understanding markets and long-term...
TRANSCRIPT
Understanding Marketsand Long-Term Investingg g
June 30, 2014
The story behind these charts
The beauty of newspapers, from a publisher’s perspective, is that they’re addictive A story doesn’t unfold all in one go like a novel It fills in bit by bit over
The story behind these charts…
addictive. A story doesn t unfold all in one go, like a novel. It fills in, bit by bit, over days. So, you have to keep buying the next day’s newspaper.
The story of markets and individual investments, as presented in various media, is like that Every day we get a few disjointed pieces of information But for someis like that. Every day, we get a few disjointed pieces of information. But, for some reason, they rarely add up to a practical investment principle, like diversification. More often, they simply stir up emotions.
The charts in the following pages are by contrast the accumulation of years andThe charts in the following pages are, by contrast, the accumulation of years and years of data. They tell a long-term story of market behaviour – good and bad. They lay the groundwork for an understanding of risks and rewards. They set the stage for rational discussions of asset mix and individual investments.
We assembled these charts because we’re not interested in selling papers. We’re interested in growing wealth for long-term investors.
2
Predicting the winner is difficultPredicting the winner is difficult
3
40 years and 50X your investment
$100
40 years and 50X your investment
S&P/TSX Composite Index (1974 – 2014)$100
+203%
+109%+16%
+168%
-43%
$51.49 June 30, 2014
5,049%cumulative return
+118%
$10
+288%
+44%
-25%-20%
-21%
ue o
f $1
g sc
ale)
+253%
-38%-28%
cumulative return (10.3% annualized)
= 50x your original investment
$1-16%
-39%Valu (lo
g
$0Jun-74 Jun-84 Jun-94 Jun-04 Jun-14
4
Sources: Bloomberg & Mackenzie InvestmentsBased on the S&P/TSX Composite TRI including reinvested dividends between June 30, 1974 and June 30, 2014
Strong market gains at home (and abroad)1-Year period
Closes at15,146Jun 30
Strong market gains at home (and abroad) . . .
S&P/TSX Composite Index
28 7% Jun 30
1 Yr total returnas at Jun 30
+28.7% Long-term investors have benefited by “Staying the Course”
Closes at12,129Jun 30
Time to “manage expectations” and benefit from fundamental investment strategies
Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14
S&P/TSX S&P 500 Euro Area Japan Emerg. Mkts World
Global Market Indices 1 Yr returns to June 30* EM
5
+28.7% +24.6% +20.2% +12.0% +13.7% +21.7%1-Yr returns to June 30*: EM
Source: Bloomberg for graph line; MSCI indices unless otherwise noted, as at June 30, 2014* Total returns, local currency
YTD at-a-Glance J k th 5 i fYTD at-a-GlanceS&P/TSX Composite Index
Price of goldGlobal growth Loonie recovers some lost altitude
TSX rises tonew “all-time”
June marks the 5-year anniversary of the end of the Great Recession (U.S.)
Price of goldregains some shine
(through Q2)
$1 32 /
Price of crudestrengthens
(through Q2)
gpicked-up but uneven. Challenges continue
U.S economy cools but perseveres forward
Fed and BOC rates
some lost altitude(through Q2)
$0.937 USD
(Jun 30-14)
new all time closing high 15,109
(as at Jun 18-14)
15,146
0% - 0.25%(through Q2)
1.00%(th h Q2)
$1,327/oz.(Jun 30-14)
$105/bbl(Jun 30-14)
Eurozone sees positive growth again but varied by area.
China and Emerging Markets challenged / recovering
Wall of worry
remain at/near historical lows +12.9%Total returnYTD 2014
(through Q2)
European growth now positive but debt and austerity challenge
Corporate resilience maintained
“on risk / off risk”Optimism from progress but uncertainty remains
Geopoliticalconflict & inclement weather challenge*
13,622Corporate resilience maintained.GDP growth cools to start year
Global recovery strengthens but remains uneven.Geopolitical concerns weigh
“Tapering” beginsThe U.S. Federal Reserve initiated the tapering of its bond-purchase
stimulus program in January
6
*Source for bear-Russia visual: The Economist
January February March April May June
Source: Bloomberg, as at June 30, 2014
June 2008 Peak June 2014June 2008 Peak June 2014
(May 30, 2008 – June 30, 2014)S&P/TSX Composite Index Closes at
15,146Jun 30-14Past peak
15,073June 18-08 +100%
bottom to Jun-14
-50%peak-to bottom
Wall of worry“on risk / off risk” continues
Optimism from progress but uncertainty remains
TSX sets a new “all-time” closing high 15,109Six years to the day after it set the old record of 15 073
bottom at
7,567Mar 9-09
European growth now positivebut debt and austerity challenge
Corporate resilience maintained.GDP growth cools to start year
Global recovery strengthens but remains uneven.
