Volatility is your friend…

…if you know your assetsPeter Major

Volatility is your friend…

…if you know your assets

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

IntroductionPeter 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

The SA JSE120 Years of Commodity Investing

1973 Grizzly ManSunshine Silver Mine, Kellogg Idaho

1977 Timber & LumberJennis Bay BC, Canada

1990‟s International equitiesIdaho Silver Mines

2001 Asset managementAll categories listed & unlisted

2007: Listed & Private Equity,

Corporate Finance, other

Volatility is your friendIt 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!

SP Volatility Index:Average = 20

0

10

20

30

40

50

60

70

80

90

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

An

nu

alised

Vo

lati

lity

(%

)

Year

VIX (Implied volatility of S&P 500 index options)

Last Price 30 Day MA 180 Day MA 360 Day MA

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

Massive leverage „Magnifies‟ volatility

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

22

1513

16

0

5

10

15

20

25

30

5 yrs 10 yrs 20 yrs 30 yrs 50 yrs

Re

turn

s (

%)

.

Time periods

Simple Average Returns (in Dollars $)

RESI ALSI Property Gold Bonds Cash

15

19 1819 20

0

5

10

15

20

25

30

5 yrs 10 yrs 20 yrs 30 yrs 50 yrs

Re

turn

s (

%)

.

Time periods

Simple Average Returns (in Rands)

RESI ALSI Property Gold Bonds Cash

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!

Because in the end

MOST things revert to the „mean‟

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

Thank youPeter Major