“ Investors are irrational in a predictable way” “Listen to the markets”

transcript

1Birkelbach Management Corp.

““Investors are irrational in a predictable way”Investors are irrational in a predictable way”““Listen to the markets”Listen to the markets”

““Let the markets tell you what to do”Let the markets tell you what to do”

Birkelbach Investment Securities, INC.Birkelbach Investment Securities, INC.

andand

Birkelbach Management Corp.Birkelbach Management Corp.since 1974since 1974

Birkelbach Management Corp. 2

How to make How to make money in the Stock money in the Stock

Market?Market?Buy and Hold?Buy and Hold?

50 Years : 9%50 Years : 9%

1997-2009 : 0 %1997-2009 : 0 %

ANNUALIZED RETURNSANNUALIZED RETURNS

ANNUALIZEDRETURNS

LAST 3 YEARS

LAST 5 YEARS

LAST 10 YEARS

LAST 20 YEARS

LAST 30 YEARS

JAN 1926* to

SEP 2009

S&P 500 –StockIndex (-) 5.4% (+) 1.0% (-) 0.2% (+) 8.0% (+) 11.0% (+) 9.8%

Long-term GovtBonds (+) 7.8% (+) 6.7% (+) 8.0% (+) 8.8% (+) 9.7% (+) 5.5%

Intermediate-term Govt Bonds (+) 7.1% (+) 5.0% (+) 6.1% (+) 6.9% (+) 8.4% (+) 5.4%

Long-term CorpBonds (+) 6.0% (+) 5.6% (+) 7.8% (+) 8.3% (+) 9.4% (+) 5.9%

30 day- Treasurybills (+) 2.5% (+) 2.9% (+) 2.9% (+) 3.9% (+) 5.6% (+) 3.7%

Source: Morningstar

*Earliest date for which data

was provided

DOW 1928-PresentDOW 1928-Present

Why Sideways?Why Sideways?Global CompetitionGlobal Competition

Redistribution of wealth from Shareholders to Redistribution of wealth from Shareholders to managementmanagement

Banks, corporations and individuals need to rebuild Banks, corporations and individuals need to rebuild balance sheets.balance sheets.

The Great SidewaysThe Great Sideways

Since 1997 – UP 50%Since 1997 – UP 50%

DOWN 50%DOWN 50%

Do you have an Investment Strategy for this kind of market ?Do you have an Investment Strategy for this kind of market ?

New Market RealityNew Market Reality

Increased VolatilityIncreased VolatilityUP 50%; Down 50% will continueUP 50%; Down 50% will continue

Investors must become more FLEXIBLEInvestors must become more FLEXIBLE

AVOIDAVOIDBuy & Hold StrategiesBuy & Hold StrategiesMutual FundsMutual Funds

New StrategyNew StrategyLearn market timing techniques to Buy Low & Sell HighLearn market timing techniques to Buy Low & Sell HighUse ETFs to be Long and/or ShortUse ETFs to be Long and/or Short

To be To be SuccessfulSuccessful in the in the stock market become stock market become

self sufficientself sufficientBrokerage ReportsBrokerage Reports

Company Company AnnouncementsAnnouncements

NewsNewsS&P RatingsS&P RatingsToday’s stock market prices Today’s stock market prices

represent investors’ represent investors’ perception of the futureperception of the future

And Price is determined by supply and demand…

Nobody controls the marketsNobody controls the markets We do control our selection and timingWe do control our selection and timing We can’t tell the market what to doWe can’t tell the market what to do We We cancan let the market tell us what to do let the market tell us what to do ““The trend is your friend”The trend is your friend”

Technical Analysis (The forgotten art)Technical Analysis (The forgotten art) A Picture is worth a thousand wordsA Picture is worth a thousand words

Becoming Self SufficientBecoming Self SufficientLasting Truths…Lasting Truths…

Investors are irrational in a Investors are irrational in a “predictable” way“predictable” way

Learn to listen to the marketLearn to listen to the market

Let the market tell you what to do.Let the market tell you what to do.