“Worst case” scenario did not happen
Less bad is good(improvements
surfacing)
Markets lead…sustained recovery solidifies but many economies & consumers remain challenged
Global stability perseveres Growth & fiscal challenges
remain.The road of this recovery i b
Six years to the day after it set the old record of 15,073(June 18-08 June 18-14)
Mar 9-09 but remains uneven. Geopolitical concerns weigh
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Source: Bloomberg, as at June 30, 2014; Price index returns, local currency. Visual Source: The Wall Street Journal
surfacing) & consumers remain challenged remains bumpy
Closer look at TSX
Returns on TSX for YTD-14 (and 2013)
Closer look at TSX . . .
201313.0%13.6%
S&P/TSX Index 12.9%
21.1% Energy
January 1 to June 30, 2014
-29.1%
37.3%
37.5%
23.6%
12.5%
11.9%
10.3%
16.6% Materials
Information Technology
Industrials
Consumer Staples
-4.1%
43.0%
23.7%
72.1%
10.1%
9.1%
8.8%
5.2%
Utilities
Consumer Discretionary
Financials
Health Care
13.1%5.1%
0% 5% 10% 15% 20% 25%
Telecom Services
8
Source: Bloomberg, as of June 30, 2014
Currency – the hidden difference
Comparing YTD-14 returns in local currency to CDN$-based
Currency – the hidden difference
Canada U.S. Euro Area Japan Emerg.
Mkts World
Stock markets
Local currency +12 9% +7 1% +4 9% 3 0% +4 6% +5 5%
EM
yreturns +12.9% +7.1% +4.9% -3.0% +4.6% +5.5%
CDN$-based returns +12.9% +7.5% +5.9% +1.0% +6.5% +6.6%
Note: Above expressed in total returns
9
(Canada: S&P/TSX; U.S.: S&P500; Euro: MSCI Europe; Japan: MSCI Japan; World: MSCI World)
Source: Bloomberg, as at June 30, 2014
The next move may not be clearThe next move may not be clear
S&P/TSX Composite Index Closes at15,146
J 30June 30
??Closes at8 988
??8,988
Dec 31 Closes at7,567
Mar 9
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jun-14
10
Source: Bloomberg, as at June 30, 2014; Visual Source: Barron’s, July 13, 2009
Looking back at what may lie ahead
The 1975-76 market recovery may provide insights
Looking back at what may lie ahead
Dow Jones Industrial Average since WWII (to June 30, 2014)
1000001973-74 Bear / 1975-76 Bull / 1976-83 Rollercoaster
10000
(Oct 2, 1972 – Jan 3, 1983)
600700800900
1,0001,1001,200
1000
500O-72 O-73 O-74 O-75 O-76 O-77 O-78 O-79 O-80 O-81 O-82
1001946 1952 1958 1964 1970 1976 1982 1988 1994 2000 2006 2012
1973-76 Vietnam War / oil crisisend of gold standard
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Source of concept: MarketWatch
Market cycles: Investing & emotions don’t mixInvesting & emotions don t mix
S&P/TSX Composite Index (December 31, 1994 to June 30, 2014)
Jun 30-1415,146
Not to worry,I am a
long-term investor! Olong-term investor!
Confidence
Euphoria
DenialReliefThis is great!
The price is going up!
I am buying MORE!
Optimism
Confidence
Optimism
Panic
Sell NOW!
D 31 94 Capitulation Sell NOW!Dec 31-944,214
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD-14Mutual Fund Sales(net sales $ billion) $35.4 $17.7 $21.8 $28.9 $2.5 ($1.4) $14.3 $22.6 $20.8 $34.9 $0.1 $1.5 $12.0 $21.2 $30.4 $41.9 $37.3
12
Sources: Bloomberg (index) and IFIC (mutual fund net sales) as at June 30, 2014
Always remember it’s only a cycleAlways remember . . . it s only a cycle
Market cycle relative to economic cycle . . . b t h h diffbut each has differences
Stock Market Cycle Economic Cycle
PeakTop
Early BearLate Bull
Mid RecoveryMid RecessionEarly Bull
TroughLate BearBottom
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For illustrative purposes only
Bull & Bear MarketsBull & Bear Facts*
Average gain in bull market: +126%Average length of bull market: 49 months
S&P/TSX Composite Index to June 2014
Bull & Bear Markets Average length of bull market: 49 monthsAverage loss in bear market: -28%Average length of bear market: 9 months* Based on data since 1956. See page 2 for more details.
