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Winchester Bluff Presentation 3_1_13


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Winchester Bluff Presentation 3_1_13

  1. 1. Introduction
  2. 2.  The fund measures its success based on the absolute level of profitability and not “relative” performance vs. the market Invests both long and short to capture profits in both rising and falling markets Low volatility/beta (currently @ .14) Low correlation to the broad market
  3. 3. Global Macro Strategy Ability to trade multiple instruments in asset classes around the world at any time Employs proven indicators of Point & Figure Charting and Relative Strength Employs objective technical analysis in conjunction with fundamental research Our strategy works because we limit risk and adhere to a clear trading plan
  4. 4. Cash US Stocks Fixed IncomeInt’l Stocks Currencies Commodities
  5. 5. 1. Not lose money2. 15 + percent annual returns over the next decade3. Continuous improvement by analyzing mistakes4. Gain partners who share our philosophy ofuncompromising risk management & enjoy experience
  6. 6. Active trading around core investments Defines & limits downside risk by investing in uncorrelated pure alpha streams ("Alpha" in investing language is the return you achieve based on manager skill) Invests in a core positions ranging from foreign bonds to currencies to commodities to global stocks Invests in subsidiary holdings at the periphery of the core to enhance returns Executes this dual complex strategy by constantly analyzing fifteen or more asset classes and simultaneously placing 30 or more trades Invests in only the most liquid markets that it can get out of quickly if necessary Portfolio construction process identifies what each position could add in terms of overall risk to the portfolio
  7. 7. Technical Market Analysis Growth Value Stock Stock Screens Screens CORE POSITIONS Event-driven Specialtrades/Straddles Situations/Niche Products/ Chart Pattern Emerging Recognition companies Hedges (portfolio protection)
  8. 8. The “buy-and-hold” myth: Buy the “Market” in 1929… It took 25 years to get back to even Buy it in 1973… It took 7.6 years to get back to even Starting in 1987 IBM went down 74%... It took 10 years to recover Cisco Systems (CSCO) was as high as $82 in 2000… It has yet to recover
  9. 9. Market and sector forces together typically cause 80% of the price movement in a Market stock. That means the company fundamentals usually account for less than 20% of a stock’s price movement. This is the reason a company’s stock price sometimes seems to move SectorStock independently of the fundamentals. Source: “The Latent Statistical Structure of Securities Price Changes” Benjamin F. King
  10. 10. Most people, however, spend 80% of their time on stock evaluation and onlyStock 20% on sector and market evaluation. In other words, they ignore where the greatest amount of risk lies – the market and sector forces. Market Source: “The Latent Statistical Structure of Securities Price Changes” Benjamin F. King Sector
  11. 11. What is Fundamental Analysis? What is Technical Analysis? 1. What to Buy 1. When to Buy 2. Company Management 2. Positive Trends 3. Earnings Growth 3. Relative Strength 4. Price/Earnings Value 4. Broad Market Risk 5. New Products 5. When to Sell
  12. 12. GROWTH SCREENThe Investors Business Daily (IBD) 85-85 Index ScreenIBD provides independent data ratings for every U.S. stock, including an Earnings Per Share (EPS) Rating and a Relative Strength (RS) Rating.Their research shows that in every market over the last 50 years, the best stocks have had EPS and RS Ratings of 85 or better BEFORE they made their biggest gains.The consistently superior performance of the IBD 85-85 Index reinforces this fact and is why we incorporate this screen as one of our primary tools: From the total period 11/13/2000 to 2/28/2013, the IBD 85-85 returned 274%, while the S&P 500 Index returned 12%Note: IBDs ratings are relative, with an 85 rating meaning the stock is outperforming 85% of all stocks in its peer group. The Index is updated after the market close each Thursday. At that time, stocks no longer meeting the 85-85 criteria are removed, stocks now meeting the criteria are added, and those maintaining their ratings remain in the Index.
  13. 13. VALUE SCREENThe Buffett/Graham ScreenThis screen identifies companies with high quality business at undervalued prices 1. Stock price is less than the net current asset value of the company 2. During the past 12 months, the company generated positive operating cash flow 3. The company has no meaningful debt compared to its cash position From back testing study 1998-2012, this group had an annual gain of 20% while the S&P 500 index averaged 2% a year.
