Winning Investment Strategies Javier Estrada Winter, 2014 Overview - - PDF document

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Winning Investment Strategies

Javier Estrada Winter, 2014

Overview

• 1. Introduction
• What is this all about?
• Course overview
• Logistics
• 2. Underlying Issues
• Individual investors v. institutional investors
• What we will not discuss (and why)
• What investors do and do not control
• Forecasting
• Three things to keep in mind

Winning Investment Strategies

Course Overview & Underlying Issues

Javier Estrada Winter, 2014

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Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Introduction

Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Motivation

• Ultimate goal
• To provide the essential knowledge and tools an

individual, non‐expert investor needs to sensibly manage his savings

• Taking into account their limitations
• Being aware of their advantages
• Focusing on what is really relevant
• Resisting financial misinformation
• Fighting the impulsive investor inside
• Implementing simple and effective strategies

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Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Topics

1. Introduction / Underlying issues 2. Asset classes 3. Financial products 4. Essential (but underrated) issues 5. Complementary (and important) issues

• The icing on the cake

6. Portfolio choice and rebalancing 7. Reference portfolios 8. Behavioral insights 9. Online resources

• 10. A global vision

Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Logistics

• Before/during/after class
• Pre‐assigned material (Course package)
• Class discussion (Will vastly extend that material)
• Complementary material (Web page)
• Web page
• http://web.iese.edu/jestrada
• Slides and complementary material
• Access

 Login: wininv  Password: Winter14

Go

• Evaluation
• Group project:

75%

• Individual class participation:

25%

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Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Final Comments

• Group project
• Build a portfolio for a client
• Explain it in a brief report
• Teams of 4 students (Guidelines forthcoming)
• The course has NO cases
• The course is not technical
• The course is very targeted/focused
• To provide the essential knowledge and tools to

sensibly manage your savings

• Closed laptops during the sessions
• Punctuality
• My ‘philosophy’ on this course …

Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Underlying Issues

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Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Underlying Issues

Individual v. institutional investors

Disadvantages

Knowledge Experience Technology Information Network …

Advantages

Can take the long view

Not evaluated periodically/frequently

Can challenge the consensus

No need to ‘fail conventionally’ The worst place to be: Wrong and alone

Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Underlying Issues

What we will not discuss

What is the best portfolio for today?

Are prices inflexible to the consensus? Are you faster than Goldman Sachs? Is it the right portfolio for you?

What is the best time to buy/sell?

What do you really know about timing? What do investors know about timing? The evidence is crystal clear

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Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Underlying Issues

Important implications

Forget about the best portfolio for today Forget about the best time to buy and sell Forget about forecasting Forget about what you cannot control Focus on what you do control Gamble in Vegas, invest in Wall Street

Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Underlying Issues

What investors do and do not control

How much you save What you invest in Your holding period Your costs (fees and taxes)

What you do control

The return of the assets in which you invest

What you do not control

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Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Underlying Issues

What do we know about forecasting?

The evidence is overwhelming … basically nothing! The most comprehensive evidence Fairly comprehensive evidence Very interesting evidence

Go‐1 Go‐2 Go‐3

This evidence brings us to two very enlightening thoughts …

Go‐4 Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Underlying Issues

Three final points to keep in mind

The not so obvious: Investors are human

We are not wired to be investors We need to control our impulses

We will not discuss anything you will not be able to understand

But many things you may find hard to accept And many things you may find hard to implement

Parallels between investing and staying fit and healthy

This course is not akin to the ‘miracle diet’ This course is akin to ‘exercising

• ften and eating well’

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Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Appendix

Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Philip Tetlock

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Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Morningstar

Back Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Peter Lynch

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During his 13 years managing the Fidelity Magellan fund, Peter Lynch provided investors with a 29% 29% annualized return. During the same period, half half of the investors in Magellan lost lost money.

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Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Jonathan Clemens

“Unfortunately, in the investment world, the questions that intrigue us most are the ones we’re least capable of answering. We all want to know which stocks will skyrocket, where the markets are headed next, what will happen to interest rates, and which mutual fund managers will

• shine. But as the saying goes, ‘If you ask a stupid

question, you’ll get a stupid answer.’ Any strategy that involves predicting returns – especially short-term returns – is likely to be a dud, because we just aren’t good at forecasting.”

Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Stein & DeMuth “The list of things that are beyond our understanding and control is nearly endless. While we cannot control the outcome, we can control our strategy. We can try to prepare intelligently for this unknown future.”

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Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Investing & Psychology

Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014

Investing & Psychology – Graham

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“The investor’s chief

problem – and even his worst enemy – is likely to be himself.”