President and chief investment officer, Robert Lutts, of Cabot Wealth Management presents a luncheon keynote where he discusses a bull market, four signs of trouble ahead, and Cabot's top three investment themes.

1. WELCOME TO CABOT’S
25TH ANNUAL INVESTMENT & WEALTH MANAGEMENT CONFERENCE
Your interests and goals always come first.

2. Cabot Wealth Management, Inc.
25th Annual Investment and
Wealth Management Conference
Rob Lutts
President and Chief Investment Officer
September 26, 2014

3. Outline
• ECONOMICS
• MARKETS
• RISKS
• STRATEGY

4. Key Factors Today
 Global Economic Recovery:
Slow but Steady
 Central Bank Intervention:
New Exit Phase Beginning
 Great Reallocation Beginning:
Out of fixed income and alternative space to
risk-based asset investing

5. Unexpected Changes
Having Key Impact
Energy Innovation:
 U.S. is Expanding Energy Production Rapidly –
82% over 7 years. Impact – Lower Inflation and interest rates
 Driving manufacturing in USA – cost advantage to USA – amazing
positive factor (not well appreciated)
 Driving Profits Higher for many U.S. Companies
U.S. Innovation Pace is Expanding:
 Silent Innovation Revolution – Like Industrial Revolution in 1900s
 U.S. Leading World Innovation: Google, Apple, Facebook,
Linked In, Salesforce.com, Illumina, SolarCity, Tesla, Biogen

6. Stocks on Solid Foundation Today
Interest Rate Trends Favorable for Equities:
Bear Market in Bonds Not Far Off
 U.S. Manufacturing Costs:
U.S. NOW Competitive
 Global Economics Changing:
Capital Investment Accelerating
Deferred Capital Spending:
Indications Trend Accelerating
 Equity Valuations Higher, Yet Attractive Today:
P/E Expansion
 International Dependency:
Global Cooperation Key – Conflicts Rising

7. Core Belief: The “Good” in Man Always
Overcomes the “Evil”
George Bailey Mr. Henry F. Potter – The Bailey Building & Loan

8. Core Belief: Knowledge Creates Progress and Value

9. More information has been produced
in the last 20 years than the previous
5,000.
If the increase of knowledge from the
dawn of history to the 1800s is given a
value of one, then knowledge has
doubled 16 times within the last 10
years.
Today the amount of information and
knowledge in the world is doubling
every 18 months.

11. Core Belief: Innovation Leads to Great Value Creation

12. Benefits of information technology
can take us a long way!
I believe Internet and IT will have
much larger impact on productivity
than electricity.
Speed of productivity increased dramatically

13. Core Belief: Wealth Management - Process is Critical
“Investment management” is one of the (important) components
within “wealth management”
Wealth Management:
◦ Investment management
◦ Asset allocation (equities, fixed income, international securities,
alternative assets, etc.)
◦ Investment choices within each asset class
◦ Retirement planning
◦ Tax planning
◦ Estate planning
◦ Risk management (planning for catastrophic risks including disability,
death, long-term care, personal liability, personal property)

14. U.S. Economy – The Most Resilient,
Adaptable, Creative and Innovative
Economy on our Planet
Why? Free Markets, Capital Markets, Legal System, Educational
System, Entrepreneurs Who Drive Ideas, Culture of Growth and Progress
 Expect More Growth and a Better Economy in the coming
years
 Disruption to established industries high – Value Erosion
 Opportunities for value creation very high in next decade

15. U.S. Economics

16. Growth is Slower. Reason:
Debt Levels High Globally?

17. Consumers Coming Back!
Still Lower than Normal Confidence

18. Debt Obligations of Households
Now Dramatically Lower

19. Businesses Now Starting To
Increase Capital Spending

20. Depressed
Back To 1995-2000 Levels

21. Could Inflation Stay Low Longer?
Yes – Time Will Tell

22. Unimaginable Energy Revolution!
Never Underestimate American
Ingenuity and Innovation

24. New Cost
Paradigm in USA
- Very Favorable

25. New Baby Boom –
Next Seven Years –
Sharp Increase in
Number of 30 Year
Olds.

26. Business Efficiency Driving
Corporate Profitability
Higher

27. Business Loan Demand Strong
and Growing!

28. Economic Summary
 U.S. Economy Growth – Stronger soon
 U.S. is Strongest Large Developed Economy on
planet today – U.S. Shines Today
 Expect Inflation and Interest rates to remain
lower for a longer period of time -Watch Trends
 Corporate Productivity and Profits will continue
to be higher than many expect
 Overall: Very Positive U.S. Economic Situation

