Investors’ Seminar June 2010

1. Investors’ Seminar June 2010

2. Disclaimer This is not Advice. Please see Mark before considering any changes. Mark will put any recommendations in writing The information contained in this presentation has been prepared for general use only and does not take into account your personal investment objectives, financial situation or particular needs. Before you make any decision about whether to invest in a financial product, you should obtain and consider the Product Disclosure Statement of the financial product. The information provided by HFS has been done so in good faith and has been derived from sources believed to be accurate at the time of compilation. Changes in circumstances, including unlawful interference and unauthorised tampering, after the date of publication may impact on the accuracy of the information. Neither HFS d nor any member of HFS accepts responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis of the information included. Past performance is not a reliable indicator of future performance. Neither HFS nor any member of HFS guarantees the performance of the Funds, the repayment of capital or any particular rate of return. The performance of any unit trust depends on the performance of its underlying investment which can fall as well as rise and can result in both capital losses and gains. Consequently, due to market influences, no assurance can be given that all stated objectives will be achieved.

3. The Boxes to Tick Realistic Goals Structure/Strategy (Tax etc) Super Fund Admin Asset Mix 1 -Cash/TermDs needed Asset Mix 2–Growth Section (LHS) Stock-Picker Selection

4. Investors’ Seminar June 2010 • Today’s Seminar addresses events over the past year and: • 1. How they affect: • Structure & Strategy • Asset Mix • Specific Investment Selection • 2. What changes are needed

5. Issues to Address June 2010 • Structure Matters – The 3 major reviews - Ripoll/Bowen, Cooper and Henry • Asset Mix Considerations – Sovereign Debt Crisis & the GFC • Specific Investments – Economic Conditions including Sovereign Debt, China etc

6. Structure – Government Policy Henry/Rudd review Simplify Tax………no Complicate super vs non-super……no Ripoll/Bowen Fiduciary, transparency; commissions; opt-in Cooper Review My Super; SuperStream; SMSF – minimal change

7. Structure – What Changes are needed? Super & Pensions – planning for retirement unchanged Tax & Centrelink Matters SMSFs - Trust Deeds - Investment Placement and monitoring

8. Asset Mix Issues June 2010 Sovereign Debt & the GFC Globalisation The Market Economy

9. GFC Evolution • Recap on the Global Financial Crisis : • Debt – Western Consumers; Deleveraging • Sub-Prime in US; CDOs–and inter-bank transfers • Negative Cycle –Profits Drop; Unemployment increases; Consumer Confidence drops etc • *********************** The Solution - Governments stimulating their economies. They had to borrow to do this! Hence now we have Sovereign Debt problems.

10. One of my favourite quotes: ‘Experience is the best teacher, but its lessons are not cheap. Therefore we should avoid paying for the same lesson twice. Actually, there is no need for investors to make the same mistake more than once, there being no shortage of possible new mistakes to choose from.’ Robert Keavney, Centric Wealth, July 2009 10

14. Sovereign Debt • Governments are powerful because they can tax their constituents. But there is a limit. • Government Debt can be reduced by: • Increasing Tax • Decreasing Spending (but some areas are limited)

19. Economic Cycles • Consider some long-term cycles • Developed Nations – slower but some growth • Emerging Nations – good potential • The Wealth effect revisited

24. Projections • What are the key timeframes: • 0-2 years – no projections needed. Cash and Term Deposits cover all goals in this time frame • 2-8 years – not necessary to invest in this timeframe if we can have a 10 year focus which incorporates better returns • 10+ years – the key goals. Again we use the Tim Farrelly Projections

25. Australian Shares International Shares Property Asset Mix Term Deposits Cash

33. 10 Year Forecasts as at *Includes expected currency gain

34. 10 Year Forecasts as at *Includes expected currency gain

36. Australian Shares International Shares Property Asset Mix Term Deposits Cash

37. Asset Mix - Decision 1 • What are the CashFlow Needs for: • Next 2 Years • Next 7-10 Years & Beyond • Need Cash and Term Deposits - this section is structured to be “Consumed” • Security – eg Government Guarantee; Return of the $ invested at the designated time; Only after “signing off” this section of the bucket do we then look at LHS of the bucket

38. AS TD Cash IS P Asset Mix – the Growth Section

39. Asset Mix - Decision 2 • The LHS Side of the Bucket. The Goals are: • Main Goal - Long-Term Total Returns – 10 Year Targets • Sub Goal – replenish the Cash • Volatile Returns are not a concern • Income is not a focus – maximising returns is the goal. A business that reinvests is not any less attractive than one that pays out all profit as a dividend.

40. The Hayden Asset Allocation Model Invest in 3 ways – profit, rent or interest ************* Inclusions - Cash & Term Deposits; Australian & International Shares; Property when attractive Exclusions - Structured Funds; Mortgage Trusts ; Hybrids; Fixed Interest Pools; Loans; Mezzanine Funds; Second Tier Debt; Hedge Funds; Bond Funds; Balanced/Conservative etc; Tax-driven investments; Alternatives ************* Technical/Academic Paper due out soon

41. Specific Investments within asset sectors Australian/International Shares We have a 10 year plus time frame so we are sharing in the profits generated by the business – ie either dividends and/or capital growth generated by higher profits We want a good portfolio and we want it monitored and changed when needed Best way - contract Specialist Stock-pickers

42. AS TD Cash IS P Asset Mix – the Growth Section

43. Research Process Fund manager research focuses on the four ‘Ps’ PROCESS PEOPLE Stated investment policies & strategies. Background, qualifications & track record. PERFORMANCE PORTFOLIO Returns generated relative to to the risks taken. Do the securities held reflect stated investment policies & strategies ?

44. How Many Managers -ie stock-pickers? Obtain diversification – ie different processes and different people/perspectives Not too many that we dilute the best performers Around 3-5 in both Australian and International Shares

45. AS TD Cash IS P Specialist Stock-picker XYZ Manager

46. Specific Investments We, via the Specialist Stock-pickers, want : ** the best performing businesses over a 10+ year time frame We want to buy these on the stock-market Most stock-market participants are looking for the best 1 year performers. Their time frame may be shorter, eg 3 months,or……even intra-day! This can be to our advantage. Avoid the noise.

47. Is a Stock-Picker Needed? • The three choices: • Index Funds • Choose Your Own Stocks • Contract a High-Quality Stock-Picker • Are some businesses better than others? Yes – either in a better Industry and/or having better Management. • Do some people have specialised skills and resources to be able to find and then analyse businesses? Is it worthwhile paying them to do this? Yes

48. Choosing a Stock-Picker What makes a quality stock-picker Consider their processes We are agreeing to buy a selected portfolio of shares and then contracting them to Manage it We can see the underlying investments. We can address each holding and ask them why they part-own that business and what are the key factors that would lead them to sell that business The business must have High Profit Margins or High Turnover and Reasonable Profit Margins – and this advantage must be sustainable.

49. What Investments do we own? The contracted Fund Managers (Specialist Stock-pickers) build a portfolio that we indirectly own. We want managers that have: High Conviction portfolios (some businesses are better than others) Low TurnOver (trading often has a goal to lower volatilty but not necessarily maximise long-term returns)

50. The Buffett Overlay The businesses that we part-own (via our specialist Fund Managers) should or must meet these criteria: We want Good Businesses – ie those with a Durable Competitive Advantage We want to avoid Poor Businesses - ie those where price is the major motivating factor in the consumer’s decision to buy their product or service.