1 m ax b olka comprehensive business consulting building first-class financial advisors presented to...
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MAX BOLKAComprehensive Business Consulting
Building First-Class Financial Advisors
Presented ToCoordinated Capital Securities
August 27th, 2010
“Coping With Bear Market Uncertainties: What To Tell Clients Now”
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Purpose Of Meeting
Answer Your QuestionsAddress Your Concerns
Communicate Our OpinionsProvide A Sense Of Direction
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Let Them Vent
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What’s On Your Mind?
Where Will The Stock Market Go From Here?Major Obstacles To Investing
Is Inflation In Danger Of Making A Comeback?What Effect Will The War Have On The Market?
How Long Will The Recession Last?What To Do Now…Buy, Hold Or Sell?
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Let Them Vent
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What’s On Your Mind?
How To Emotionally Survive Today’s TurmoilFour Factors To Know Before InvestingEffects Of Multi-Billion Dollar Stimulus
Will The Federal Reserve Raise Interest Rates?What Are Others Doing Right Now?
How Safe Is Your Money In The Bank?
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Let Them Vent
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Show Empathy
“I Understand”“That Must Be Difficult For You”
“I Think Everyone Is In That Position”“I Certainly Hope It Doesn’t Come To That”
“Let’s Go Through And See What We Can Do To Improve Your Situation Regardless Of What The
Market Does In The Near Future”
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Let Them Vent
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The State Of The World
The Fall Of CommunismElimination Of Nuclear War Threat
Unparalleled Technological RevolutionKnowledge Doubling At Record Pace
More Scientists Alive Today Than EverThe Biggest Bull Market In US History
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Introduction
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TWO OBSTACLESTO INVESTING
Taxes & Inflation
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Introduction
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TAXES
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Legally Reduce Or EliminateYour Income & Estate Tax Liability
Multi-Billion Dollar Gov’t Stimulus
Heirs And Charity Can Redistribute WealthMore Efficiently & Effectively
Introduction
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INFLATION
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Inflation Vs. Deflation?
Computers & Satellite TV DishesPlanned Obsolescence vs.
Bread, Milk & Utilities
Introduction
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#1) BUY LOW, SELL HIGH
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How Low Will The Market Go?
When Will This Bear Market End?
I Don’t Know!
10 Universal Principles Of Investment Success
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If You Didn’t Already Own This Company,Would You Buy It Today At Its Current Price?
BUY LOW, SELL HIGH
What If You’re From Mars, Had Never Heard of StocksHadn’t Lost Any Money, And Just Inherited $5 million…
What Do You Think Would Be A Good Thing To Do?
10 Universal Principles Of Investment Success
#1) BUY LOW, SELL HIGH
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#1) BUY LOW, SELL HIGH
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How Do You Know It’s Not Going To Go LOWER?
I Don’t!
Buy It On Sale
BUY LOW, SELL HIGH
10 Universal Principles Of Investment Success
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#1) BUY LOW, SELL HIGH
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How Do You Know It’s Not Going To Keep Going UP?
I Don’t!
10 Universal Principles Of Investment Success
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Lock In Your Gains
BUY LOW, SELL HIGH
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SUCCESSFUL INVESTORS
Overcome The Tendency Towards Fear & Greed
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10 Universal Principles Of Investment Success
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“To Buy When Others Are Fearfully Selling And To Sell When Others Are Greedily Buying
Takes The Greatest Emotional Fortitude, But Pays The Greatest Rewards.”
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10 Universal Principles Of Investment Success
SIR JOHN TEMPLETON
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“Buy When There’s Blood In The Street… Even If It’s Your Own”
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10 Universal Principles Of Investment Success
BARON VON ROTHSCHILD
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#2) BUY QUALITY COMPANIES
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Sales Leader
Technological Leader
Strong Management Team - Track Record
Low Cost Producer
Well Capitalized - First Into New Markets
Well-known, Trusted Brand - High Profit Margin
10 Universal Principles Of Investment Success
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Keep Your Eye On The EscalatorNot The Yo-Yo
Look At Least Five Years Out
Ultimately Company Earnings Drive The Market
Invest / Don’t Speculate
10 Universal Principles Of Investment Success
#3) KEEP A LONG TERM PERSPECTIVE
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Serves As A Roadmap
Uncovers Inefficiencies = More “Gas”
Growth, Income, Taxes & Safety
Combine Investments To Accomplish Your Goals
10 Universal Principles Of Investment Success
#4) HAVE A PLAN
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What Are Your Goals?
