Permanent Portfolio About National Bank Financial Wealth Management - PowerPoint PPT Presentation

Permanent Portfolio

About National Bank Financial — Wealth Management We are one of the leading firms in institutional equity sales and trading, and highly regarded for the quality of our equity and capital market research. In fact, each year we are recognized by Brendan Wood International in several award categories. Our mergers and acquisitions expertise, integrated corporate banking capability, and key participation in all Canadian fixed-income markets are just a few reasons to trust National Bank Financial — Wealth Management. Highlights ▪ Founded in 1902 ▪ Strengthened by strategic associations and numerous acquisitions, most recently Wellington West Capital and certain assets of HSBC Securities. ▪ Nearly 1,000 investment advisors in more than 100 branches across Canada. ▪ Dominant presence with a market share of 27% in Quebec and 9% in Canada. ▪ Over 400,000 individual clients. ▪ Annual revenues exceeding $550 million.

Kemp Family Wealth Management Group ▪ J. Alan Kemp, B.B.A. , Senior Investment Advisor, Vice President ▪ Stacy Dermo, FMA, CFP , Investment Associate ▪ Brenton Kemp, Investment Associate ▪ Over 42 years of combined investment experience currently managing over $100 million of client assets for 250 families

History of Permanent Portfolio ▪ First introduced by Harry Browne and Terry Coxon in their 1981 book “ Inflation Proofing your Investments ” ▪ Updated and simplified in Harry Browne ’ s 1987 book “ Why the Best Laid Investment Plans Usually Go Wrong ” ▪ Based on Economic Cycle Analysis ▪ Has a track record dating back to 1972

Why Permanent Portfolio? ▪ It ’ s Simple! 4 Asset Classes Rebalanced Annually ▪ It ’ s Disciplined! Systematic Approach to Buy Low Sell High ▪ It ’ s Efficient! Tax Efficient and Cost Efficient ▪ It Works! Has an enviable track record dating back to 1972

Why Permanent Portfolio? If your investment portfolio were a house , then Permanent Portfolio would be the foundation ! Rock Solid and Boring! …..and boring is good!

Why Permanent Portfolio? ▪ Harry Browne described two types of portfolios: ▪ Variable Portfolio ▪ A portfolio you would build with money you can afford to lose ▪ Permanent Portfolio ▪ A portfolio you would build with money you can ’ t afford to lose

Why Permanent Portfolio Works! Three Keys to Investment Success: 1. Patience 2. Consistency of Strategy and Implementation 3. Power of Compounding

Why Permanent Portfolio Works! Three Keys to Investment Success 1. Patience …because returns are not predictable and the longer your time frame for investment the greater your probability of success. In addition, the longer your time frame the return in any one period becomes statistically less significant.

Why Permanent Portfolio Works! Three Keys to Investment Success 2. Consistency of Strategy and Implementation …because all asset classes go up and down with a lag or lead time with the economic or business cycle. Buying low and selling high sounds simple but is by far the most difficult task. Removing emotion and consistently applying a strategy to implement decisions is critical.

Why Permanent Portfolio Works! Three Keys to Investment Success 3. Power of Compounding …it’ s just math! However the power of compounding is only evident over time as, over time compounding follows a parabolic curve. Short term investors will never experience the power of compounding. Nor will investors who allow their emotions to override their strategy.

Why Permanent Portfolio Works! Here ’ s the good news!! 1 and 3 are under your control 2 Is taken care of by Permanent Portfolio

Why Permanent Portfolio Works! Permanent Portfolio is Simple but NOT Simplistic ▪ provides “ true ” diversification based on economic cycles rather than asset classes ▪ doesn ’ t rely on market timing, predictions, research opinions, fortune tellers or chart analysis ▪ It ’ s a disciplined, systematic, passive approach with a few basic rules “ Investment success begins the day you accept the fact that you cannot predict the future ” Harry Browne.

