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 %
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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
4Birkelbach Management Corp.
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.
5Birkelbach Management Corp.
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 ?
6Birkelbach Management Corp.
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
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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…
8Birkelbach Management Corp.
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…
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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.
10Birkelbach Management Corp.
The “Lone Bull” I – The “Lone Bull” I – Barron’s 1982Barron’s 1982
DOW : 1,000 to 11,000
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The“Lone The“Lone Bull” II – Fall Bull” II – Fall
20022002
Dow: 7,200 to 14,200 --up 97.22%
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Head and ShoulderHead and ShoulderHeadLeft
Shoulder
Right Shoulder
Neck Line
Volume
Head and Shoulder Top Formation
Head
Left Shoulder
Right Shoulder
Neck Line
Volume
Head and Shoulder Bottom Formation
Amount Up
Amount Down
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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%)
14Birkelbach Management Corp.
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%)
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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%)
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Lone Bull IIILone Bull IIIDow: 6,470 to 10,000 --up 54.56%
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Price of FordFebruary 12 2009- $1.79
Now-$7.61
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Apply technical analysis Apply technical analysis for evaluationfor evaluation
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The Dow TheoryThe Dow Theory
Phase I
Phase II
Phase III
Phase I
Phase II
Phase III
Bull Market
Bear Market
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Characteristics of the Characteristics of the Market CycleMarket Cycle
Accumulation
Progr
essi
on
Distribution
Reversion
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Trend movementsTrend movementsLook at 3 month chartsLook at 3 month charts 1 year charts 1 year charts 10 year charts 10 year charts
Intermediate
Trend
Intermediate
Trend
Major Trend
Line
Intermediate
Trend
Intermediate
Trend
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EXXON (XOM)EXXON (XOM)5-Years as of 10/29/20095-Years as of 10/29/2009
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EXXON (XOM)EXXON (XOM)1-Year as of 10/29/20091-Year as of 10/29/2009
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Monitor your investmentsMonitor your investmentsLet the market tell you what to Do.Let the market tell you what to Do.
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Resistance AreaResistance Area
B
A
C
D
E
Resistance Area
GOOD
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Support AreaSupport Area
B
A
C
D
E
Support Area
BAD
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Trendlines and Trend Trendlines and Trend movementsmovements
Uptrend
Broken
Downtrend
Broken
Sideways Trend
Broken
BAD
GOOD
GOOD
BAD
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Determine your Determine your risk/reward tolerancerisk/reward tolerance
Step-1Step-1
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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
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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
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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
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Current Market Current Market AssessmentAssessment
Step-2Step-2
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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
34Birkelbach Management Corp.
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
35Birkelbach Management Corp.
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.
36Birkelbach Management Corp.
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 ?
37Birkelbach Management Corp.
38Birkelbach Management Corp.
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
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DOW Sep 2008 to DOW Sep 2008 to PresentPresent
9,683 - 6,470= 3,2139,683+ 3,213=12,896
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DOW April 2009 to DOW April 2009 to PresentPresent
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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
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S&P 500 1999 to PresentS&P 500 1999 to Present
Drop 1,576-666= 910 Points50% Retracement = 4126664551,121
62% Retracement = 6006666001,266
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S&P 500 April 2009 to S&P 500 April 2009 to PresentPresent
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NASDAQ 1999 to PresentNASDAQ 1999 to Present
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NASDAQ 2007 to PresentNASDAQ 2007 to Present
Drop 2,825-1,268 = 1,55750% Retracement = 7781,2687782,046
62% Retracement = 9651,2689652,233
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NASDAQ April 2009- NASDAQ April 2009- PresentPresent
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Hang Seng ($HSIX)Hang Seng ($HSIX)
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Euro to US Dollar-10 YearsEuro to US Dollar-10 Years
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STAGFLATIONSTAGFLATIONGold-1975-PresentGold-1975-Present
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Establish the right Establish the right broker/client or broker/client or money manager money manager
relationshiprelationship
Step-3Step-3
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ChoicesChoices
1.1. Discount BrokerDiscount Broker2.2. Financial PlannerFinancial Planner3.3. Mutual FundsMutual Funds4.4. BrokerBroker5.5. Investment ManagerInvestment Manager
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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%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Month/Year
Perc
enta
ge C
hang
e
SRP % Change
S&P 500% Change
55Birkelbach Management Corp.
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.