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7/24/2019 The Future for Investors - Siegel - Group 4.ppt
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The Future for
Investors
by Jeremy Siegel
Kevin Kranzler
Lisa LajeunesseRay Ng
John Schmidt
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Agenda
Who is Jeremy Siegel?
Part 1: The Growth Trap
Part 2: Overvaluig the !ery "ew Part #: Sour$es o% Sharehol&er!alue
Part ': The (ge Wave Part ): Port%olio Strategies
Overall *oo+ ,eview
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Jeremy Seigel, Ph.D.
Pro%essor o% -ia$e at theWharto S$hool o% the
.iversity o% Pesylvaia ,e$eive& may awar&s over his$areer
The Seior /vestmet Strategy(&visor o% Wis&om Tree/vestmets /$0
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Part 1
The GrowthTrap
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The Growth Trap
veryoe wats to beat themar+et3 4 ivest i the e5t
big thig0
6owever7 as Siegel poits out7
pursuig returs throughgrowth $otiually &isappoitsivestors0
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Example
Growth Measures IBM Standard Oil of NJ AdvantageRevenue Per Share 12.19% 8.04% IBM
Dividends Per Share 9.19% 7.11% IBM
Earnings Per Share 10.94% 7.47% IBM
Sectr !r"th 14.#$% 14.22% IBM
&a'(e 1.1) *nnua( !r"th Rates+ 19$0200,
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What at!ally happened"
/*8: 91 iitial ivestmetbe$ame 9;
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#ow i$ thi$ po$$i%le"
Return Measures IBM Standard Oil Advantage
of NJ
Price *--reciatin 11.41% 8.77% IBM
Dividend Return 2.18% $.19% Standard i(
/
Total Return 13.3! 1"."#! Standard Oil
of NJ
&a'(e 1.,) Surce / Returns / IBM and Standard i( /
Standard i( / + 19$0200,
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What matter$&
=og>term returs o sto$+&epe&s ot o the a$tual
growth o% its earigs but ohow those earigs $ompare towhat ivestors e5pe$te&
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'oo(ing )or the *orporateEl Dorado
The Gol&e $ompay that$otiually per%orms better
tha the mar+ets Siegel $ompute& the P@ ratio%or all ) %irms o the S4P
a& $ompute& their pri$es
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What Siegel +o!nd
6igh P@ sto$+s ear lower returs a& lowP@ sto$+s ear high returs7 o average
19$7 Initia( 200, Investent *nnua( Rate
Investent 3a(ue / Return
ighest Priced Stc5s 61+000 6$#+##1 9.17%SP $00 Benchar5 61+000 61,0+7#8 11.18%
"est Priced Stc5s 61+000 642#+4#8 14.07%
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*harateri$ti$ o) *orp ElDorado-$
arigs e5pe$tatios are olyslightly above average7 but a$tualearigs growth was $osi&erably large
"o P@ ratio was above 2A (ll pai& $ostat a& risig &ivi&e&s
8ost have high Buality bra& amere$ogiCe& pro&u$ts that are mar+ete&
worl&wi&e Dosumer have trust i their pro&u$tBuality
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Ran$ #%%3 Na&e A''u&ulation Annual
of (1%%% Return
1 Phi((i- Mrris 64+#2#+402 19.7$%
2 *''tt a's 61+281+,,$ 1#.$1%
, Brist(Mers S:ui'' 61+209+44$ 1#.,#%4 &tsie R(( Industries 61+090+9$$ 1#.11%
$ P/i;er 61+0$4+82, 1#.0,%
#
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Setor Growth
/vestmet strategies base&o i&ustry@se$tor are
growig i popularity
8orga Staley 4 Gol&ma
Sa$hs
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S!mmary
Eo ot be se&u$e& by that hotew $ompay or ivestors
Overwhelmig &ema& %orsto$+s overvalues thosesto$+s whi$h lowers the
retur %or ivestors
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Part /0eral!ing the 2ery
+ew
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#ow To Spot a 3!%%le
10F !aluatios are $riti$al
20F "ever -all i =ove with your
Sto$+ #0F *eware o% =arge7 =ittleow Dompaies
'0F (voi& Triple Eigit P@,atios
)0F "ever Sell Short i a *ubble
