Four Diverse Strategies

1. Four Diverse Strategies Easy to Use Presented by Herb Geissler, Managing Director of The St.Clair Group Rational Investing Special Interest Group of Pittsburgh AAII March, 2014

2. Market Changes from Bull to BearEvery 15 – 20 years With History Suggesting Substantial Downside within Next Few Years 50% below today’s level Kuznets’ Infrastructure cycle averages 17.6 years for each bull or bear phase

3. Secular Bear Markets RequireDifferent Strategies Than During Bulls During Kuznets’ Bull Markets: Find great growth companies Ride with the Tide (buy and hold) During Kuznets’ Bear Markets: Find favored baskets of securities Timing is Everything (buy and fold) It’s not what you make; It is what you keep Avoiding losses is more important than going after big gains

4. US Economy Sliding Downhill

5. Production of Goods and Services Been Declining for Over Two Years

6. Recovery from Credit Crunch Is Stalling

7. Employment Still Stagnant Claims decreasing as workers leave workforce

8. All Key Measures Show Continual Weakening Since 1990

9. Because Rising Federal Debt Stifles Economic Growth Redistribution Of Wealth Great Society Clinton/Gingrich Contract With America 911 and Mid East Wars

10. Yet Stock Market Advanced Fearlessly, Sucking In Money As It Did During Roaring 90s

11. Market Gains Primarily FromExpanding PE Multiple

12. QE Provided That Liquidity Anomaly: Stock market gains despite rising interest rates means over-abundant cash S&P 500 Operation Twist Bond Interest Rate

13. Resulting in Only Two Corrections During Past Five Years

14. Pushing Market ValuationTo A Dangerous Extreme Q Ratio = Market Valuation to Replacement Cost

15. Key Points Federal spending, funded by debt, chokes economic growth, as dysfunctional Federal Government avoids addressing core problems Fed Reserve IOUs (to fund excessive debt) lubricated stock prices, but make inevitable solutions more painful Market Valuations are at unsustainable extremes, but can remain so for quite a while

16. What To Do? Keep drinking, as long as bartender keeps pouring cheap drinks In January 2014, Benny’s Bar “flicked the lights”, signaling “last call” Remain sober and watchful to jump out of harm’s way in rush to exit Use disciplined decision-making tools to know when to run for cover How to do that?

17. Basic Traits of Successful Investors 1. They look at objective indicators. Removing the emotions from the investing process, they focus on data instead of reacting to events; 2. They are Disciplined:  The data drives decision making with pre-established rules. External factors do not influence them; 3. They have Flexibility:  The best investors are open-minded to new ideas, or revisiting previous thoughts; 4. They areRisk adverse: Not always obvious to investors, it is a crucial part of successful investing. Investors always will make mistakes, and many of them. The only difference between winners and losers is that winners have small losses and losers have large losses Observations by Ned Davis

18. Easiest Way toOutperform The Market Be in the overall market when it’s going up, to make good gains Fewer than 1 in 10 financial pros consistently outperform the Indexes (because of their high fees and expenses) Owning Index ETFs also outperforms stock picking, for many individual investors. Be out of overall market when it’s going down, to avoid losing most of those gains Financial pros know clients don’t like to pay fees for sitting in cash Easier said than done????

19. 12 Month Moving AverageHas Been Preferred Workhorse But Had Severe Drawdowns before Triggering

20. Tested Each Moving Averageto Isolate the Best One CAG = Compound Annual Gain AAG + Average Annual Gain mmDD = Max Monthly Drawdown From January 2007 through June 2013

21. Moving Average Spreadsheet Simplifies Pegging Reversal Points Exponential Moving Average Monthly Performance Color-coded, when above Price Annual Gain % Difference to gauge momentum to spot approaching reversals

22. Timing Market Indexes Beats Buy-and-Hold Can You Top This? 2013 29.7% 31.5% 36.8% 8.9% -5.9% 29.7%

23. Isolate Best ETFin Select Universes To diversify your strategies, • Relative performance ranking in group average monthly gain for 1, 3, 6 months • Asset Classes • Industry Sectors • Emerging Markets • Automate complex spreadsheet to do detailed arithmetic, consistently • Back-test many variations in weighting • Overlay Market Timer

24. Each month,Best ETF Snaps Out in Green

25. Asset Class TOPs Has Been Outstanding Until 2013, when defensive assets became volatile losers 2013 -1.2% 29.7%

26. Best Sector ETF needs a Timerto Get Out of Harm’s Way

27. Sector Strategy Provides Great Results with Modest Draw-Down 2013 18.5% 29.7%

28. Similarly, Emerging Markets Offer Strong Gains, but with More Volatility

29. Monthly Updating is Easy Month-end Closes from Yahoo Finance

30. Data is Easily Available

31. In Summary • Stock market is at a dangerous extreme • FED keeps pushing the highs, higher • Proven tools to avoid major downturns are readily available and easy to use. • A few disciplined minutes at end of every month can protect your wealth

32. Any Questions? • CDs with spreadsheets and tutorials are available for $50 here or by mail • Send check to 1792 Taper Drive, 15241 • Coaching sessions available • Phone 412-221-7338 to schedule session