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MAKING SENSE OF MARKET VOLATILITY. Name Tile Company DATE. 2. 3. 1. AGENDA. RECENT EVENTS. LESSONS FROM HISTORY. STRATEGIES FOR VOLATILE MARKETS. RECENT EVENTS. A ROLLERCOASTER DECADE…. Technology Bubble. European Debt Worries. Financial Crisis. Source: Yahoo Finance. - PowerPoint PPT Presentation
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MAKING SENSE OF MARKET VOLATILITY
Name
TileCompany
DATE
AGENDA
STRATEGIES FOR VOLATILE MARKETS
LESSONS FROM HISTORY
RECENT EVENTS
2.
3.
1.
RECENT EVENTS
400
600
800
1,000
1,200
1,400
1,600
1,800
1995 1999 2003 2007 2011
A ROLLERCOASTER DECADE…
Technology Bubble
Financial Crisis
European Debt
Worries
Source: Yahoo Finance.S&P 500, January 1995 to September 26, 2012. The chart above is for illustrative purposes only.
400
600
800
1,000
1,200
1,400
1,600
1,800
1995 1999 2003 2007 2011
… RESULTS IN AN EMOTIONAL RIDE
Thrill
Excitement
Optimism
Hope
Relief
Source: Yahoo Finance.S&P 500, January 1995 to September 26, 2012. The chart above is for illustrative purposes only.
Euphoria
Denial
Fear
Desperation
Panic
Despondency
Anxiety
Depression
Hope
Relief
Thrill
Excitement
Optimism
Euphoria
Depression
Denial
Fear
Desperation
Despondency
Anxiety
Panic
Optimism
Relief
Hope
CAUSES OF RECENT VOLATILITY
LESSONS FROM HISTORY
0
100
200
300
400
500
600
700
1974 1978 1982 1986 1990 1994
1974
DON’T PANIC OVER THE PRESS
Source: Yahoo Finance.S&P 500, January 1974 to December 31, 1997. The chart above is for illustrative purposes only.
199219871984198019791979
0
400
800
1,200
1,600
2,000
2,400
1995 1999 2003 2007 2011
DON’T PANIC OVER THE PRESS
Source: Yahoo Finance.S&P 500, January 19995 to October 3, 2011. The chart above is for illustrative purposes only.
FOCUS ON THE BIG PICTURE
First 100-point dive in Dow Jones history on Friday, October 16, 1987
The 2nd was the following Monday
Sources: Reuters, Government of Canada.
“BLACK MONDAY” THE CRASH OF 1987
FOCUS ON THE BIG PICTURE
Dow Jones down 554.26 points, or 7%
12th biggest percentage loss and 3rd
biggest points loss on record
NASDAQ Composite fell 7%
S&P 500 fell 64.63, or 6%, to 877.01
Sources: Reuters.
OCTOBER 27,1997
Closed for 6 days: longest stock market closure since the Great Depression
Down 684 points (7%): Dow Jones biggest-ever one-day point decline
By weeks end: Down 1369.7 points (14.3%), its largest one-week point drop in history
FOCUS ON THE BIG PICTURE
Sources: Reuters.
THE AFTERMATH OF 9/11 2001
100.00
1,000.00
10,000.00
1980 1984 1988 1992 1996 2000 2004 2008 2012
FOCUS ON THE BIG PICTURE
Crash of 1987
1997 market crisis
9/11
Latin America
Savings & Loan Crisis
Mexican Peso Crisis
Russian Crisis
European Debt
Worries
$10,000
$106,197
2008 Financial Crisis
Source Yahoo Finance, S&P 500 January 1970 to September 26,2012For illustrative purposes only.
MARKETS TEND TO RECOVER OVER TIME
STRATEGIES FOR VOLATILE MARKETS
THE BEST STRATEGY IS TO STAY INVESTED
1.7%
-2.1%
-5.2%
-7.7%
-9.9%
-1.9%
-8.6%
-12.6%
-15.8%
-18.7%
-21.3%
8.1%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
Last 10 Years minus 10 bestdays
minus 20 bestdays
minus 30 bestdays
minus 40 bestdays
minus 50 bestdays
S&P/TSX Composite TR
S&P 500 TR CAD
MISSING THE BEST DAYS IN THE MARKET IMPACTS RETURNS
As of August 31, 2011.Source: Dynamic Funds, Bloomberg.
-5.8%
3.5%
2.1%
7.8%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1 Year 20 Years
Ra
te o
f Re
turn
Average Investor
Market
TRYING TO TIME THE MARKETS HAS COST INVESTORS
Source: 2011 Dalbar Inc. (US) Research Report.Equity Market represented by S&P 500.
