Volatility is your friend... if you know your assets...

1. Volatility is your friend…
…if you know your assets
Peter Major

2. Volatility is your friend…
…if you know your assets

3. How does „volatility„ help or hurt the
5 assets?
Cash : Rand, $, Euro or other
Bonds : Local, Foreign. 10 yr, 20 yr. Govt or private
Gold : Local & Foreign. Bullion, ETF‟s, Equity
Property : Local, Foreign, Listed, Non, Residence?
Equities : Local, Foreign, Indices, Sectors, other

4. Introduction
Peter Major
Fund Manager, Analyst, Consultant – Cadiz Corp Solutions 2006 - current
CIO, Fund Manager, Analyst - HBD Asset Management 2001 - 2004
Fund Manager, Mining Analyst – Nedcor Investment Bank 1991 - 2001
Gold Analyst – Allan Gray Investment Counsel 1989 - 1991
Consultant & Marketing Manager - EIMCO Mining Machinery 1986 - 1988
Came to South Africa – Harmony Gold Mine, MBA (UCT) 1982 - 1984
B.Sc Min Eng - Montana School of Mines 1977 - 1981
Began mining in Kellogg, Idaho, Montana, Alaska, Canada 1972 - 1981

5. The SA JSE
120 Years of Commodity Investing

6. 1973 Grizzly Man
Sunshine Silver Mine, Kellogg Idaho

7. 1977 Timber & Lumber
Jennis Bay BC, Canada

8. 1990‟s International equities
Idaho Silver Mines

9. 2001 Asset management
All categories listed & unlisted

10. 2007: Listed & Private Equity,
Corporate Finance, other

11. Volatility is your friend
It gives you „opportunities‟
VOLATILTY is not just „how often‟ something changes
It is also – by „how much‟ - something changes
Some people associate „volatility‟ with risk. Wrong!
VOLATILITY is OPPORTUNITY. Another chance!
How many times do you get a second chance in life?
It‟s almost impossible to outperform without volatility!

12. SP Volatility Index:
Average = 20
VIX (Implied volatility of S&P 500 index options)
90
80
70
Annualised Volatility (%)
60
50
40
30
20
10
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Year
Last Price 30 Day MA 180 Day MA 360 Day MA

13. Let‟s look at volatility of the 5 asset
categories
Cash : Rand, $, Euro or other
Bonds : Local, Foreign. 10 yr, 20 yr. Govt or private
Gold : Local & Foreign. Bullion, ETF‟s, Equity
Property : Local, Foreign, Listed, Non, Residence?
Equities : Local, Foreign, Indices, Sectors, other

14. Massive leverage „Magnifies‟ volatility

19. SA 20yr bond sensitivity
Yield % Yield at exit
today 11 10 9 8 7 6
11 11 15 19 24 30 36
10 6 10 14 19 24 30
9 1 5 9 14 19 24
8 -4 0 4 8 13 18
7 -9 -5 -2 3 7 12
6 -14 -10 -7 -3 1 6
2 Yr pa TRR

24. Simple Average Returns (in Dollars $)
30
25
22
20
Returns (%) .
16 16
15
15 13
10
5
0
5 yrs 10 yrs Time periods
20 yrs 30 yrs 50 yrs
RESI ALSI Property Gold Bonds Cash

25. Simple Average Returns (in Rands)
30
25
19 20
20 19 18
Returns (%) .
15
15
10
5
0
5 yrs 10 yrs Time periods
20 yrs 30 yrs 50 yrs
RESI ALSI Property Gold Bonds Cash

50. Summary
Always start with the macros: international markets, i rates, PE‟s & other
Analysing how each of those affect the 5 asset categories.
Always know „which‟ assets are „extended‟ – i,e „outside their norms‟
Do you „really‟ want to hold an asset 1 or 2 standard deviations out?
Re-visit your goals – and your reasons for holding the asset
Are these reasons at odds with each other? With the facts at hand?
And ask yourself – “am I being too greedy – or too conservative now?”
YOU CAN’T ‘OUTPERFORM” – BY FOLLOWING THE MASSES!

51. Because in the end
MOST things revert to the „mean‟

54. Talk is talk:
It‟s cheap. And there‟s lots of it
“I think it is an immutable law of
business that: words are words,
explanations are explanations,
promises are promises –
but only performance is reality”
Harold Geneen ITT CEO

55. Thank you
Peter Major