Saving For Retirement (Growth)
Creating A Stream Of Income (Income)
Leaving A Legacy To Heirs & Charity (Taxes)
10 Universal Principles Of Investment Success
#4) HAVE A PLAN
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Too Much Company Stock, First JobFavorite Car, Favorite Sponsor
BUY LOW, SELL HIGH
10 Universal Principles Of Investment Success
#5) FOLLOW YOUR PLAN
Try To Eliminate Investing With Emotion Or On Sentiment
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DOLLAR COST AVERAGINGAmt Invest Price / Share No. Shares
$12 $12.00 1$12 $6.00 2$12 $3.00 4$12 $4.00 3$12 $6.00 2$12 $12.00 1
===== ===== =====$72 $12.00 13
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Ave PPS = $7.16 Ave CPS = $5.54Value = $156
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1980 Invest $ 250,000Less Withdraw - $ 840,000
($15k +4%/yr COLA x 30 yrs)
2010 = $ 2,547,000
DOLLAR COST AVERAGING10 Universal Principles Of Investment Success
© 2010 Max Bolka - Reproduction In Any Form By Written Permission Only
Assumes 12% Ave Annual RORTotal Withdrawals > $840,000
Includes Yr. 2000 & 2007 Loss > $1 million
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Distinguish Between Investor & Investment Performance
Your Own Personal ROR Versus
Average Rates Of Return
10 Universal Principles Of Investment Success
#5) FOLLOW YOUR PLAN
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#6) PAY FOR GOOD ADVICE
Don’t Perform Brain Surgery On Yourself
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Keep In Top Financial Health
10 Universal Principles Of Investment Success
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#7) THERE’S NO FREE LUNCH
Avoid Investing Solely On A “Hot Tip”
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Avoid Get Rich Quick Schemes(GRQS or “Jerks”)
10 Universal Principles Of Investment Success
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#8) DON’T CONFUSE BRAINS WITHA BULL MARKET
Adhere To Universal Principles Of Investing
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Beware The Mass MediaThey Promote Fear & Greed
10 Universal Principles Of Investment Success
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If Your Money Is That Important To You,Hire A Professional To Help You Design A Plan
Give The Plan Enough Time & Money To Work
10 Universal Principles Of Investment Success
#9) DON’T PANIC
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Don’t Panic!
Markets Always Overreact
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Markets Always Overreact
10 Universal Principles Of Investment Success
#9) DON’T PANIC
Everything Goes In Cycles
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#10) DIVERSIFY, DIVERSIFY, DIVERSIFY
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Diversify By:Country, Industry & Company
It’s The Unexpected Against Which You Are Trying To Protect
10 Universal Principles Of Investment Success
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DEFINING A BEAR MARKET
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Bear Markets Have Occurred On Average Once Every Five Years
Average Duration Of Past TenBear Markets Since 1956 = 14 Months
Shortest Bear Market = 3 Months (1990)Longest Bear Market = 30 Months (2000-02)
Source: Vanguard Funds
An Historical Perspective
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The Length Of 10 Bear Markets
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PeriodDuration (in Months) Percentage Drop
August 1956-October 1957 14 -21.6%
December 1961-June 1962 6 -28.0%
February 1966-October 1966 8 -22.2%
November 1968-May 1970 18 -36.1%
January 1973-October 1974 20 -48.2%
September 1976-March 1978 18 -19.4%
January 1981-August 1982 19 -25.8%
August 1987-December 1987 4 -33.5%
July 1990-October 1990 3 -19.9%
March 2000-October 2002 30 -49.1%
An Historical Perspective
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Source: Vanguard Funds
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Plus The Latest Bear Market
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An Historical Perspective
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October 2007-March 2009= 18 Months
Dow Drops From 14,000 To 6,500= (-53.5%)
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What Causes A Bear Market?
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An Historical Perspective
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Military Actions+ Political Events
+ Economic Activity+ Investor Sentiment= Prepare In Advance
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Extraordinary Comeback &Long-Term Performance (S&P)
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10 Years 1975-1984: 14.8% ROR15 Years 1975-1994: 16.6% ROR25 Years 1975-2000: 16.1% ROR
Past Performance Is Not Indicative Of Future Results
An Historical Perspective
HISTORY REPEATS ITSELF
30 Years 1975-2005: 13.2% ROR
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Markets Rarely Move In A Straight Line
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Major Market Moves Tend To OccurOver Brief Periods Of Time
An Historical Perspective
HISTORY REPEATS ITSELF
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MARKET TIMING How Good Are YOU?