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4e$pon$e to Wall StreetJo!rnal Artile
Goo& morig7 8r0 Siegel0 / hopeyou3re happy0 Hou $ost me
91'70 %or o reaso What&o you have agaist this mammoth$ompay? (re you Iealous be$ause
you &i&3t get i o the ru>up?Ei& you wat to buy i $heaper?Hou have o busiess ma+ig&e$isios li+e this0 (%ter all7you3re still a $hil& whe it
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4e$pon$e to Wall Street
Jo!rnal ArtileHou3re a pres$hooler i &iaperswhe it $omes to re$ogiCigopportuities0 *y the way7 whewas the last time you got lai&?Hou3re a party pooper0 Tha+s a
lot7 Ier+0 / suggest you go tothe streeta&visor0$om to rea&about why you3re so wrog i&iot0
Eo you eve +ow how to get a
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/vestig i the "ewest o%the "ew
5P0 4 l ti 4 t
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5P0 4elatie 4et!rn$
=igure #.2 *nnua(i;ed Returns n >ear(9 IP Prt/(is Minus Returns n S
Stc5 Inde?+ Returns Measured &hrugh Dece'er ,1+ 200,
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*reatie De$tr!tion
/ovative etry by etrepreeurs isthe %or$e that sustais e$oomi$growth
> wi+ipe&ia0$om /vestors i /PO3s are a$tually otma+ig moey the grou& %loorF
/% the ew are ot ma+ig moey %or
ivestors the who is attaiigpro%its?
!eture Dapitalists
/vestmet *a+s
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*apital Pig$
Te$hology is a pro&u$tivity$reator7 a& a value &estroyer
Pro%its reiveste& ito the$ompay is moey that is otpai& out i &ivi&e&s7
&estroyig ivestor retur -alla$y o% Dompositio
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*apex 4atio
S A t
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S!e$$ Among$t+ail!re
Wal>8art3s Strategy %orSu$$ess
Southwest (irlies low $oststru$ture
"u$or Steel use o% ew
te$hology
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Winning 6anagement
$osiste$y o% the $ompay7 a& ourability to proIe$t its philosophiesthroughout the whole orgaiCatio7eable& by our la$+ o% layers a&bureau$ra$y
The busiess stru$ture shoul& loo+
to always miimiCe $osts Ee%ie the largest $otrollable $osta& miimiCe it7 this is a $ompay3s$ompetitive a&vatage
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S!mmary
"ever %orget the %u&ametals o%ivestig
Wat$h out %or bubbles /PO3s are a ba& ivestmet %orivestors7
/&ivi&ual $ompay aalysis is
importatK loo+ %or =ower Dape5 ,atios =ow P@ ratios
Wiig maagemet
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Part #:Sour$es o%
Sharehol&er value
i i i
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*orrelation %etween Diidend$and 4et!rn$
6igher &ivi&e& payig$ompaies provi&e greater
returs =ower &ivi&e& payig $ompaiesprovi&e less returs
"ot Iust &ue to e5tra $ash %low
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Diidend$ to *apital Gain$
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P!rpo$e o) Diidend$
Provi&es $re&ibility
/&i$ates real earigsShows stregth i timeo% e$oomi$ &owtur
Pri$e &rops a& &ivi&e&yiel& goes up
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5mportane o) 3ear mar(et$
ne reasn /r the crre(atin
@dividendsAreturnsB
Reinvest @increasedB dividends at ("er-rice
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Phillip 6orri$ Example
Digarette $ompay %a$iglawsuits a& %ier$e $ompetitio
Share pri$e %ell but &ivi&e&srose
,eiveste& &ivi&e&s 3;2>3#Fi$rease& shares by 1L
A01)L aually M traile& mar+et Pri$es re$overe& a& retursmagi%ie&
6 i E i t 2 l
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6ea$!ring Earning$ to 2al!e a*ompany
"et /$ome M sa$tioe& by-(S*@G((P
Operatig /$ome M re$o$ilesoe>time $ost@reveues 8ore a$$urate > restru$turig
$osts 8aager i&is$retio >amortiCatio
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4ed )lag$ to wath o!t )or
Optio e5peses Eo ot legally have to be re$or&e& ase5peses
"ot a$$urate portrayal i /$omestatemet
