THE 10-Best vs 10-Worst Days

    $100,000 Missing 10 Best Days $100,000 Missing 10 Worst Days $100,000 Invested In Index (Buy and Hold)

  • 010000

    20000

    30000

    40000

    50000

    60000

    70000

    80000

    1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

    Compound REAL Return Of $1000 Plus $100 Monthly Contributions (DCA vs Lump Sum)

    Compound Value Of $1000 plus $100 Monthly Contributions (DCA)

    Compound Value Of $1000 + $100 Mthly Cont. (Lump Sum)

    RETIRE

    OR NOT

    Missed The TopAnd The Bottom

    Missed The TopAnd The Bottom

  • (20)

    (15)

    (10)

    (5)

    -

    5

    10

    15

    20

    25

    30

    32

    64

    128

    256

    512

    1024

    2048

    4096

    8192

    1/1

    /19

    00

    1/1

    /19

    10

    1/1

    /19

    20

    1/1

    /19

    30

    1/1

    /19

    40

    1/1

    /19

    50

    1/1

    /19

    60

    1/1

    /19

    70

    1/1

    /19

    80

    1/1

    /19

    90

    1/1

    /20

    00

    1/1

    /20

    10

    CA

    PE

    Rat

    io, I

    nfl

    atio

    n

    Infl

    atio

    n A

    dju

    ste

    d R

    etu

    rn O

    f $

    10

    0The Real Value Of Cash

    Monthly Compound Real Return Of $100Valuation Adjusted Return Of $100 (23x = Cash, 6x = Stocks)P/E Capped At 25xAnnual Change In Inflation

  • 200

    400

    600

    800

    1,000

    1,200

    1,400

    1,600

    1,800

    2,000

    1990 1994 1998 2002 2006 2010 2014

    S&P 500 Stock Price Index

    SELL IT ALLSELL IT ALL

    ???

    Not HereEither...

    Absolutely Not Here...

    Liquidity Bubble

    Credit/Real EstateBubble

    Nope...No Bubble Here.

    I Don't Need An Advisor - I'm A Genius

    Tech Bubble

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