VPM Spring conference 2010

1. Knowledge, Experience, Success VPM Spring conference 2010 Scottsdale, Arizona May 21- 22

2. A new way of thinking… Forget about yesterday… We’ve all seen it… PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS… yet we continue to manage money using the rear-view mirror as our guide

3. A new way of thinking… As a money manager, ask yourself this question: “If I new nothing about the past, would I own this position today?”

4. A new way of thinking… As a RISK MANAGER, ask yourself: Does VPM own this position today?

5. What to Un-Learn? SEVEN Investment Myths worth busting • You can’t time the market • If I miss only a handful of positive days in the market, my investment performance will plummet • Asset Allocation weightings should reflect historical ranges of return and risk/reward metrics • Portfolio Assets need to be low or non-correlated to lower risk • Cash is a holding place and not an asset class • Investors fit in a box • Buy and Hold investing works

6. Myth Number 1:You can’t time the market • Who started this rumor? • Mutual Funds and Money Managers • Why would they do this? • So you will pay them • What do they do? • Make buy and sell decisions... and every buy or sell decision is timing the market

7. The dirty little secret Most people believe “timing the market” means buying perfectly at the bottom and selling perfectly at the top With VPM, timing is about lowering risk by scaling in or out of trending markets and lowering portfolio volatility TIMING IS NOT ABOUT GETTING IT PERFECTLY RIGHT ALL THE TIME. IT IS ABOUT GETTING IT ‘MOSTLY RIGHT MOST OF THE TIME’

8. Myth 1 Busted… With VPM, YOU CAN MANAGE MONEY • By following a disciplined process and utilizing VPM • Develop YOUR process • YOUR value system • And deliver YOUR value proposition for YOUR practice to YOUR clients

9. Myth Number 2 If I miss only a handful of positive days in the market my investment returns will plummet Why does this myth exist? - to keep you invested in buy-and-hold strategies The Evidence sited… Bull market from January 1984 through December 1998 S&P 500 buy-and-hold return was 17.89% annually Over this 15-year period, only a handful of trading days accounted for most of the market’s movement

10. What you’ve probably heard before… If you miss the best days in the market, your average return drops… from 17.89% to… Source: Financial Planning Association Journal, May 2005: ‘Missing the Ten Best’ by Paul J. Gire, CFP®

11. What you’ve probably NOT heard before… Missing the worst days makes a bigger impact Source: Financial Planning Association Journal, May 2005: ‘Missing the Ten Best’ by Paul J. Gire, CFP®

12. The dirty little secret Missing the best and worst days beat buy-and-hold’s 17.89% average annual return Source: Financial Planning Association Journal, May 2005: ‘Missing the Ten Best’ by Paul J. Gire, CFP®

13. Myth 2 Busted Investment returns are enhanced by lower volatility and overall trend capture – not by only a handful of investment days over a multi-year period RISK MANAGEMENT MATTERS

14. Myth Number 3 Asset Allocation weightings should reflect historical volatility, performance, range of return and risk/reward metrics

15. The MPT assumption Low correlation asset classes should be weighted based on their historical volatility and performance to maximize the potential upside performance per unit of risk taken

16. The flawed assumption Historical performance metrics change over time Historical performance metrics may not be relevant in current economic circumstances The efficient frontier matrix changes with time

17. The Elephant in the Room 2007 and 2008 – asset correlation, across virtually all asset classes, increases to near 1… and the market drops The market responds rapidly with new asset classes to re-create non-correlation 2009 – correlation is still a problem but we ignore it because everything is rising

18. Myth 3 Busted VPM allocates portfolio resources to positions that are trending and scales into or out of risk exposure based on those trends Historical ranges of return are not a factor in the allocation process. Each position is measured independently of the others in the portfolio

19. Myth 4Portfolio assets should be low or non-correlated to reduce risk Why does this myth exist? - Holdover from MPT - Time to un-learn a concept

20. Myth 4 Why use low correlation assets? - because buy-and-hold strategies have no sell discipline VPM has a sell discipline, so correlation is not a component of the risk management process BUT!...

21. Myth 4 Diversification amongst multiple asset classes lowers the risk of missing alpha due to concentration in an underperforming asset category that is correlated Translation: if you bet on all the wrong horses, you may not lose, but you won’t win either

22. Myth 4 Busted Asset correlation is not a critical risk reduction component in a VPM strategy However, diversification improves your odds of selecting positions that will add alpha to your strategy

23. Myth 5Cash is not an asset class Cash is part of ‘Cash and Cash Equivalents’ Cash is simply very conservative fixed income

24. Myth 5 Busted Cash does two things in a VPM portfolio: 1. It lowers risk by scaling out of more volatile market positions 2. It preserves capital for future opportunities

25. Myth Number 6Investors fit in a box Why do these boxes exist? - FINRA - Compliance - Peers - MPT - Institutional modeling

26. The power of “OR LESS” With VPM risk scaling, the box just got bigger…

27. Myth 6 Busted Investors don’t fit in boxes Investors set risk parameters and VPM manages to them

28. Myth Number 7Buy-and-Hold Works The only reason buy-and-hold strategies appeared to have worked is because a rising tide lifted all boats Numerous bear markets have robbed investors of capital or set back growth by years Individual Investors do not have infinite time horizons (unlike pensions and endowments) to recover from major market declines

29. Myth 7 Busted VPM Strategies… • Dynamically manage risk • Help preserve portfolio values in declining markets • Help lower portfolio volatility over time • Lower volatility portfolios preserve the ability to compound asset values