120%140%
2.2
288%81 months 253%
61 months 203%90 months 168%
320240
40%60%80%
100%120%
1.7
2.2
85%48 months
81%43 months 63%
32 months
82%40 months 44%
25months
109%24 months
16%6
h
168%68 months
118%64 months
160
80
og s
cale
)
-60%-40%-20%
0%20%
0.7
1.2
-17%6 months
-15%8 months -25%
13 months -35%11 months -39%
-25%4 months
-20%10 months -28%
4 months -38%
months
-21%6 months
0
-30% C
hang
e (lo
-26%17 months
-80% 0.211 months 39%
12 months 13 months -43%9 months
56 60 65 70 75 80 85 90 95 00 05 14
14
Source: Mackenzie Investments (Bloomberg: month-end data points as at June 30, 2014; total return, local currency)
Bull & Bear Markets: S&P/TSXBull & Bear Markets: S&P/TSX
The Risks and Rewards of Investing:• This chart represents the bull and bear markets in the S&P/TSX Index since 1956. All bars above the line are bull
markets; all bars below are bear markets.
• For the purposes of this illustration, a bull (bear) market is defined as a positive (negative) move greater than 15% that lasts at least 3 months.
Th fi t b t b k t hi h t it l t i t d d t 26% d l t d 17 th• The first bar represents a bear market which, at its lowest point, dropped to -26% and lasted 17 months. This was followed by a bull market rising 85% and lasting 48 months.
• Since 1956 there have been 12 bull markets and 12 bear markets. As can be seen from the chart, bull markets typically last longer and provide a more significant percentage change.
• Bear markets during this period have averaged -28% and lasted only 9 months Bull markets during this period have• Bear markets during this period have averaged -28% and lasted only 9 months. Bull markets during this period have averaged 126% and lasted 49 months. This is the reward for accepting the risk of bear markets.
Investor Behaviour:• According to the chart, markets spend more time in positive territory (bull) than negative (bear).cco d g o e c a , a e s spe d o e e pos e e o y (bu ) a ega e (bea )
• Bull markets are, on average, longer and more intense, providing a more significant percentage change.
• On average bear markets are more brief, and yet engender fear. We believe that during these periods there are significant investment ‘bargains’ to be found.
• Investor discipline during bear markets is critical
15
• Investor discipline during bear markets is critical.
Bull & Bear MarketsBull & Bear Facts*
Average gain in bull market: +153%Average length of bull market: 49 months
S&P 500 Composite Index to June 2014
Bull & Bear Markets Average length of bull market: 49 monthsAverage loss in bear market: -27%Average length of bear market: 14 months* Based on data since 1956. See page 2 for more details.
160% 280%61 months
526%118 months
520
60%
110%104%
48 months 90%43 months
52%26 th
76%30 months
87%33 months
86%27 months 72%
30 months
280
80(log
scal
e) 108%61 months
199%64 months
40%
10%
60% 26 months
-15%22%
-16% -17% -15%-15%14 h
0% C
hang
e
-90%
-40% 17 months -22%6 months
8 months-29%
19 months-43%
21 months
20 months-30%
3 months
5 months
-45%25 months
14 months
-51%16 months
56 60 65 70 75 80 85 90 95 00 05 14
-40
16
Source: Mackenzie Investments (Bloomberg: month-end data points as at June 30, 2014; total return, local currency)
Bull & Bear Markets: S&P 500Bull & Bear Markets: S&P 500
The Risks and Rewards of Investing:• This chart represents the bull and bear markets in the S&P 500 Composite Total Return since 1956. All bars above the
line are bull markets; all bars below are bear markets.
• For the purposes of this illustration, a bull (bear) market is defined as a positive (negative) move greater than 15% that lasts at least 3 months.
Th fi t b t b k t hi h t it l t i t d d t 15% d l t d 17 th• The first bar represents a bear market which, at its lowest point, dropped to -15% and lasted 17 months. This was followed by a bull market rising 104% and lasting 48 months.
• Since 1956 there have been 11 bull markets and 11 bear markets. As can be seen from the chart, bull markets typically last longer and provide a more significant percentage change.
• Bear markets during this period have averaged -27% and lasted only 14 months Bull markets during this period have• Bear markets during this period have averaged -27% and lasted only 14 months. Bull markets during this period have averaged 153% and lasted 49 months. This is the reward for accepting the risk of bear markets.
Investor Behaviour:• According to the chart, markets spend more time in positive territory (bull) than negative (bear).cco d g o e c a , a e s spe d o e e pos e e o y (bu ) a ega e (bea )
• Bull markets are, on average, longer and more intense, providing a more significant percentage change.