Yearly Performance Chart RELATIVE ANNUAL PERFORMANCE STOCKS BONDS GOLD CASH 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Why Permanent Portfolio Works! Economic cycles fall into 4 basic categories: Prosperity Recession Inflation Deflation

Why Permanent Portfolio Works! ▪ At any point in time the economy will be in one of these phases and/or transitioning into the next phase ▪ PP does not attempt to predict when each phase will happen or predict how long each phase will last ▪ Instead it holds assets that will benefit from each stage regardless of when it started or how long it lasts ▪ This is the “ secret ” to Permanent Portfolio

Permanent Portfolio Holdings Portfolio holds equal amounts of  Stocks  Long Term Bonds  Gold Bullion  Cash (25% each)

Permanent Portfolio

Permanent Portfolio Holdings 25% Stocks ▪ For periods of prosperity and inflation 25% Long Term Bonds ▪ For periods of deflation and recession 25% Gold Bullion ▪ For periods of inflation 25% Cash ▪ For periods of recession and inflation

Permanent Portfolio Rules #1 #1 ▪ Portfolio is rebalanced annually back to it ’ s original allocation ▪ Ensures we sell into strength and buy into weakness ▪ Low turnover = Tax Efficiency ▪ Take advantage of seasonality

Permanent Portfolio Rebalancing

Permanent Portfolio Rules #2 #2 ▪ If any one asset class increases to 35% or decreases to 15% during the year then portfolio is automatically rebalanced back to original allocation ▪ Capitalize on big market moves during year ▪ Lowers overall volatility

Permanent Portfolio Rules #3 #3 ▪ Adding or removing assets automatically requires rebalancing to original allocation ▪ Ensures portfolio stays in balance ▪ Don ’ t favour one asset over another

Permanent Portfolio Rules That ’ s IT!! 3 Rules

Permanent Portfolio Performance Rate of Return is clearly important however the volatility of that return is even more important for two reasons:

Permanent Portfolio Performance 1. Mathematically, significant declines are difficult to recover and really mess up long-term returns 2. Psychologically they are even more difficult to recover and that ’ s if you don ’ t sell during the decline! “ The most important organ when it comes to investing is not your head, it ’ s your stomach ” Alan Kemp

Permanent Portfolio Performance To re-iterate: If your overall investment portfolio were a house , then Permanent Portfolio would be the foundation ! While the upside is solid it ’ s the downside protection which sets Permanent Portfolio apart from a traditional bond/stock portfolio.

Proof Is Always In The Performance! Permanent Portfolio Results 1972 – 2013 (41 Calendar Years) Compound Annual Growth Rate = 8.89% Standard Deviation = 7.87% Best Year = +39.78% Worst Year = -5.17% # Positive Years = 36 # Negative Years = 5

And It Gets Better …. 5 Calendar Year Rolling Returns 1972 – 2013 (Calendar Years = 37 periods) Best 5 Calendar Year Period = +14.20% (1974 – 1979) Worst 5 Calendar Year Period = +4.75% (1996 – 2001) % Positive Calendar Year Periods = 100%

And Better……Unique Periods Of Study ▪ Removing 1972 – 1974 Gold Strength as Gold came off the Gold Standard in 1972 Gold Bullion Return 1972 = +48.66% Gold Bullion Return 1973 = +71.24% Gold Bullion Return 1974 = +72.02% (1975 – 2013) CAGR = +8.38% vs. +8.89% (1972 – 2013)

And Better……Unique Periods Of Study Periods of Rising Interest Rates 1977 – 1980 = +16.96% CAGR 1973 = +14.56% 1987 = +6.54% 1994 = -1.49% 1996 = +4.96% 1999 = +5.04% 2009 = +10.29% 2013 = -2.00%

And Better……Unique Periods Of Study Baby Bear (or flat) Market for Stocks Year Stocks Permanent Portfolio 1977 -4.38% +5.42% 1981 -3.88% -5.17% 1987 +1.51% +6.54% 1990 -6.18% +1.42% 1994 -0.17% -1.49% 2011 +0.96% +9.96%

And Better……Unique Periods Of Study Monster Bear Markets for Stocks Year(s) Stocks Permanent Portfolio 1973 – 1974 -40.60% +30.76% (2 years) 2000 – 2002 -37.07% +7.35% (3 Years) 2008 -37.04% -1.90%

Portfolio Comparisons Permanent Portfolio vs. Traditional Bond/Stock Portfolio PP 60/40 40/60  # Positive Years 36 35 32  # Negative Years 5 6 9  # Years Return <5% 12 14 13  CAGR 8.89% 8.98% 9.57%  Standard Deviation 7.87% 8.63% 11.63%  Best Year 39.28% 25.22% 28.75%  Worst Year -5.17% -11.79% -20.20%

Recent History Permanent Portfolio vs. Traditional Bond/Stock Portfolio PP 60/40 40/60  2000 – 2002 CAGR +2.39% -0.08% -4.81%  Total Return +7.35% -0.25% -13.75%  2007 – 2009 CAGR +6.77% +2.57% +0.40%  Total Return +21.71% +7.92% +1.21%  2008 -1.90% -11.79% -20.20%