Pesio Pla Stru$ture
Serious $laim o %uture earig 6igh ($$ruals
/&i$ate low Buality earigs
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S!mmary
There is a positive$orrelatio betwee &ivi&e&s
a& returs There are umerous ways tovalue a $ompay
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Part 7/
The Age Wae
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3a%y 3oomer$ 8 3a%y 3!$t
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Pro%lem$
=ower pro&u$tivity %rom &e$rease&wor+%or$e
/$rease& &ema& %rom more retirees ,etirees sell their assets &urigretiremet -loo& o% %ia$ial assets o mar+et
Erive pri$es o% eBuities a& bo&s &ow Se$urities3 value is &etermie& bypri$e buyer is willig to pay
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6ore Pro%lem$
,etiremet age is &e$reasig
People are livig loger ,esults i loger o>wor+igtime
Greater pesio@plaig ee&s
-astest age bra$+et growth isage 1N
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Po$$i%le Sol!tion$
,e&u$e bee%its o% pesioplas
Ee$rease the sta&ar& o% livig Dreates geeratioal $o%li$t
/$rease Pro&u$tivity
O%%sets the populatio imbala$e Ei%%i$ult to$reate@pre&i$t@&epe& o
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Po$$i%le Sol!tion$
/$rease /mmigratio /$rease pro&u$tivity
' millio people will bereBuire& to o%%set thepopulatio wave
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The Glo%al Sol!tion
Eevelopig $outries haveopposite populatio wave tha
the Eevelope& $outries /&ia a& Dhia $a supportthe wester $outries withgoo&s a& servi$es@buy assets
8aitai the sta&ar& o%livig i &evelopig $outries
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The Glo%al Sol!tion 9:
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The Glo%al Sol!tion 9;:
able agig atios to eIoyloger retiremet
Dommui$atios revolutio will ai&i e$oomi$ growth M %ree %low o%i%ormatio
-ree tra&e will be$ome
i$reasigly importat (&va$e the globaliCatio o% theworl&3s e$oomi$ system
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S!mmary
*aby boomers retiremet poisea &i%%i$ult trasitio perio&
%or ivestors /vestors must see+ a globalsolutio
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Part
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Glo%al 6ar(et Trend$
Growth Prospe$ts i Dhia 4/&iaGrowth Trap 5ample: *raCil vs0 Dhia
mergig Dhiese $oomy
6ome Buity *ias Dorrelatio o% .S 4 Worl&mar+ets
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World Port)olio
,e$omme&e& (llo$atio base& eBuity
'L %oreig>base& eBuity
6ow to /vest (broa& Global /&e5 -u&s
=ow $ost a& e5$ellet returs 8orga Staley Dapital /teratioal/&e5
8ost i$lusive o>.0S /&e5e& -u&
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Glo%al 5ne$tment Tool$
8SD/ (- /&e5
Eow Joes Wilshire Total
Sto$+ /&e5 !ipers
Spi&ers
Dubes
Eiamo&s
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6S*5 EA+E 5ndex
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+!t!re Strategie$
-uture is bright %orivestors
Growth i emergig mar+ets -uture sto$+ per%orma$e
Sto$+s to pur$hase
/itially broa&est i&e5possible
E>/>! Eire$tives
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D=5=2 Diretie$
Diidend$ *uy sto$+s that have sustaiable
$ash %lows a& retur &ivi&e&s
5nternational ,e$ogiCe shi%t o% e$oomi$ power
2al!ation ($$umulate shares with reasoable
valuatios relative to e5pe$te&growth
(voi& /POs7 hot sto$+s7 must>haveivestmets
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Ta%le 1>.7 2al!ationStrategie$, 1?=@@;
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S!mmary
S!mmary
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0erall 3oo( 4eiew
Overall the boo+ provi&e& may%a$ts
6as pra$ti$al lessos to utiliCei to&ay3s mar+et
This boo+ emphasiCes everythigyou lear i .iversity whe it
$omes to ivestig (llo$atio port%olio a use%ulstrategy give a log time horiCo