  14. 14.  Fundamental research tells us what ought to happen with a stock, while technical analysis tells us what is happening with respect to supply and demand Technical analysis, and in particular “Point & Figure” technical analysis, gives us the discipline to make decisions based on price This logical approach helps reduce uncertainty in the market. It allows us to recognize market risk and therefore:  Move to cash/short assets when market indicators dictate that supply is in control  Invest long and more aggressively when demand is in control The ability to perceive and manage risk, and thereby preserve our investors’ capital, is our primary objective at Winchester Bluff
  15. 15.  We all understand the basic forces of supply & demand The same forces that affect prices in the supermarket also affect prices in the stock market Stocks, sectors, and asset classes move in and out of favor just like produce at the supermarket
  16. 16. Point & Figure BasicsPrices represented by X’s and O’sAlternate columns of X’s and O’s as the price changes X’s = Price is rising O’s = Price is fallingTrend-line shows strength or weakness Chart Source:
  17. 17. 23 X <- Demand22 X X X X X wins21 X O X O X O X O X20 X X O X O X O X O X X O X O O X O X O19 X O X O X O X O X O18 X O Notice that supply and demand X battled it out for a full year17 X until demand won at $23 0 <- Year 0 0 1
  18. 18. 45 O O X X O X O X O X X O X O X O X O X O O X O O X O X O40 O X O X O O O O O B S X X X X O X O X X35 X O X X O X O X X O X O X O X O X X O X O X O O X O O X30 Stock A Stock B
  19. 19. Now that you understandPoint & Figure chartingbasics, we can move on toour most importantindicator, the NYSEBullish Percent.
  20. 20.  Our Primary Market Indicator Tells us whether to have the offense or defense on the field It is calculated by taking the number of stocks in the NYSE on a buy signal, and dividing by the total number of stocks in the NYSE, resulting in a percentage For example, if there were only 1,000 stocks on the NYSE and 500 were on buy signals, the resulting NYSE Bullish Percent would be 50%, which is then plotted on a Point & Figure chart.
  21. 21. • X’s = Offense – Wealth Accumulation• O’s = Defense – Wealth Preservation• Two Important Areas: 30% and 70%• Measures Risk in the Market• Does not have to move in tandem with the S&P 500 or the Dow Jones.
  22. 22.  One of the most important considerations when investing is determining whether to take an offensive or defensive posture When offense is suggested we employ the funds assets by making stock purchases When defense is suggested we work to protect existing positions and take advantage of shorting ideas
  23. 23.  Buy Exchange Traded Funds (ETFs) Buy stocks on breakouts Buy leaders Consider deep value plays Employ liberal stop loss points Buy Offensive sectors (BP & X’s) Focus on strong technical stocks Buy on pullbacks Use trend-line stops Focus on strong relative strength Buy Call Options
  24. 24.  Trim or take profits Short equities Reduce equity exposure Raise cash Sell weak RS stocks Buy Inverse funds Buy protective puts Tighten stops on long positions Increase non-correlated exposure
  25. 25. How our process helps us invest with discipline
  26. 26. Over the past 30 years: The average stock mutual fund has returned 10.7% The average investor has returned only 3.7% The difference can be attributed to investors making emotional decisions For Example…
  27. 27. DECISION INPUT WB Process  Decisions are clear-cut Emotion-based Investing  Input comes from many sources and leads to second-guessing AT DECISION TIME WB Process  Portfolio construction based on a set of rules Emotion-based Investing  There are no rules
  28. 28. COMFORT LEVEL WB Process  Investments are easily reevaluated as indicators change Emotion-based Investing  Decisions put off due to difficulty EMOTIONS WB Process  Emotions are not a part of decision-making Emotion-based Investing  Emotions cause errors that can have disastrous effect
  29. 29. REACTING TO NEWS/MEDIA WB Process  No effect - we stick to an organized plan. Emotion-based Investing  The news causes most investors to panic PEACE OF MIND WB Process  A lot Emotion-based Investing  None
  30. 30. Independent Statistics FundamentalWeb-Based ResearchTechnology Asset 85-85 Evaluation Screen Asset Value Inventory Screen Investment Market Decision Risk Technical Sector Research Risk Portfolio Risk Analysis Relative Strength Trend Chart Lines Patterns
  31. 31. Stock: Date:Sector: Positive (Y) Negative (N) CommentsMarket BPSector BPValue ScreenGrowth ScreenTrendPatternConsistent with current DALIFavored SectorTechnical AttributesStop Loss %Sell Analysis:1/3 when up 30%1/3 when up 50%When broke trend lineWhen Relative Strength changedWhen dropped back to first 1/3 sellWhen nothing happening 1+ monthHow did stock perform after sale
  32. 32. 10-year average annual return goal: 15% Investment Process & $100M AUM Risk managementFund launch
  33. 33. Private Limited Fund Subscription Placement PartnershipSummary Agreement Memorandum Agreement
  34. 34. What is most important is seeing that your money managerhas a coherent process. PROCESS is the key.Does the concept make sense? Is it robust? Is the organizationcommitted to its discipline? Is risk managed during theinevitable downturns?Over long stretches of time, having a strong process and gooddiscipline makes all the difference.Identifying good managers is a tough decision. Of course, wehope that your choice of a manager will be Winchester Bluff.The path to good returns is simple: find a manager whoseprocess you are comfortable with and hang on through thickand thin.