The “Lone Bull” I – The “Lone Bull” I – Barron’s 1982Barron’s 1982

DOW : 1,000 to 11,000

The“Lone The“Lone Bull” II – Fall Bull” II – Fall

20022002

Dow: 7,200 to 14,200 --up 97.22%

Head and ShoulderHead and ShoulderHeadLeft

Shoulder

Right Shoulder

Neck Line

Volume

Head and Shoulder Top Formation

Left Shoulder

Right Shoulder

Neck Line

Volume

Head and Shoulder Bottom Formation

Amount Up

Amount Down

The Dow…The Dow…

Giant Head and Shoulders Formation(2001 – 2005)10,753 – 7,197 = 3,556;3,556 + 10,753 = 14,309Projected Goal? (14,309 + 32%)

The S&P 500…The S&P 500…

Giant Head and Shoulders Formation(2001 – 2005)1,170 – 820 = 350;350 + 1170 = 1,520Projected Goal? (1,520 + 31%)

The NASDAQ Composite The NASDAQ Composite Index…Index…

Giant Head and Shoulders Formation(2001 – 2005)2,000 – 1,195 = 805;805 + 2000 = 2,805Projected Goal? (2,805 + 45%)

Lone Bull IIILone Bull IIIDow: 6,470 to 10,000 --up 54.56%

Price of FordFebruary 12 2009- $1.79

Now-$7.61

Apply technical analysis Apply technical analysis for evaluationfor evaluation

The Dow TheoryThe Dow Theory

Phase I

Phase II

Phase III

Phase I

Phase II

Phase III

Bull Market

Bear Market

Characteristics of the Characteristics of the Market CycleMarket Cycle

Accumulation

Distribution

Reversion

Trend movementsTrend movementsLook at 3 month chartsLook at 3 month charts 1 year charts 1 year charts 10 year charts 10 year charts

Intermediate

Major Trend

Intermediate

EXXON (XOM)EXXON (XOM)5-Years as of 10/29/20095-Years as of 10/29/2009

EXXON (XOM)EXXON (XOM)1-Year as of 10/29/20091-Year as of 10/29/2009

Monitor your investmentsMonitor your investmentsLet the market tell you what to Do.Let the market tell you what to Do.

Resistance AreaResistance Area

Resistance Area

Support AreaSupport Area

Support Area

Trendlines and Trend Trendlines and Trend movementsmovements

Uptrend

Broken

Downtrend

Broken

Sideways Trend

Broken

Determine your Determine your risk/reward tolerancerisk/reward tolerance

Step-1Step-1

A stock is only a A stock is only a vehicle to get you vehicle to get you to where you want to where you want

to goto go

What are the benefits of What are the benefits of using ETFs?using ETFs?DiversificationDiversification

- Exposure to wide spectrum of asset classes and investment stylesExposure to wide spectrum of asset classes and investment styles- Helps to limit single-stock riskHelps to limit single-stock risk

Lower Fees & ExpensesLower Fees & Expenses--US Equity ETFs charge relatively lower fees than competing investment vehiclesUS Equity ETFs charge relatively lower fees than competing investment vehicles

Tax EfficiencyTax Efficiency- Passive management and the creation/redemption process can help Passive management and the creation/redemption process can help

minimize capital gains distributionsminimize capital gains distributions

Trade on major stock exchanges throughout the dayTrade on major stock exchanges throughout the day- Not subject to trading issues associated with 4:00 pricing of open-Not subject to trading issues associated with 4:00 pricing of open-

end fundsend funds

HedgingHedging- Be long and/or short the market- Be long and/or short the market

EXCHANGE TRADED FUNDSEXCHANGE TRADED FUNDSETF’SETF’S

IYY IYY Dow Jones Index IsharesDow Jones Index Ishares DOGDOG Short Dow 30 IndexShort Dow 30 Index ProsharesProshares QQQQQQQQNASDAQ-100 PowersharesNASDAQ-100 Powershares PSQPSQ Short NASDAQ-100 IndexShort NASDAQ-100 Index ProsharesProshares IVV IVV S&P 500 Index IsharesS&P 500 Index Ishares SHSH Short S&P 500 Index ProsharesShort S&P 500 Index Proshares IWM IWM Russell 2000 Index ProsharesRussell 2000 Index Proshares RWMRWM Short Russell 2000 Index ProsharesShort Russell 2000 Index Proshares IEOIEO Oil & Gas-Ex Index IsharesOil & Gas-Ex Index Ishares DDGDDG Short Oil & Gas ProsharesShort Oil & Gas Proshares VFHVFH Financials Vanguard ETFFinancials Vanguard ETF SEFSEF Short Financials ProsharesShort Financials Proshares EEMEEM MSCI Emerging Markets Index IsharesMSCI Emerging Markets Index Ishares EUMEUM Short MSCI Emerging Markets ProShares Short MSCI Emerging Markets ProShares

