Robert SchmidtManager, Brandes Institute

1

$1.10=Together, a bat and a ball cost $1.10.

If the bat costs $1 more than the ball, how much does the ball cost?

Heuristics/Mental Shortcuts

+Bat$1.05

Ball$0.05

Kahneman, Daniel. Thinking Fast and Slow. New York: Farrar, Straus and Giroux. 2013.

2

Prospect TheoryMental Value

Losses Gains

Fear = 2xGreed

Kahneman, Daniel. Thinking Fast and Slow. New York: Farrar, Straus and Giroux. 2013.

3 of 50

Wheel of Investor Emotion

Source: Taleb, Nassim Nicholas. Fooled by Randomness: The Hidden Role of Chance in Life and the Markets. 2nd Ed. New York: Thomson, 2004. pages 64-68. This hypothetical example is intended for illustrative purposes only. It does not reflect the performance of any specific investment vehicle. Actual results will vary.

4

More News = More Information?

“Grim Economic Outlook Grips Markets as Stocks Plummet”

– New York Times, March 16, 2020

“How to Buy the Bottom of the Coronavirus Stock Market Crash”

– Investor’s Business Daily, April 3, 2020

“This is a Once in a Lifetime Opportunity to Buy”

– cnbc.com,March 25, 2020

“After Three Days of Gains, Is the Selloff Over?

– The Globe & Mail, March 26, 2020

“Wall St. Takes Late Tumble as US Shutdown Widens”

– Financial Times, March 20, 2020

“The Worst of the Global Selloff Isn’t Here Yet…”

– Wall St. Journal, March 22, 2020

Page 5

S&P 500 Index: Worst- and Best-Performing Days (1/1/1940 to 4/6/2020)

Framing and Market Volatility

Source: Yahoo Finance, as of 4/6/2020

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FramingS&P 500 Index Calendar-Year Returns (1928-2019)

Source: Yahoo Finance, as of 12/31/19. The launch date of the S&P 500 Index was March 4, 1957. All information prior to the index launch date is back-tested. Back-tested performance is hypothetical and not actual performance. The back-test calculations are based on the same methodology in effect when the index was officially launched. Returns include dividends but do not reflect effects of taxes or fees.

-60%

-40%

-20%

0%

20%

40%

60%

1928 1941 1954 1967 1980 1993 2006 2019

Annu

al R

etur

ns in

%

7

Framing & the Long Term

Source: Yahoo Finance, as of 12/31/19. This hypothetical example is for illustrative purposes only and does not represent any specific investment. Actual results will vary. Hypothetical representation of $100 invested in a stock portfolio mirroring the S&P 500 Index on 12/31/1927. Performance compounded annually on Dec. 31. Length of period shown is not realistic for a typical investor. One cannot invest directly in an index. The launch date of the S&P 500 Index was March 4, 1957. All information prior to the index launch date is back-tested. Back-tested performance is hypothetical and not actual performance. The back-test calculations are based on the same methodology in effect when the index was officially launched. Returns include dividends but do not reflect effects of taxes or fees, which would reduce the performance shown if they were included.

1

10

100

1000

10000

100000

1928 1941 1954 1967 1980 1993 2006 2019

Hypothetical Growth of $100 in S&P 500 Index (1928 to 2019)

8

Source: Inspired by Marks, Howard. The Most Important Thing: Uncommon Sense for the Thoughtful Investor. New York: Columbia University Press. 2011. Hypothetical illustration does not represent any particular investment. Actual results will vary.

Risk Perceptions

More Risk Doesn’t Necessarily Mean More Return

-100

-50

0

50

100

150

200

Low Low to Medium Medium Medium to High High

Pote

ntia

l Ret

urn

%

Risk Level

9

Risk Tends to Diminish Over Time…

Source: S&P Dow Jones Indices, as of 12/31/19. U.S. stocks represented by the S&P 500 Index. Rolling periods represent a series of overlapping, smaller time periods within a single, longer-term time period. For example, over a 20-year period, there is one 20-year rolling period, eleven 10-year rolling periods, sixteen 5-year rolling periods, and so forth. Past performance is not a guarantee of future results. One cannot invest directly in an index.

-60%

-40%

-20%

0%

20%

40%

60%

2 Yr 5 Yr 10 Yr 20 Yr 30 Yr

Ran

ge o

f Tot

al R

etur

ns (A

nn.)

%

Range of Total Returns for U.S. Stocks Over Various Rolling Periods (1928-2019)

Source: Jim Ware, CFA and Brian Singer, CFA. “Decision Making: A Process Check for Investment Firms.”

Decision Rights

How Do We Make Decisions?

11

Evaluating “Success”

Source: Russo, J. Edward and Paul J. H. Schoemaker. Winning Decisions: Getting It Right The First Time. 1st ed. New York: Random House. 2002.

Page 12

Organizational Success: 4 Drivers

Source: “Organizational Design and Long-Term Investing,” by David Iverson and Geoff Warren. Brandes Institute research paper. Full text available here: https://www.brandes.com/docs/default-source/brandes-institute/2018/organizational-design-and-long-term-investing-whitepaper

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VALUE SPECIALISTS SINCE 1974 CALL BRANDES NOW 800.237.7119

BRANDES.COM11988 El Camino Real │ Suite 600 │ P.O. Box 919048 │ San Diego, CA 92191-9048

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Disclosures

Robert Maynard is a member of the Brandes Institute Advisory Board.

The S&P 500 Index with gross dividends measures equity performance of 500 leading companies in industries of the U.S. economy.

The information provided in this material should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any security transactions, holdings or sectors discussed were or will be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance discussed herein. Portfolio holdings and allocations are subject to change at any time and should not be considered a recommendation to buy or sell particular securities. Strategies discussed herein are subject to change at any time by the investment manager in its discretion due to market conditions or opportunities. International and emerging markets investing is subject to certain risks such as currency fluctuation and social and political changes; such risks may result in greater share price volatility. Unlike bonds issued or guaranteed by the U.S. government or its agencies, stocks and other bonds are not backed by the full faith and credit of the United States. Stock and bond prices will experience market fluctuations. Please note that the value of government securities and bonds in general have an inverse relationship to interest rates. Indices are unmanaged and are not available for direct investment.

The foregoing reflects the thoughts and opinions of Brandes Investment Partners® exclusively and is subject to change without notice. Brandes Investment Partners® is a registered trademark of Brandes Investment Partners, L.P. in the United States and Canada.

Rolling periods represent a series of overlapping, smaller time periods within a single, longer-term time period. For example, over a 20-year period, there is one 20-year rolling period, eleven 10-year rolling periods, sixteen 5-year rolling periods, and so forth.

The recommended reading has been prepared by independent sources which are not affiliated with Brandes Investment Partners. Any securities mentioned reflect independent analysts’ opinions and are not recommendations of Brandes Investment Partners. These materials are recommended for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security. Past performance is not a guarantee of future results. No investment strategy can assure a profit or protect against loss.

Brandes Investment Partners does not guarantee that the information supplied is accurate, complete or timely, or make any warranties with regard to the results obtained from its use. Brandes Investment Partners does not guarantee the suitability or potential value of any particular investment or information source.

No investment strategy can assure a profit or protect against loss.

16

VALUE SPECIALISTS SINCE 1974 CALL BRANDES NOW 800.237.7119

BRANDES.COM11988 El Camino Real │ Suite 600 │ P.O. Box 919048 │ San Diego, CA 92191-9048