29. Markets

30. Equity Markets Today
 Markets Are Very Healthy Today
Significant Upside over the coming 12 -24 months
 Today Entering Expansion Phase Cycle
 Earnings Solid and Growing
 Markup In Valuations Phase coming
Monetary, Earnings, Valuations and Psychology all Positive

31. 14 Year Trading Range 1999 – 2013
Now Ended – BREAKOUT Positive

32. Markets Have Upward Bias –
2013 Breakout – Very Positive

33. Cycle Still Positive – Looks To Be
Positive for a Few More Years

34. 2015 P/E
Ratio Average

35. Earnings Growth
Very Healthy

36. 2.0 percent Dividend Yield
Plus 2-3% Buybacks = 5% Total Return
Equities Providing Solid
Total Return

37. How High Can Stocks Go?
The Bullish Projections By Some Analysts
Earnings Multiple*** Target Upside
2014 $119.50 18.5 X 2,211 11%
2015 $130.00 18.5 X 2,405 20%
As of 9/6/14 SP 500 is 1995
*** Between 1-3 % inflation Ave. P/E is 19X

39. Long-Term
US Interest Rates
1800 - 2014
1800 7.1% 1900 3.9% 2000 5.6%
1810 6.0% 1910 4.0% 2010 4.9%
1820 6.0% 1920 5.3% 2014 3.4%
1830 5.1% 1930 4.3%
1840 5.3% 1940 2.8%
1850 5.4% 1950 3.0%
1860 5.8% 1960 4.1%
1870 5.3% 1970 8.0%
1880 4.0% 1980 11.5%
1890 3.9% 1990 7.9%
The 200-year Average = 5.2%

40. 30 Year Treas. Bond
3.2% 9/9/14

43. EEM Discount: 25-35%

44. Growing Markets: India / Africa
India – New Leadership may help drive growth higher – much room to improve
Africa – Much room for improvement – those risk takers /high reward
 Retail & Healthcare
 Travel and Transportation (Auto)
 Banks
 Insurance & Education
 Internet & Advertising
 Infrastructure

45. Cape Town, Africa
Rob Lutts Feb, 2014 Attending
Indaba Mining Conference
Tabletop Mountain, 4000 ft.
peak within 15 minutes of
downtown Cape Town

46. Summary
- US Stocks Overweight
- Foreign Stocks - Developed Markets Neutral
- Foreign Stocks - Emerging Markets/Frontier Markets Neutral/ Over
- Domestic and Foreign Bonds Underweight
- Precious Metals Underweight
- REITS Neutral
- Alternative Assets Neutral

47. Risks

48. Key Risk Factors Today
 Global – Geopolitical –Wars, Conflicts
 Central Bank Error – Debts still large in Governments
 Interest Rate Shock – Inflation Trend
 Currency Devaluation – Money Printing is Inflationary
 Protectionism – China, Russia – Trading Barriers –
Hostile to Trade

49. Fed Intervention: Delaying Inflation

50. U.S. Government Spending Gap
Closing –Washington Gridlock –
Positive ST – LT Trend problematic

51. 15%
6%
Government Debt – A potential
disaster if rates rise dramatically –
could grow deficits quickly

52. “Normal” Market Volatility:
3 Corrections per year > 5%
1 Correction per year > 10%
1 Correction every 3+ years > 20%
NOTE: The S&P 500 Index is a widely recognized, unmanaged Index of common stock prices. Source: Bloomberg

53. Signs of Risk Building
 IPO Market – Starting to Heat Up (Alibaba)
 Secondary Issue Market Strengthening as well
 Investors Appetite for Risk Products is building
 Equity Flow of Funds Positive now – but still modest
 Client Risk Indicator - moderate

