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Volatility is your friend…
…if you know your assetsPeter Major
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Volatility is your friend…
…if you know your assets
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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
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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
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The SA JSE120 Years of Commodity Investing
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1973 Grizzly ManSunshine Silver Mine, Kellogg Idaho
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1977 Timber & LumberJennis Bay BC, Canada
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1990‟s International equitiesIdaho Silver Mines
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2001 Asset managementAll categories listed & unlisted
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2007: Listed & Private Equity,
Corporate Finance, other
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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!
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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
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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
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Massive leverage „Magnifies‟ volatility
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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
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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
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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
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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!
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Because in the end
MOST things revert to the „mean‟
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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
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Thank youPeter Major