• On average bear markets are more brief, and yet engender fear. We believe that during these periods there are significant investment ‘bargains’ to be found.
• Investor discipline during bear markets is critical
17
• Investor discipline during bear markets is critical.
S&P/TSX Declines Greater Than 30%S&P/TSX Declines Greater Than 30%
MonthsMonthsfrom Peak
Peak Date Trough Date Value Value to Trough 3 months 1 year 10 yearsSep 2 1929 Jun 1 1932 332.61 64.20 -80.7% 33 45.8% 79.2% 37.9%Jul 3 1956 Dec 3 1957 617.67 432.11 -30.0% 17 5.8% 26.8% 108.1%
Period Peak Trough Price Return (from trough)
Decline
Oct 1 1973 Sep 3 1974 1329.28 832.98 -37.3% 11 1.4% 17.2% 186.5%Nov 28 1980 Jul 8 1982 2402.23 1346.35 -44.0% 19 26.2% 84.1% 153.7%Aug 13 1987 Oct 28 1987 4112.86 2837.79 -31.0% 3 7.9% 20.0% 137.4%Apr 22 1998 Oct 5 1998 7822.25 5336.15 -31.8% 6 24.8% 31.0% 102.5%Sep 1 2000 Oct 9 2002 11388 80 5695 33 -50 0% 25 18 9% 33 5% N/ASep 1 2000 Oct 9 2002 11388.80 5695.33 -50.0% 25 18.9% 33.5% N/AJun 18 2008 Mar 9 2009 15073.13 7566.94 -49.8% 9 39.4% 57.5% N/A
-43.5% 16 18.7% 41.7% 121.0%-37.4% 13 14.2% 35.4% 137.6% Ex- Period 1 (Great Depression):
Average:
8.0%9.0%
Average: Ex- Period 1 (Great Depression):
Annualized Price Return (excludes dividends)
18
Source: Datastream
Bear market decisionsBear market decisions…
Value of $10,000 invested in the S&P 500 (US$) January 31, 1973:3 months Later $9 2853 months Later… $9,2856 months Later… $9,4659 months Later… $9,54512 months Later $8 58712 months Later… $8,5871 year, 8 months later (Sept/74 Market Low) $5,816
At what point do you think most investors would have given up and thrown in the towel?
$5,816 removed from the market & re-invested in an interest bearing CD at 10.5% annually:6 months later… $6,12112 months later $6 42612 months later… $6,4262 years later… $7,1015 years later… $9,58110 years later $16 145 ( ft i t t S t/79 f 5 t
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10 years later… $16,145 (after re-investment Sept/79 for 5 yrs atprevailing rate of 11%)Source: Bloomberg
Bear market decisionsBear market decisions…
What if you had kept your $5,816 invested in the S&P 500 (US$) instead of going into cash on Sept 30, 1974?going into cash on Sept 30, 1974?
10 years later… $24,671
5 years later… $12,596
2 years later… $10,468
12 months later… $ 8,033
6 months later… $ 7,820
Food for thought.
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Source: Bloomberg
Bear market decisionsBear market decisions…
What if you invested an additional $10,000 in the S&P 500 (US$) instead of going into cash on Sept 30, 1974?going into cash on Sept 30, 1974?
10 years later… $67,091
5 years later… $34,254
2 years later… $28,465
12 months later… $21,846
6 months later… $21,266
Food for thought.
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Source: Bloomberg
Bear market decisionsBear market decisions…
Value of $10,000 invested in the S&P 500 (US$) August 31, 2000:3 months later $8 6883 months later… $8,688
6 months later… $8,216
9 months later… $8,349
12 months later… $7,561
2 years, 1 month later (Sept/02 Market Low) $5,527
At what point do you think most investors would have given up and thrown in the towel?
$5,527 removed from the market & re-invested in a 5-year GIC at 3.28% annually:
12 months later… $5,708
2 years later $5 8952 years later… $5,895
3 years later… $6,087
5 years later… $6,493
22
Source: Bloomberg
Bear market decisionsBear market decisions…
What if you had kept your $5,527 invested in the S&P 500 (US$) instead of going into cash on Sept 30, 2002?going into cash on Sept 30, 2002?
5 years later… $11,337
3 years later… $ 8,788
2 years later… $ 7,829
12 months later… $ 6,875
6 months later… $ 5,804
Food for thought.
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Source: Bloomberg
Bear market decisionsBear market decisions…
What if you invested an additional $10,000 in the S&P 500 (US$) instead of going into cash on Sept 30, 2002?going into cash on Sept 30, 2002?
5 years later… $31,842
3 years later… $24,685
2 years later… $21,992
12 months later… $19,315
6 months later… $16,306
Food for thought.
