Steven Nathan, CEO 10X Investments presented at the 10X Retirement Conference 2014 on the topic 40 Years is a long time for a rabbit not to appear.

1. Forty years is a long time to wait
for a rabbit not too appear
A “true” story about Ben & Jerry
Steven Nathan, 10X Investments

2. Twin brothers at retirement: Ben & Jerry
Identical savings & salary from 1973 to 2013, final salary R55K pm. Different company retirement fund
Final pension value R14 million R6,8 million
Living Annuity: 5% draw-down R58K pm R28K pm
Income replacement ratio 105% 50%

3. Two different approaches delivered two dramatically different results
• High Equity Tracker Fund with low fees
• One fund & provider through-out
• Many investment choices offered
• Changed providers & funds several times

4. A lot happens in 40 years: Should I upgrade my portfolio like my phone?
1970s 1980s 1990s 2000s 2010s
• Surely I must regularly change my portfolio to adapt to the changing economy?

5. A brief history of the last 40 years of investing

6. 1970’s Oil Crises, high inflation

7. 1976 Soweto riots, 1985 Rubicon speech, debt moratorium

8. 1987 Market crash: 23% fall in one day!

9. 1990 Madiba released, ANC, PAC unbanned

10. But then…..

11. 1990’s New Economy: “Business cycle is dead”

12. Some “minor” hiccups along the way
Asian crises 1998 Russian default 1998 LTCM bailout 1999

13. Dow Jones tripled to 12 000 in under 6 years to 1999

14. But then…..

15. Sadly, the business cycle returned. Dot.com Nasdaq crash 2000

16. 9 September 2001: The world will never be the same

17. But then…..

18. 2000’s Credit binge: Easy monetary policy (cheap money)

19. What do WHehriec’hs othf etthh feeussllee l i shhtii!gghhllyy rreeggaardrdeedd i nosrtgitauntioisnast ipornesdihcatevde tihne c 2o0m0m8 GonC?F?

20. What do No local tfhuensde m haignhalgy erre/gaadrvdiseodr oprrgeadnicisteadti othnes GhaCvFe einit hceormmon?

21. Don’t worry, there’s always at least one “hero” when you have
thousands of commentators
Dr Nouriel Roubini “Dr Doom”

22. Roubini’s other forecasts pre and post 2008 were hopeless

23. Another batch of “after the fact” experts

24. But then…..

25. Life carried on as it has done for decades….the economy grew…

26. Your investing time horizon is likely to
outlive most investment funds

27. Unit trusts 1998: 30 Funds in total

28. 16 years later 2014: 24 Funds no longer exist. 80% attrition
• 2014 Over 1 000 unit trusts, attrition rate approx.
50% within 5 years

29. Companies and Funds no longer around
Syfrets

30. What if you never followed financial
markets for 40 years?

31. After-inflation value of R1 invested: 1973 - 2013
R23
Shares Int Shares Bonds Cash
R11
R2.5 R2.2
Source: Morningstar, 10X Investments

32. Value after-inflation of R1 invested 1973 - 2013
23
2.5
2.2
11
0
5
10
15
20
25
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Shares Bonds Cash Int Shares

33. 10 Major financial events (ex. Wars!) in 40 years: 1 every 4 yrs
23
11
2.5
2.2
25
20
15
10
5
0
Shares Bonds Cash Int Shares
“Death of
Equities”
1976 Soweto
Oil crises
riots
2008 Global
Financial
2000’s
credit
binge
TMT New
economy
boom
1987
market
crash
SA debt
moratorium/
Rubicon
speech
ANC
unbanned/
1994
Democratic
election
Dotcom
crash,
9/11
Crises
Asia,
Russia,
LTCM
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

34. Why did Ben succeed and Jerry Fail?

35. Measuring what matters: Net return 1973 - 2013
Return after inflation % pa Ben Jerry
High equity Portfolio return 7% 7%

36. Measuring what matters: Net return 1973 - 2013
Return after inflation % pa Ben Jerry
High equity Portfolio return 7% 7%
Consultant recommendations &
active manager under-performance
0% -1%
Portfolio switches 0% -1%

37. Investment consultant recommendations underperform by 1% pa
“Pension funds and other large investors were shown to be throwing away
billions of dollars a year on worthless advice from investment
consultants. Consultant recommendations underperform by 1.1% pa

38. Underperformance against the fund due to investment switches
• US 2.5% pa per Morningstar
• SA 4% pa. per Allan Gray Balanced Fund

39. John Bogle & US investors: Structural move to index funds

40. How does the industry respond to these facts?

41. Measuring what matters: Net return 1973 - 2013
Return after inflation % pa Ben Jerry
High equity Portfolio return 7% 7%
Consultant recommendations &
active manager under-performance
0% -1%
Portfolio switches 0% -1%
Fees -1% -2%
Net return pa. 6% 3% Extra 3% pa return

42. “Yes, but it doesn’t work in SA”

43. Actually it works everywhere, including SA
190
70
215
204
192
90
110
130
150
170
210
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
Dec-08
Feb-09
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
10X High Equity Manager Ave. Mngr ave. less 1% Fee
10X value-add since inception Jan’08
10X Excess return 1% pa
10X Fee saving 1% pa
Value add 2% pa*
*Assuming no investment switching
Source: Alex. Forbes Global Manager Watch Best Investment View (BIV), 10X Investments

44. Measuring what matters: Net return 1973 - 2013
Return after inflation % pa Ben Jerry
Net return pa. 6% 3%
Final pension value R14 million R6,8 million
Living Annuity: 5% draw-down R58 000 pm R28 000 pm
Income replacement ratio 105% 50%
Saving 15% of salary, to
company retirement fund,
final salary R55Kpm
Extra R7 million
100% more retirement income

45. What lesson have we learned?
The secret of investing is there is no secret!

46. Optimal investing principles unchanged in over 50 years
• Basis for optimal portfolio construction developed in 1960’s
• No investment “innovation” has improved risk-adjusted returns in decades
• The best way to invest for next 40 years is same as last 40 years
1970s 1980s 1990s 2000s 2010s

47. Optimal portfolio construction developed in 1960s. No meaningful improvements since!

48. Everything you need to know in one sentence
Save 15% of your salary for 40 years in a High Equity Tracker Fund with total fees of 1% or less
Will any other strategy do better?
• Anything is possible but ….
• Too many choices and thus different outcomes
• Unlikely you will stay the course for 40 years
• Probable you will earn between 2% and 3% pa less

49. The one question every trustee, employer, advisor and investor must ask
1. Would I rather have one low risk plan to probable success or multiple high risk paths to
Retirement income
% salary
105% 50%
probable failure?
• What outcome do you expect for your members after 40 years?

50. Warren Buffett’s long-term investment advice

51. Thank you