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Source: Standard & Poor’s Micropal. Based on returns of the S&P 500 Index over the 10-year period ended 12/31/07. Index is unmanaged and includes reinvested dividends; one cannot invest directly in an index. Past performance does not guarantee future results.
10-Year Period Ended December 31, 2007
Period of InvestmentS&P 500 Average
Annual Total Return
Fully Invested 5.91%
Missing the 10 best days 1.13%
Missing the 20 best days -2.55%
Missing the 30 best days -5.72%
Missing the 40 best days -8.40%
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RECOVERY PERIODSAre Often “Front Loaded”
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Source: Schwab Center For Financial Research Past performance is no indication of future results. Results from recovery of S&P 500 three largest bear markets since 1950. (1/70-11/70, 11/73-3/75, 7/81-11/82)
Period of Investment
Ave Cumulative ReturnAfter Bear Market
1 Yr 2 Yrs 3 Yrs
Fully Invested 45% 63% 76%
Miss First Month of Recovery 32% 49% 61%
Miss Three Months of Recovery 19% 36% 44%
Miss Six Months of Recovery 12% 28% 36%
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Asset AllocationModel portfolios: 1926-2006*
Asset Allocation Average Annual Return Years With a Loss Average Loss
100% bonds 5.5% 13 of 81 -3.1%20% stocks / 80% bonds 6.8% 11 of 81 -4.0%30% stocks / 70% bonds 7.4% 13 of 81 -4.7%40% stocks / 60% bonds 7.9% 15 of 81 -5.5%50% stocks / 50% bonds 8.5% 16 of 81 -6.8%60% stocks / 40% bonds 8.9% 20 of 81 -7.1%70% stocks / 30% bonds 9.4% 21 of 81 -8.5%80% stocks / 20% bonds 9.8% 22 of 81 -9.8%100% stocks 10.5% 24 of 81 -12.2%
*The performance data shown represents past performance, which is not a guarantee of future results.
Stocks: Standard & Poor’s 500 Index from 1926 to 1970, Dow Jones Wilshire 5000 Index from 1971 through April 22, 2005, MSCI US Broad Market Index thereafter.
Bonds: Standard & Poor’s High Grade Corporate Index from 1926 to 1968, Citigroup High Grade Index from 1969 to 1972, Lehman Long-Term AA Corporate Index from 1973 to 1975,
Lehman Aggregate Bond Index thereafter.
Source: The Vanguard Group
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An Historical Perspective
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THE 4 MOST DANGEROUS WORDS
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“This Time It’s Different!”
September 11th, 2001 Dow Goes From 11,500 to 7,500 = -35%
Sept 24th One Week Loss = -14.3%Largest Drop In 61 Years
October 10th., 2008 Dow Goes From 14,000 to 8,900 = -35%
Oct 10th One Week Loss = -18%Largest Drop In 75 Years
Source: http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=1990
Current Market Update
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RECOVERY TIMES SHORTEN
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March 9th, 2009Dow Hits Five Year Low = Approx. 6500
(Start Of This Bull Market?)
Full Recovery = Less Than Two Years Sept 2001-May 2003
October 1st, 2002Dow Hits Five Year Low = Approx. 7300
(Start Of Last Bull Market)
Source: http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=1990
Current Market Update
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Bear Markets Since 1970
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Dow Jones Industrial Average1
Source: Ned Davis Research, as of 12/31/07. Figures based on the Dow Jones Industrial Average, comprising 30 large capitalization stocks. Indexes are unmanaged & include reinvested dividends; one cannot invest directly in an index. Past performance is no guarantee of future results.
