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

Winning Investment Strategies Javier Estrada Winter, 2014 Overview Winning Investment Strategies Course Overview & Underlying Issues Javier Estrada Winter, 2014 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 1

Javier Estrada IESE Business School Barcelona Spain Introduction WININV Winter, 2014 Motivation  Ultimate goal Javier Estrada  To provide the essential knowledge and tools an IESE Business individual, non ‐ expert investor needs to sensibly School manage his savings Barcelona Spain • Taking into account their limitations • Being aware of their advantages • Focusing on what is really relevant • Resisting financial mis information • Fighting the impulsive investor inside • Implementing simple and effective strategies WININV Winter, 2014 2

Topics 1. Introduction / Underlying issues Javier Estrada 2. Asset classes IESE Business 3. Financial products School Barcelona 4. Essential (but underrated) issues Spain 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 WININV Winter, 2014 Logistics  Before/during/after class Javier Estrada  Pre‐assigned material (Course package) IESE Business  Class discussion (Will vastly extend that material) School  Complementary material (Web page) Barcelona Spain  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% WININV Winter, 2014 3

Final Comments  Group project Javier Estrada  Build a portfolio for a client IESE Business  Explain it in a brief report School  Teams of 4 students (Guidelines forthcoming) Barcelona Spain  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 … WININV Winter, 2014 Javier Estrada IESE Business School Barcelona Spain Underlying Issues WININV Winter, 2014 4

Underlying Issues Javier Individual v . institutional investors Estrada IESE Business School Disadvantages Barcelona Spain Knowledge Experience Technology Information Network … Advantages Can take the long view Not evaluated periodically/frequently Can challenge the consensus No need to ‘fail conventionally’ WININV The worst place to be: Wrong and alone Winter, 2014 Underlying Issues Javier Estrada What we will not discuss IESE Business School What is the best Barcelona Spain 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 WININV Winter, 2014 5

Underlying Issues Javier Important implications Estrada IESE Business School Forget about the best portfolio for today Barcelona Spain 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 WININV Winter, 2014 Underlying Issues Javier Estrada What investors do and do not control IESE Business School What you do control Barcelona Spain How much you save What you invest in Your holding period Your costs (fees and taxes) What you do not control The return of the assets in which you invest WININV Winter, 2014 6

Underlying Issues Javier What do we know about forecasting? Estrada IESE Business School The evidence is overwhelming … basically nothing! Barcelona Spain The most comprehensive evidence Fairly comprehensive evidence Very interesting evidence This evidence brings us to two very enlightening thoughts … WININV Winter, 2014 Go ‐ 1 Go ‐ 2 Go ‐ 3 Go ‐ 4 Underlying Issues Javier Estrada Three final points to keep in mind IESE Business School The not so obvious: We are not wired to be investors Barcelona Spain Investors are human We need to control our impulses But many things you may find We will not discuss hard to accept anything you will not And many things you may find be able to understand hard to implement This course is not akin to Parallels between the ‘miracle diet’ investing and staying This course is akin to ‘exercising fit and healthy often and eating well’ WININV Winter, 2014 Go 7

Appendix Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014 Philip Tetlock Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014 Back 8

Morningstar Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014 Back Peter Lynch Javier Estrada IESE Business During his 13 years managing School the Fidelity Magellan fund, Barcelona Spain Peter Lynch provided investors with a 29% 29% annualized return. During the same period, half half of the investors in Magellan lost lost money. WININV Winter, 2014 Back 9

Jonathan Clemens Javier Estrada IESE Business School “Unfortunately, in the investment world, the Barcelona questions that intrigue us most are the ones we’re Spain 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.” WININV Winter, 2014 Stein & DeMuth Javier Estrada IESE Business School “The list of things that are Barcelona Spain 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.” WININV Winter, 2014 Back 10

Investing & Psychology Javier Estrada IESE Business School Barcelona Spain WININV Winter, 2014 Investing & Psychology – Graham Javier Estrada IESE Business School Barcelona Spain “ The investor’s chief problem – and even his worst enemy – is likely to be himself .” WININV Winter, 2014 Back 11