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Source: Bloomberg
Bear market decisionsBear market decisions…
Value of $10,000 invested in the S&P 500 (US$) January 31, 2007:3 months later $10 3533 months later… $10,3536 months later… $10,2109 months later… $10,92112 months later $9 76912 months later… $9,7692 years, 2 months later (Mar/09 Market Low) $5,826
At what point do you think most investors would have given up and thrown in the towel?
$5,826 removed from the market & re-invested in a 5-year GIC at 1.96% annually:3 months later… $5,8556 months later… $5,8839 months later… $5,9121 year later… $5,9415 years, 3 months later (as at June/14) $6,451
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Source: Bloomberg
Bear market decisionsBear market decisions…
What if you had kept your $5,826 invested in the S&P 500 (US$) instead of going into cash on March 31, 2009?going into cash on March 31, 2009?
5 years, 3 months later… $ 16,007
12 months later… $ 8,726
9 months later… $ 8,280
6 months later… $ 7,809
3 months later… $ 6,754
Food for thought.
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Source: Bloomberg
Bear market decisionsBear market decisions…
What if you invested an additional $10,000 in the S&P 500 (US$) instead of going into cash on March 31, 2009?going into cash on March 31, 2009?
5 years, 3 months later… $43,480
12 months later… $23,703
9 months later… $22,491
6 months later… $21,211
3 months later… $18,347
Food for thought.
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Source: Bloomberg
Staying invested has been shown to improve returnsreturns
Crisis Market Low 1 Year Later 2 Years LaterThe Korean War 7/13/1950 28 8% 39 3%The Korean War 7/13/1950 28.8% 39.3%Cuban Missile Crisis 10/23/1962 33.8% 57.3%JFK Assassination 11/23/1963 25.0% 33.0%1969 to 70 Market Break 5/26/1970 43.6% 53.9%1973 to 74 Market Break 12/6/1974 42.2% 66.5%1979 to 80 Oil Crisis 3/27/1980 27.9% 5.9%1987 Stock Market Crash 10/19/1987 22.9% 54.3%Desert Storm 10/11/1990 21.1% 30.2%Soviet coup d'état attempt 8/19/1991 11.1% 21.2%Asian Financial Crisis 4/2/1997 49.3% 76.2%Dot-com Bubble crash / Sept 11 / Enron 10/9/2002 33.7% 44.8%Invasion of Iraq 3/11/2003 38.2% 50.6%North Korean Missile Test 7/17/2006 25.5% 2.1%S b i M t C i i 3/9/2009 68 6% 95 1%Subprime Mortgage Crisis 3/9/2009 68.6% 95.1%Average Appreciation 33.7% 45.0%
Snapshots in time of signif icant negative international events from 1950 to Mar 2009, and the subsequent change
28
in market value from the stock market low in that calendar year to one and tw o years hence.Source: Datastream. Benchmark. S&P 500 Composite, US$ return.
Real Return of a GIC
20%
Real Return of a GIC
15%
1 Yr GIC Returns
1 Yr GIC After 40% Marginal Tax
1 Yr GIC Real Return (After Inflation)
10%
Retu
rns
(%)
0%
5%
Tota
l R
-5%Dec-81 Dec-85 Dec-89 Dec-93 Dec-97 Dec-01 Dec-05 Dec-09 Dec-13
29
Source: Bloomberg, as at June 30, 2014
Real Return of $10 000
$80,000
Real Return of $10,000
$60,000
$70,000 S&P 500 Real Return: $67,838
MSCI World Real Return: $48,184
S&P/TSX Real Return: $46,713
$40,000
$50,000
arke
t Val
ue
1 Yr GIC Real Return: $9,760
$20,000
$30,000Ma
$0
$10,000
1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
30
Source: Bloomberg, as at December 31, 2013. Marginal Tax Rate = 40%
20 years of the S&P/TSXYou can’t afford to miss the best weeksYou can t afford to miss the best weeks
Value of $10,000 invested June 1994 to June 2014
$31,790
$37,499$40,000
$15 302
$21,552$20,000
$30,000
$15,302
$10,000
$ ,
6 8% 3 9%5 9% 2 1%$0
Fully investedall weeks
Missed best1 week
Missed best5 weeks
Missed best10 weeks
6.8% 3.9%5.9% 2.1%
31
Sources: Bloomberg & Mackenzie Financial, S&P/TSX Price Index; From June 30, 1994 to June 30, 2014
20 years of the S&P/TSX20 years of the S&P/TSX
Stock market gains are often swift and unpredictable. I t h h t t t f th k t fInvestors who choose to stay out of the market, even for short periods, frequently miss out on great opportunities.This chart assumes an investor put $10,000 into the S&P/TSX Being in the market for the entire 20-year period would have 20 years ago (June 30, 1994). Over this period the average annual return for the S&P/TSX was 6.8%. Look what happens if the same investor attempts to time the market.
resulted in a portfolio value of $37,499. If the investor missed the top ten weeks the portfolio value drops to $15,302.
