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Investment and Financial Planning

Investment and Financial Planning. Vision Investment Services, Inc. Module 5. Our Program. Styles of investing An introduction to portfolio management Financial Planning Tools and Techniques—Retirement Planning Financial Planning Tools and Techniques—College Funding. Growth investing

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Investment and Financial Planning

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  1. Investment and Financial Planning Vision Investment Services, Inc. Module 5

  2. Our Program • Styles of investing • An introduction to portfolio management • Financial Planning Tools and Techniques—Retirement Planning • Financial Planning Tools and Techniques—College Funding

  3. Growth investing Value investing Top-down vs. bottom up Active vs. passive Quant investing Momentum investing Contrarian investing Asset allocation Dividend strategies Cyclical and sector rotation strategies The impact of technology Theme or sector investing Styles of Investing

  4. Styles of Investing Growth Investing 1.71 Microsoft (MSFT) Diluted Earnings Per Share 1985-2002 $1.60 1.42 1.41 1.38 $1.20 .84 $0.80 .66 .43 $0.40 .29 .23 .20 .15 .10 .06 .04 .03 .02 .01 .01 1985 1987 1989 1991 1993 1995 1997 1999 2001

  5. Styles of Investing Value Investing • Out-of-favor companies • Attractive values as defined by: • Below average price/earnings ratio • Below average price/book ratio Eastman Kodak Vs. Industry 14.1 Photo Industry 11.3 2.79 EastmanKodak 2.63 PhotoIndustry EastmanKodak Price/Earnings Ratio Price/Book Ratio

  6. Top Down Macro economy Sectors Industries Stock screening criteria Manager themes Individual stock ideas Bottom Up Individual stock selection Manager themes Styles of Investing Top Down Vs. Bottom Up

  7. Active Managers seek to beat benchmarks Total return Risk-adjusted return All bottom-up strategies are active Top-down strategies overweight or underweight sectors vs. benchmark Passive Managers seek to mirror benchmarks Index funds Sector weightings and characteristics match benchmark Low cost, low turnover Styles of Investing Active Vs. Passive

  8. Styles of Investing Quant Investing Benchmark: S&P 500 Index Expected tracking error: 3-4% Basic Materials 3.87 1.09 Energy 5.92 0.97 Consumer Non-Cyclicals 9.24 0.97 Consumer Cyclicals 8.09 1.05 Consumer Services 5.35 0.99 Industrials 3.16 0.91 Utilities 2.36 1.13 Transportation 1.68 0.86 Health Care 15.09 1.01 Technology 15.73 0.95 Telecommunications 3.89 1.05 Commercial Services 3.55 0.97 Financial Services 22.09 1.02 Sector % of Stocks  Rel. to S&P 500

  9. Styles of Investing Momentum Investing • Hot stocks, industries and sectors • High revenue growth • Positive earnings stories • Steady dividend growth The Herd Identify trends in progress and participate

  10. Styles of Investing Contrarian Investing The Herd • Markets are generally efficient • The herd is over-reacting • The herd is filled with small investors, who are usually wrong • The herd creates inefficiencies and opportunities Contrarian

  11. Styles of Investing Asset Allocation Conservative Model Aggressive Model Cash10% Other15% Other15% Cash20% Bonds25% Stocks30% Bonds35% Stocks50%

  12. Styles of Investing Dividend Strategies Div. Yield12/31/01 Div. Yield12/31/02 Philip Morris 6.32% JP Morgan Chase 5.67% General Motors 5.43% Eastman Kodak 5.14% SBC Comm. 3.98% DuPont 3.30% Honeywell 3.13% General Electric 3.12% Caterpillar 3.06% AT&% 2.87% Dogs of 2002 Dogs of 2003 Eastman Kodak 6.12% Philip Morris 5.06% General Motors 4.12% JP Morgan Chase 3.74% DuPont 3.29% Caterpillar 2.68% SBC Comm. 2.61% International Paper 2.48% Merck 2.38% ExxonMobile 2.34%

  13. Styles of Investing Cyclical and Sector Rotation Strategies Health Care Retailing Recession Expansion Financial Energy Real Estate

  14. Styles of Investing The Impact of Technology • More information faster • Use of computer models • Programmed trading strategies • Internet trading and lower transaction costs • Day traders and high turnover strategies

  15. Styles of Investing Sector, Theme and Regional Investing Sector • Banking • Communications • Energy • Gold • Technology • Theme • Defense against terrorism • Biotech breakthrough • Aging of America • Socially responsible • Region • Asia • Emerging economies • Europe • Latin America • Pacific Rim

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