Current Market Current Market AssessmentAssessment

Step-2Step-2

We avoided another Depression We avoided another Depression (Large Government Debt)(Large Government Debt)

Recession endingRecession endingCorporate earnings improving Corporate earnings improving

becausebecause-Cutting expenses-Cutting expenses-Cutting employment-Cutting employment

Downstream effect negativeDownstream effect negative

The New Normal EconomyThe New Normal EconomySLOW GROWTHSLOW GROWTH

Consumers account for 70% of the Consumers account for 70% of the economyeconomy

Reverse wealth effectReverse wealth effect

1)1) Increasing unemploymentIncreasing unemployment

2)2) Maxed out on credit cardsMaxed out on credit cards

3)3) Home equity downHome equity down

4)4) 401K retirement funds down401K retirement funds down

5)5) Credit tightCredit tight

DOW 1928 to PresentDOW 1928 to Present

Why Sideways?Why Sideways?Global CompetitionGlobal Competition

Redistribution of wealth from Shareholders to Redistribution of wealth from Shareholders to managementmanagement

Banks, corporations and individuals need to rebuild Banks, corporations and individuals need to rebuild balance sheets.balance sheets.

The Great SidewaysThe Great Sideways

Since 1997 – UP 50%Since 1997 – UP 50%

DOWN 50%DOWN 50%

Do you have an Investment Strategy for this kind of market ?Do you have an Investment Strategy for this kind of market ?

DOW 1997 to PresentDOW 1997 to Present

Drop 14,198-6,470 = 7,728 Points50% Retracement = 3,8646,4703,86410,334

62% Retracement= 4,791 6,470 4,791 11,261

11,261

DOW Sep 2008 to DOW Sep 2008 to PresentPresent

9,683 - 6,470= 3,2139,683+ 3,213=12,896

DOW April 2009 to DOW April 2009 to PresentPresent

Technical Market CommentTechnical Market Comment

Current value Dow 9,986 NASDAQ 2,102 S&P 500 1,063

Current Trends DJIA NASDAQ S&P 500

Breakout Points

Short Term Up (Resistance) 10,120 2,190 1,101

Short Term Down (Support) 9,430 2,040/1,929 1,025

Int. Term Up (Resistance) 10,334/11,261 2,233/2,537 1,121/1,266

Int. Term Down (Support) 9,262/8,087 1,727/1,598 878/832

Long Term Up (Resistance) 12,896/14,19812,896/14,198 2,861/4,2562,861/4,256 1,265/1,5761,265/1,576

Long Term Down (Support) 6,470 1,268/1,108 666

S&P 500 1999 to PresentS&P 500 1999 to Present

Drop 1,576-666= 910 Points50% Retracement = 4126664551,121

62% Retracement = 6006666001,266

S&P 500 April 2009 to S&P 500 April 2009 to PresentPresent

NASDAQ 1999 to PresentNASDAQ 1999 to Present

NASDAQ 2007 to PresentNASDAQ 2007 to Present

Drop 2,825-1,268 = 1,55750% Retracement = 7781,2687782,046

62% Retracement = 9651,2689652,233

NASDAQ April 2009- NASDAQ April 2009- PresentPresent

Hang Seng ($HSIX)Hang Seng ($HSIX)

Euro to US Dollar-10 YearsEuro to US Dollar-10 Years

STAGFLATIONSTAGFLATIONGold-1975-PresentGold-1975-Present

Establish the right Establish the right broker/client or broker/client or money manager money manager

relationshiprelationship

Step-3Step-3

ChoicesChoices

1.1. Discount BrokerDiscount Broker2.2. Financial PlannerFinancial Planner3.3. Mutual FundsMutual Funds4.4. BrokerBroker5.5. Investment ManagerInvestment Manager

SRP vs S&P 500SRP vs S&P 500Socially Responsible Portfolio UP by 0.96% and S&P500 Index DOWN Socially Responsible Portfolio UP by 0.96% and S&P500 Index DOWN

by 9.58%by 9.58%

-60.00%

-40.00%

-20.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

Month/Year

SRP % Change

S&P 500% Change

Investors are irrational in a Investors are irrational in a “predictable” way“predictable” way

Learn to listen to the marketLearn to listen to the market

Let the market tell you what to do.Let the market tell you what to do.

“ Investors are irrational in a predictable way” “Listen to the markets”

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