Missing the best week: Assume an investor was worried that the market was overvalued and decided to take his or her money out of their investments and as a consequence missed the best week. Their return drops from 6.8% to 5.9%.
Missing the best five weeks: Return drops to 3 9%
Considering that there are 1,040 weeks in 20 years – 10 weeks make up less than 1% of the available time – missing those time periods reduces the investor’s gain by more than $22,197. That’s almost 60% of the investor’s total return!
Missing the best five weeks: Return drops to 3.9%.
Missing the best 10 weeks: Return drops to 2.1%.
32
20 years of the S&P 500You can’t afford to miss the best weeksYou can t afford to miss the best weeks
Value of $10,000 invested June 1994 to June 2014
$33,914$30 311
$40,000
$30,311
$21,401
$1 930$20 000
$30,000
$15,930
$10,000
$20,000
$0
Fully investedall weeks
Missed best1 week
Missed best5 weeks
Missed best10 weeks
6.3% 3.9%5.7% 2.3%
33
Sources: Bloomberg and Mackenzie Financial, S&P 500 Price Index (CAD$); From June 30, 1994 to June 30, 2014
20 Years of the S&P 50020 Years of the S&P 500
Stock market gains are often swift and unpredictable. I t h h t t t f th k t fInvestors who choose to stay out of the market, even for short periods, frequently miss out on great opportunities.This chart assumes an investor put $10,000 into the S&P 500 Being in the market for the entire 20-year period would have 20 years ago (June 30, 1994). Over this period the average annual return for the S&P 500 was 6.3% (CAD$). Look what happens if the same investor attempts to time the market.
g y presulted in a portfolio value of $33,914. If the investor missed the top ten weeks the portfolio value drops to $15,930.
Missing the best week: Assume an investor was worried that the market was overvalued and decided to take his or her money out of their investments and as a consequence missed the best week. Their return drops from 6.3% to 5.7%.
Missing the best five weeks: Return drops to 3.9%.
Considering that there are 1,040 weeks in 20 years – 10 weeks make up less than 1% of the available time – missing those time periods reduces the investor’s gain by more than $17,984. That’s over half of the investor’s total return!
Missing the best 10 weeks: Return drops to 2.3%.
34
Stay invested: patience has been rewardedStay invested: patience has been rewardedRolling 5-year average annual compound returns (S&P 500 TR)
Only seven negative periods (since 1954)
20%
25%
30%Rolling 5-Year Average Annual Returns
Value DateBEST 28.6% 1999AVERAGE 11.0%MEDIAN 12.8%
10%
15%WORST -2.4% 1974
-5%
0%
5%8 8 8
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Cuban Missile Crisis Vietnam WarOil E b
Gold Hits $850/
Black Monday
Asian Crisis Global Financial European
35
Oil Embargo $850/oz Monday
Berlin Wall Falls Tech BubbleCrisis
Source: Bloomberg, as at December 31, 2013
European SovereignDebt Crisis
Investor expectationsInvestor expectations
Observations• Since 1954, there has been
only one 5-year period when investors simply broke even
• Consider the first bar on the chart. If you had put money into the market at the beginning of 1949 your portfolio
Implications Conclusions• If a long-term perspective
was maintained, performance did not suffer during times ofinvestors simply broke even
(1972-1977).
• Since 1954, there have been only seven 5-year periods when investors lost money
the beginning of 1949, your portfolio would have grown almost 24% annually by the end of 1954.
• Investment strategists and professionals constantly warn
did not suffer during times of uncertainty or crisis.
• Waiting on the sidelines until there is no uncertainty could mean a missed investment
• The average 5-year rolling return has been 11.0%
investors about important economic variables, such as interest rates, inflation, a depreciating currency, oil prices rising, and even presidential elections. It is often suggested that, before investing investors wait for
opportunity.
before investing, investors wait for certainty to arise around a specific variable. However, there will always be uncertainty in the market.