THE BEST STRATEGY IS TO STAY INVESTED
DIVERSIFY BY ASSET CLASS
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Global Bonds
Canadian Equities
Canadian Equities
Canadian Equities
Global Equities
Canadian Equities
Global Bonds
Canadian Equities
Canadian Equities
Global Bonds
Canadian Bonds
Global Equities
Canadian Bonds
Global Equities
Canadian Equities
Canadian Bonds
Canadian Bonds
Global Equities
U.S. Equities
Canadian Bonds
Canadian Equities
Canadian Bonds
Global Equities
Canadian Bonds
U.S. Equities
Global Equities
U.S. Equities
U.S. Equities
Canadian Bonds
U.S. Equities
Global Equities
U.S. Equities
U.S. Equities
U.S. Equities
Global Bonds
Global Bonds
Global Equities
Canadian Bonds
Global Equities
Global Equities
U.S. Equities
Global Bonds
Global Bonds
Global Bonds
Canadian Bonds
U.S. Equities
Canadian Equities
Global Bonds
Global Bonds
Canadian Equities
BEST PERFORMING ASSET CLASSES CHANGE FROM YEAR TO YEAR
Source: Paltrack, Dynamic Funds. All Indices are represented in Canadian Dollars.Canadian Bonds – Dex Universe Index. Global Bond – Barcap Global Aggregate TR. U.S. Equities – S&P 500 Total Return. Global Equities – MSCI World GR. Canadian Equities – S&P/TSX Total Return.
DIVERSIFY BY GEOGRAPHY
THE BEST PERFORMING COUNTRIES CHANGE FROM YEAR TO YEAR201020092008200720062005200420032002
Source: Paltrack, Dynamic Funds. All Indices are represented in Canadian dollarsMexico – BMV IPC. U.S. – S&P 500 Total Return. England – FTSE 100 Total Return. Canada – S&P/TSX Total Return. Germany – FSE DAX Total Return. Brazil – BOVESPA. France - Euronext Paris CAC 40 PR. Japan – Nikkei 225 Average PR. Hong Kong – Hang Seng Hong Kong Composite.
2011
0
10
20
30
40
50
60
70
80
90
Jan Feb March April May June July Aug Sept Oct Nov Dec
# o
f U
nit
s P
urc
ha
se
d
$0
$2
$4
$6
$8
$10
$12
Pri
ce
/Un
it
# of units purchased
Price per unit
YOU DON’T HAVE TO TIME THE MARKET
For illustrative purposes only.
DOLLAR COST AVERAGING: BUY MORE SHARES DURING MARKET FLUCTUATIONSINVESTING $500/MONTH FOR 12 MONTHS
TAKE ADVANTAGE OF DOLLAR COST AVERAGING PRODUCTS
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
Sep-2008 Nov-2008 Jan-2009 Mar-2009 May-2009 Jul-2009
Lump Sum
Dollar Cost Averaging Product
Source: Yahoo Finance.The above chart illustrates a hypothetical lump sum $50,000 investment in the S&P 500. The Dollar Cost averaging product transfers the $50,000 investment into the S&P 500 over a 52 week period, with the remainder waiting to be invested in cash. For illustrative purposes only.
THEY CAN SMOOTH OUT MARKET VOLATILITY$52,000 HYPOTHETICAL INVESTMENT IN THE S&P 500
EXCEPT IN RISING MARKETS
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
Oct-2011 Dec-2011 Feb-2012 Apr-2012 Jun-2012 Aug-2012
Lump Sum
Dollar Cost Averaging Product
Source: Yahoo Finance.The above chart illustrates a hypothetical lump sum $50,000 investment in the S&P 500. The Dollar Cost averaging product transfers the $50,000 investment into the S&P 500 over a 52 week period, with the remainder waiting to be invested in cash. For illustrative purposes only.
IN RISING MARKETS LUMP SUM INVESTING PERFORMS BETTER THAN DCA$52,000 HYPOTHETICAL INVESTMENT IN THE S&P 500
FOCUS ON THE LONG TERM
1
10
100
1,000
10,000
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
504%
981%14 years sideways
14 years sideways
Source: Yahoo Finance, S&P 500 January 1950 to September 26, 2012.For illustrative purposes only.
STRONG BULL MARKETS TEND TO FOLLOW SIDEWAYS MARKETS
FOCUS ON THE LONG TERM
Rise and fall of high growth stocks The U.S. was committed to a war in Asia Oil prices have skyrocketed U.S. unemployment at 9%+
1999 – 2012
1982 – 1997
1968 – 1982
Source: Yahoo Finance, S&P 500. Light blue chart from January 1, 1999 to September 26, 2012. Dark Blue chart January 1st, 1968 to December 31st, 1997.For illustrative purposes only.
DOES HISTORY REPEAT ITSELF?
Q & A
IMPORTANT INFORMATION
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in units value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated
Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any funds managed by Goodman & Company, Investment Counsel Ltd. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell.
This document is not to be distributed or reproduced without the consent of Goodman & Company, Investment Counsel. Dynamic Funds is a division of Goodman & Company, Investment Counsel Ltd.
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