54. Cabot’s Top Three Growth Themes
Solar Power Energy:
Residential and Commercial solar now at critical
cost level that is driving growth
Health Diagnostic Innovation:
Biotechnology and Genomic Breakthroughs
Transportation:
Electric Vehicles
“Innovation is the specific instrument of entrepreneurship...the act that
endows resources with a new capacity to create wealth.”
- Peter F. Drucker

55. Economics of Solar are
Driving Growth Now
Threefold Increase in Three Years!

56. Medicine now entering
dramatic phase of change in
next ten years – invest today

57. The Electric Vehicle Industry - Innovation

60. Strategy

61. Is Five-Year Bull Market Over?
 Shorter Term: 1-2 years
Very Positive on Economy and Equities
 Mid Term: 2-4 years
Yes …We See Troubles Brewing… New Bubbles in Economy.
Eventually valuations will become excessive.
 Long Term – Coming Decade:
U.S. is well positioned to benefit from innovation

62. What Trouble Will Look Like
In a Few Years
 Economy in U.S. and Globally will be much stronger
 Inflation will be accelerating and will be viewed as a concern
 Interest Rates will be rising steadily
 Federal Reserves and Central Banks will have substantially reduced
their stimulus programs
 Valuations bubbles will be more evident – stock prices (P/Es at upper
range levels), real estate or other asset classes unknown today.
 You Will Feel Better About Our Economy

63. Four Signs of Trouble Building:
Cycle Factors:
Signs of Investor Risk Taking is Building
 Central Banks - Soon Raising Rates 10 months?
 Equity Valuations Higher Today
 Economy Is Closer to “Blue Sky” Today
Geopolitical Issues: Middle East - Conflict, Russia
(Ukraine), China (Protectionism)

64. Diversify
Find a mix that makes sense for you based on risk
tolerance, goals, short/long-term income needs.
- US Stocks Overweight
- Foreign Stocks - Developed Markets Neutral
- Foreign Stocks - Emerging Markets/Frontier Markets Neutral/ Over
- Domestic and Foreign Bonds Underweight
- Precious Metals Underweight
- REITS Neutral
- Alternative Assets Neutral

65. U.S. Economy – The Most Resilient,
Adaptable, Creative and Innovative
Economy on our Planet
 Expect More Growth and a Better Economy in the coming
years
 Disruption to established industries high – Value Erosion
 Opportunities for value creation very high in next decade

66. QUESTIONS
Thank you for joining us today.

68. State of Cabot
 Cabot’s 31th Year – Great Opportunities Ahead
 Cabot Technology Platform Expanding – Best Practices
 Digital Phone System - Thinking Phones – Always Available
 Software Integration with Schwab – Salesforce.com and Custodians
 Hosted Networks – Cloud Computing
 Hardware Upgrades – Security
 Backup Generator Installed – All Tested
 Green Energy Efficiency Efforts – Roof Solar Project (216 Essex and 30 Federal)
 Staff Education – High Investment – Expanding
 Conferences, Seminars, World Travel
 Continue to Seek To Upgrade our Skills and Abilities

69. Core Belief: The “Good” in Man Always
Overcomes the “Evil”

70. Core Belief: Knowledge Creates Progress and Value

71. Core Belief: Innovation Leads to Great Value Creation

72. Core Belief: Wealth Management - Process is Critical
“Investment management” is one of the (important) components
within “wealth management”
Wealth Management:
◦ Investment management
◦ Asset allocation (equities, fixed income, international securities,
alternative assets, etc.)
◦ Investment choices within each asset class
◦ Retirement planning
◦ Tax planning
◦ Estate planning
◦ Risk management (planning for catastrophic risks including disability,
death, long-term care, personal liability, personal property)

73. State of Cabot
 Cabot Investment Management

Equity Research – Team Effort
 Cabot’s knowledge and Use of New ETFs Expanding/Equity Sectors
 Fixed Income – Use of New Fixed-Income products expanding
 Wealth Management Team – Best Practices
 Seminars and further education
 Advanced Skills– Taxes, Estate Planning and Insurance work
 Staff
 Culture of emphasizing education and growth