36
U.S. Stock Market AnnualTotal Return: 189-Year History
201120072005199419931992Total Return: 189-Year History 1992198719841978 20121970 20101960 20061956 20041948 19881947 1986
2012
1947 19861923 19791916 19721912 1971
2000 1911 19681990 1906 19651981 1902 19641977 1899 19591969 1896 1952
Positive Years: 134 (71%)Negative Years: 55 (29%)
1969 1896 19521962 1895 1949 20091953 1894 1944 20031946 1891 1926 19991940 1889 1921 19981939 1887 1919 19961934 1881 1918 19831932 1877 1905 1982
2001 1929 1875 1904 19762001 1929 1875 1904 19761973 1914 1874 1898 19671966 1913 1872 1897 1963 19971957 1903 1871 1892 1961 19951941 1890 1870 1886 1951 19911920 1887 1869 1878 1943 19891917 1883 1868 1864 1942 19851910 1882 1867 1858 1925 19801893 1876 1866 1855 1924 1975
2013
1893 1876 1866 1855 1924 19751884 1861 1865 1850 1922 19551873 1860 1859 1849 1915 1950
2002 1854 1853 1856 1848 1909 19451974 1841 1851 1844 1847 1901 1938 1958 19541930 1837 1845 1842 1838 1900 1936 1935 19331907 1831 1835 1840 1834 1880 1927 1928 1885
2008 1857 1828 1833 1836 1832 1852 1908 1863 18791931 1937 1839 1825 1827 1826 1829 1846 1830 1843 1862
37
Sources: Universal Economics;Bloomberg; Index: S&P 500, Total Return, USD
1931 1937 1839 1825 1827 1826 1829 1846 1830 1843 1862-50 to -40 -40 to -30 -30 to -20 -20 to -10 -10 to 0 0 to 10 10 to 20 20 to 30 30 to 40 40 to 50 50 to 60
Annual Return Range (%)
A tale of 5 recessionsRecession # 1: 1973 to 1975Recession # 1: 1973 to 1975
Recession started: Nov. 1973S&P 500 Index
130
ended: March 1975End announced: N/A
90
100
110
120
130
Pric
e
50
60
70
80
90P
(recession)40
50
Nov-72 May-73 Nov-73 May-74 Nov-74 May-75 Nov-75
• Oct. 1973 Arab oil embargo causes oil prices to quadruple
• Inflation rate soars from 6.2% in 1973 to 11% in 1974
38
Sources: Bloomberg (chart), NBER (recession dates), US Bureau of Labor Statistics (CPI)
A tale of 5 recessionsRecession # 2: 1980Recession # 2: 1980
150
S&P 500 Index
Recession started: Jan. 1980
120
130
140 ended: July 1980End announced: July 1981
Pric
e
90
100
110
P
• Double digit inflation since mid 1970s
80Jan-79 Apr-79 Jul-79 Oct-79 Jan-80 Apr-80 Jul-80 Oct-80 Jan-81 Apr-81
(recession)
• Double-digit inflation since mid-1970s
• Oil imports reduced from Iran in 1979
• US central bank aggressively raises interest rates
39
US central bank aggressively raises interest ratesSources: Bloomberg (chart), NBER (recession dates)
A tale of 5 recessionsRecession # 3: 1981 to 1982Recession # 3: 1981 to 1982
180S&P 500 Index Recession started: July 1981
140
150
160
170 ended: Nov. 1982End announced: July 1983
Pric
e
100
110
120
130
P
80
90
Jul-80 Nov-80 Mar-81 Jul-81 Nov-81 Mar-82 Jul-82 Nov-82 Mar-83 Jul-83 Nov-83
(recession)
• Runaway inflation: $1 in 1975 has same buying power as $2 in 1985
• US central bank raises rates from 11% (1979) to 20% (1981)
40
% ( ) % ( )Sources: Bloomberg (chart), NBER (recession dates), US Bureau of Labor Statistics (CPI)
A tale of 5 recessionsRecession # 4: 1990 to 1991Recession # 4: 1990 to 1991
440S&P 500 Index
Recession started: July 1990
360
380
400
420 ended: March 1991End announced: Dec. 1992
Pric
e
300
320
340
360P
260
280
Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92
(recession)
• Real estate bubble of late 1980s bursts
• Savings & Loan Crisis: 1,000+ institutions bankrupt (1986-1995)
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Sources: Bloomberg (chart), NBER (recession dates), FDIC (savings & loan bankruptcies)
A tale of 5 recessionsRecession # 5: 2007 to 2009
S&P 500 Index
Recession # 5: 2007 to 2009
Recession started: Dec. 20071800
ended: June 2009End announced: Sep. 2010
800
1000
1200
1400
1600
Pric
e
(recession)0
200
400
600
800
Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10
P
•US housing downturn, subprime mortgage meltdown, global
Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10
financial crisis
•Recession lasted 18 months – longest of any recession since World War II
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Sources: Bloomberg (chart), NBER (recession dates)
5 years after recession officially ended...where are we now?where are we now?
