Moneyweb Investment Seminars - Peter Major

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Volatility is your friend... if you know your assets...

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Moneyweb Investment Seminars - Peter Major

  1. 1. Volatility is your friend… …if you know your assets Peter Major
  2. 2. Volatility is your friend… …if you know your assets
  3. 3. How does „volatility„ help or hurt the 5 assets? Cash : Rand, $, Euro or other Bonds : Local, Foreign. 10 yr, 20 yr. Govt or private Gold : Local & Foreign. Bullion, ETF‟s, Equity Property : Local, Foreign, Listed, Non, Residence? Equities : Local, Foreign, Indices, Sectors, other
  4. 4. Introduction Peter Major Fund Manager, Analyst, Consultant – Cadiz Corp Solutions 2006 - current CIO, Fund Manager, Analyst - HBD Asset Management 2001 - 2004 Fund Manager, Mining Analyst – Nedcor Investment Bank 1991 - 2001 Gold Analyst – Allan Gray Investment Counsel 1989 - 1991 Consultant & Marketing Manager - EIMCO Mining Machinery 1986 - 1988 Came to South Africa – Harmony Gold Mine, MBA (UCT) 1982 - 1984 B.Sc Min Eng - Montana School of Mines 1977 - 1981 Began mining in Kellogg, Idaho, Montana, Alaska, Canada 1972 - 1981
  5. 5. The SA JSE 120 Years of Commodity Investing
  6. 6. 1973 Grizzly Man Sunshine Silver Mine, Kellogg Idaho
  7. 7. 1977 Timber & Lumber Jennis Bay BC, Canada
  8. 8. 1990‟s International equities Idaho Silver Mines
  9. 9. 2001 Asset management All categories listed & unlisted
  10. 10. 2007: Listed & Private Equity, Corporate Finance, other
  11. 11. Volatility is your friend It gives you „opportunities‟ VOLATILTY is not just „how often‟ something changes It is also – by „how much‟ - something changes Some people associate „volatility‟ with risk. Wrong! VOLATILITY is OPPORTUNITY. Another chance! How many times do you get a second chance in life? It‟s almost impossible to outperform without volatility!
  12. 12. SP Volatility Index: Average = 20 VIX (Implied volatility of S&P 500 index options) 90 80 70 Annualised Volatility (%) 60 50 40 30 20 10 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Year Last Price 30 Day MA 180 Day MA 360 Day MA
  13. 13. Let‟s look at volatility of the 5 asset categories Cash : Rand, $, Euro or other Bonds : Local, Foreign. 10 yr, 20 yr. Govt or private Gold : Local & Foreign. Bullion, ETF‟s, Equity Property : Local, Foreign, Listed, Non, Residence? Equities : Local, Foreign, Indices, Sectors, other
  14. 14. Massive leverage „Magnifies‟ volatility
  15. 15. SA 20yr bond sensitivity Yield % Yield at exit today 11 10 9 8 7 6 11 11 15 19 24 30 36 10 6 10 14 19 24 30 9 1 5 9 14 19 24 8 -4 0 4 8 13 18 7 -9 -5 -2 3 7 12 6 -14 -10 -7 -3 1 6 2 Yr pa TRR
  16. 16. Simple Average Returns (in Dollars $) 30 25 22 20 Returns (%) . 16 16 15 15 13 10 5 0 5 yrs 10 yrs Time periods 20 yrs 30 yrs 50 yrs RESI ALSI Property Gold Bonds Cash
  17. 17. Simple Average Returns (in Rands) 30 25 19 20 20 19 18 Returns (%) . 15 15 10 5 0 5 yrs 10 yrs Time periods 20 yrs 30 yrs 50 yrs RESI ALSI Property Gold Bonds Cash
  18. 18. Summary Always start with the macros: international markets, i rates, PE‟s & other Analysing how each of those affect the 5 asset categories. Always know „which‟ assets are „extended‟ – i,e „outside their norms‟ Do you „really‟ want to hold an asset 1 or 2 standard deviations out? Re-visit your goals – and your reasons for holding the asset Are these reasons at odds with each other? With the facts at hand? And ask yourself – “am I being too greedy – or too conservative now?” YOU CAN’T ‘OUTPERFORM” – BY FOLLOWING THE MASSES!
  19. 19. Because in the end MOST things revert to the „mean‟
  20. 20. Talk is talk: It‟s cheap. And there‟s lots of it “I think it is an immutable law of business that: words are words, explanations are explanations, promises are promises – but only performance is reality” Harold Geneen ITT CEO
  21. 21. Thank you Peter Major

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