Bear Market Decline Recovery Days
4/71–1/71 16.1% 209
1/73–2/74 45.1% 694
9/76–2/78 26.9% 525
9/78–4/80 16.4% 591
4/81–8/82 24.1% 472
11/83–/84 15.6% 238
8/87–0/87 36.1% 55
7/90–0/90 21.2% 87
7/98–8/98 19.3% 45
1/00–9/01 29.7% 616
03-10/02 31.5% 204
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SOME THINGS ARE DIFFERENT
$ 750 U.S. Bailout Package (TARP)
Worldwide Government Consensus
Increased US Bank Deposit Insurance
Massive Liquidity Injections / Non Financial Bus
Worldwide Coordinated Rate Cuts
Worldwide (Semi) Nationalization Of Banks
Current Market Update
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A CRISIS OF CONFIDENCE
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A Crisis Of Confidence A Crisis Of Consciousness
Fear vs. Faith
Companies Media Government
Current Market Update
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ACT YOUR AGE
52
50 + Years Old
Low Prices = Good News
“Back The Truck Up”
Keep Contributing To 401k
Don’t Sell Low
Current Market Update
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60 + Years Old
India = 1.2 Billion People 1/3 Land Mass
75% (800-900 Million)Live on Less Than $2.00/Day
Be Grateful, Make A Plan And Don’t Sell Low
Current Market Update
ACT YOUR AGE
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70 + Years Old
Come See Me For Options
Don’t Lock In Your Losses
You Haven’t Lost A Dime! (Unless You Sell)
Current Market Update
ACT YOUR AGE
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WWBD?(What Would Warren Buffet Do)
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$5 Billion Goldman Sachs $3 Billion GE
BUY LOW, SELL HIGH
Personal Money / Heirs = Charity
80 Years Old / Aug 29, 1930
Current Market Update
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HOW SAFE ARE THE BANKS?
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FDIC Is A Self Funded Pool Of Reserves
Backed By Full Faith & Credit Of U.S. Government
“Extensive Internal Stress Testing…We Believe Reserves Will Be Sufficient”
Source: http://www.charlierose.com/shows/2008/10/17/1/a-conversation-with-sheila-bair-chairman-of-the-fdic)
Current Market Update
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Inflation vs. Depression
Equities = Protection Against Inflation
$20 Bread vs. Bread Lines
Goal: Keeps Banks Open
Current Market Update
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HOW SAFE ARE THE BANKS?
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THE RECESSION
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Financial & Economic Phenomenon Based Upon Self Fulfilling Prophesy
Scarcity Mentality & Fearful Emotions
Cash Is KingBut Only If You Use It
Fortunes Are Made In Recessions
Current Market Update
BUY LOW, SELL HIGH
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59
Everything Is On Sale!
We Love Low Prices At Wal-Mart We Hate Low Prices On Wall Street
Current Market Update
THE RECESSION
BUY LOW, SELL HIGH
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Upturns Have Historically Followed Downturns
“You Must Be Present To Win”
You Haven’t Lost A Dime! (Unless You Sell)
For Every Seller (The Herd) There’s A Buyer (Warren Buffet)
Current Market Update
THE RECESSION
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FEAR, GREED & REGRET
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Ride The Elevator All The Way DownBut Don’t Get Off
$3.5+ Trillion In Money Markets
Don’t Regret Missing The Start Of The Next Bull Market
Current Market Update
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NAME THAT STOCK
62
Current Market Update
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NAME THAT STOCK
63
Current Market Update
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SUMMARY
64
- Wayne Gretzky
“I Skate To Where The Puck Is Going To Be, Not To Where It’s Been”
“You Miss 100% Of The Shots You Don’t Take”
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SUMMARY
We Believe:
65
History Repeats Itself
Don’t Lock In Your Losses
This Time It’s No Different
Markets Always Overreact
You Haven’t Lost A Dime (Unless You Sell)
Everything Goes In Cycles
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BUY LOW, SELL HIGH
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SUMMARY
We Believe:
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CONCLUSION
67
FEAR vs. FAITH
Adam Smith:“If You Don’t Know Who You Are,
The Stock Market Is An Expensive Place To Find Out”
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68
FEAR vs. FAITH
What If This Time It IS Different?
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Buy The 3-G’s:Guns, Generators & Gummy Bears
CONCLUSION
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69
FEAR vs. FAITH
Max Bolka:“Ours Is Not To Reason Why
Just Buy Low & Then Sell High”
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CONCLUSION
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WHAT TO DO NOW
70
1. Make An Appointment
2. Map Out A Financial Plan
3. Evaluate Your Current Portfolio
4. Adjust Your Spending Plan
5. Review Tax Reduction Strategies6. Confirm Your Estate Plan
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THANK YOU FOR ATTENDING
71
For More Information On:All Aspects Of Practice Management,
Speaking, Writing & Coaching
MAX BOLKAComprehensive Business Consulting“Building First-Class Financial Advisors”
Nationwide: (800) 472-3288www.maxbolka.com
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