June 30,2009 – June30,2014: +118%June marks the 5-year
1800
2000
2200 anniversary of the end of the Great Recession (U.S.)
1400
1600
1800
rice
1000
1200
P
600
800
Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14
Recession ends June 2009
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Source: YahooFinance, as at June 30, 2014; Cumulative return for S&P500 at 118% expressed in total return, CDN currency
Recession declared “officially over”Recession declared officially over
“The longest U.S. recession since WWII is officially over. NBER stated therecession started in December 2007 and ended in June 2009”
NBER release September 20, 2010
Business Cycle Duration (months)
Peak Trough Contraction(peak to trough)
Expansion(previous trough to this peak)
December, 2007 June, 2009 18 73March, 2001 November, 2001 8 120July, 1990 March, 1991 8 92July, 1981 November, 1982 16 12January, 1980 July, 1980 6 58November, 1973 March, 1975 16 36December, 1969 November, 1970 11 106April, 1960 February, 1961 10 24August, 1957 April, 1958 8 39July, 1953 May, 1954 10 45November, 1948 October, 1949 11 37February, 1945 October, 1945 8 80
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Source: National Bureau of Economic Research, September 20, 2010
Expansions vs recessions in the USExpansions vs. recessions in the US
120
140
E pansions
80
100
120
Mon
ths
ExpansionsRecessionsCurrent Expansion
40
60
Num
ber o
f M
0
20
902
907
910
913
918
920
923
926
929
937
945
948
953
957
960
969
973
980
981
990
2001
2007 Recession
start dates014*
Average length Recession Expansion
1854 to 2009 (33 cycles) 16 months 42 months1945 to 2009 (11 cycles) 11 months 59 months
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 start dates
Recession is the number of months from peak to trough. Expansion is the number of months from the previous trough to latest peak, eg. 120 months: March1991 to March 2001 expansion
2
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March1991 to March 2001 expansion.
Sources: National Bureau of Economic Research; *Mackenzie Financial; as at June 30, 2014
When is the right time to invest ?When is the right time to invest
Five approaches. Two are easy, repeatable & proven
?Investing $2,000/yr in S&P/TSX over 20 years
It’s time in the market . . . not market timing
$119,652$112,103 $109,554 $106,919
$75 000
$100,000
$125,000
Even “terrible timing” trumpsnot investing
$55,219
$25,000
$50,000
$75,000
$0Perfect New Year’s Dollar Cost Terrible Bought T-BillsTimer Investor Averager Timer not Stocks
Sources: Mackenzie Financial, Bloomberg, S&P/TSX Composite Index, as at June 30, 2014. Quick explanation of the five approaches: 1) Perfect Timer – able to invest the $2,000 into the market every year at the lowest monthly close, 2) New Year’s
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Quick explanation of the five approaches: 1) Perfect Timer able to invest the $2,000 into the market every year at the lowest monthly close, 2) New Year s Investor – invested the $2,000 in the market consistently at the beginning of each year, 3) Dollar Cost Averager – divided the $2,000 into 12 equal amounts and invested at the beginning of each month, 4) Terrible Timer – invested the $2,000 each year at the market’s peak, and 5) Bought T-Bills – left the $2,000 in cash (using FTSE 91-day T-Bill index as a proxy) never investing in stocks. Each approach starts with an initial investment of $2,000.
We have seen near ‘historic’ declines Gives hope for better markets in years to comeGives hope for better markets in years to come
10-year rolling return of S&P 500 Index, Dec. 31,1935 to Dec. 31, 2013
12%
16%
20%
???%(Feb 28, 2019)
20%
16%
12% +10.08%
4%
8%
% ( , )12%
8%
4%
+3.13% (Aug 31, 1949)
(Sept 30, 1984)
-4%
0%0%
-4% -2.77% (Sept 30, 1974) -5.08%
-12%
-8%
1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
-8%
-12%
-9.90%(Aug 31, 1939)
(Feb 28, 2009)
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Sources: Ibbotson Associates, S&P500; USD, price return, as at December 31, 2013
Disclaimer
This document includes forward-looking information that is based on forecasts of
Disclaimer
future events as of June 30, 2014. Mackenzie Financial Corporation will not necessarily update the information to reflect changes after that date. Forward-looking statements are not guarantees of future performance and risks and uncertainties often cause actual results to differ materially from forward-looking information or expectations. Some of these risks are changes to or volatility in the economy, politics, securities markets, interest rates, currency exchange rates, business competition, capital markets, technology, laws, or when catastrophic events occur. Do not place undue reliance on forward-looking information. In addition, any statement about companies is not an endorsement or recommendation to buy or sell any security.
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