What are Your WinLoss Odds

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What are Your Win/Loss Odds ?

• New ways to build portfolios
• that win the
• RewardRisk Tradeoff

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INVESTMENT INDUSTRYTRANSITIONS

• 1940s - - 1950s INCOME OBJECTIVE - -
  - gt CAPITAL GAINS OBJECTIVE

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INVESTMENT INDUSTRYTRANSITIONS

• 1940s - - 1950s INCOME OBJECTIVE - -
  - gt CAPITAL GAINS OBJECTIVE
• 1950s - - 1960s STOCK by STOCK
  FOCUS - - - gt PORTFOLIO FOCUS

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INVESTMENT INDUSTRYTRANSITIONS

• 1940s - - 1950s INCOME OBJECTIVE - -
  - gt CAPITAL GAINS OBJECTIVE
• 1950s - - 1960s STOCK by STOCK
  FOCUS - - - gt PORTFOLIO FOCUS
• 1980s - - 1990s SINGLE STYLE GROWTH
  - - - gt MULTI - STYLES

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BEHAVIORAL FINANCE

• . . . IS THE INTEGRATION OF CLASSICAL
  ECONOMICS AND FINANCE WITH PSYCHOLOGY AND
  THE DECISION-MAKING SCIENCES
• . . . IS AN ATTEMPT TO EXPLAIN WHAT CAUSES
  SOME OF THE ANAMOLIES THAT HAVE BEEN
  OBSERVED AND REPORTED IN THE FINANCE
  LITERATURE
• . . . IS THE STUDY OF HOW INVESTORS
  SYSTEMATICALLY MAKE ERRORS IN JUDGMENT, OR
  MENTAL MISTAKES
• RUSSELL J FULLER

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BEHAVIORAL FINANCE

• PROMINENT GAMBLER TO HIS PROTEGE
• DONT BET ON ANYTHING HAVING
• LESS THAN 4 LEGS

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BEHAVIORAL FINANCE

• YOU ARE AN INTEGRAL PART OF MANS SECOND
  MOST SERIOUS GAME ( AFTER WAR )
• WHAT YOU DO AFFECTS THE OUTCOME OF THE
  GAME
• WHAT YOU DO MAY CREATE THE OUTCOME OF
  THE GAME (LONG-TERM CAPITAL MANAGEMENT,
  1987S PORTFOLIO INSURANCE)
• YOU ARE NOT ALONE IN THE GAME

PETER WAY
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DEVELOPING GAMESMANSHIP

• STAGE 1 - - LEARN THE GAME THE RULES,
  THE ACTIONS, THE
• 
  PENALTIES, HOW TO
  SCORE

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DEVELOPING GAMESMANSHIP

• STAGE 1 - - LEARN THE GAME THE RULES,
  THE ACTIONS, THE
• 
  PENALTIES, HOW TO
  SCORE
• STAGE 2 - - PLAY THE GAME DEVELOP SKILL BY
  PRACTICE

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DEVELOPING GAMESMANSHIP

• STAGE 1 - - LEARN THE GAME THE RULES,
  THE ACTIONS, THE
• 
  PENALTIES, HOW TO
  SCORE
• STAGE 2 - - PLAY THE GAME DEVELOP SKILL BY
  PRACTICE
• STAGE 3 - - PLAY THE PLAYERS MASTER THE
  ART OF
• 
  STRATEGIC COMPETITION

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INVESTMENT INDUSTRYTRANSITIONS

• 1940s - - 1950s INCOME OBJECTIVE - -
  - gt CAPITAL GAINS OBJECTIVE
• 1950s - - 1960s STOCK by STOCK
  FOCUS - - - gt PORTFOLIO FOCUS
• 1980s - - 1990s SINGLE STYLE GROWTH
  - - - gt MULTI - STYLES
• 1990s - - 2000 PLAY the GAME - - -
  gt PLAY the PLAYERS

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RUSS FULLERS OPPORTUNITY SET

• BETTER EXPECTATIONS THE MOTHER OF ALL
  ALPHAS
• THE THREE SOURCES OF ALPHA
• 1. SUPERIOR (PRIVATE) INFORMATION
• 2. PROCESS INFORMATION BETTER
• 3. EXPLOIT BEHAVIORAL BIASES

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How to compete ?

• Traditional approach - - long term capital
  gains
• emphasize selection
• minimize timing
• Behavioral approach - - short term capital
  gains
• focus on value
• emphasize timing
• Can short term tactics beat long term
  strategy ?
• Where are the returns better?
• Where are the odds better?
• Where is the better reward risk tradeoff ?

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TYPICAL ANNUAL STOCK PRICE BEHAVIOR (institution-g
rade stocks, year-by-year average from 1984-1999)
110
100
100
90
80
50
70
Standard institution-grade stock appreciates 12
in an average year
60
12
56
50
0
40
Change in Stock Price
Stock Price
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TYPICAL ANNUAL STOCK PRICE BEHAVIOR (institution-g
rade stocks, year-by-year average from 1984-1999)
110
100
100
90
Average stocks price range fluctuates 72 in an
average year
72
86
80
50
70
60
12
56
50
0
40
Change in Stock Price
Stock Price
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TYPICAL ANNUAL STOCK PRICE BEHAVIOR (institution-g
rade stocks, year-by-year average from 1984-1999)
110
100
100
90
72
86
Standard institution-grade stock falls 60 in an
average year
80
Standard institution-grade stock rises 72 in an
average year
50
70
60
NET EFFECT Standard institution-grade stock
appreciates 12 in an average year
12
56
50
0
40
Change in Stock Price
Stock Price
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TYPICAL 1984 STOCK PRICE BEHAVIOR (institution-gra
de stocks, 1984 annual average)
110
100
100
90
80
50
42
71
Standard institution-grade stock falls 50 in 1984
Standard institution-grade stock rises 42 in 1984
60
50
0
-8
46
NET EFFECT Standard institution-grade stock
depreciates 8 in 1984
40
Change in Stock Price
Stock Price
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TYPICAL 1999 STOCK PRICE BEHAVIOR (institution-gra
de stocks, 1999 annual average)
113
125
110
Standard institution-grade stock falls 96 in 1999
100
100
Standard institution-grade stock rises 125 in
1999
90
80
50
70
29
65
60
NET EFFECT Standard institution-grade stock
appreciates 29 in 1999
50
0
40
Stock Price
Change in Stock Price
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A look at all groups
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The problem

• Plenty of upside forecasts
• Where are the downside
  forecasts?
• How likely are either upside or downside?

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No Downside Forecasts?

• How about using history?
• Past 52-week Range is easy to get
• Can give upside forecast too
• Useless? Too simple?
• Everyones tried that !

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The Price Appreciation Benchmark
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Dow-Jones Stocks Past 5 Years -- Benchmark vs.
Bottom of Range Buys
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An Even Better Approach . . .

• Find Actively-Involved Investment Professionals
  with big risk exposures
• Get them to tell you at what prices they would be
  willing buyers and willing sellers of stocks
• Piggy-back on their judgments and do what they
  would do

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Thats exactly what Peter Way Associates Does

• We use todays Market-Makers, the Block Traders
• They take at-risk positions in million-dollar
  trades
• 25,000 - 35,000 times a day
• What they are willing to pay to hedge those risks
  tells us how far they think prices can run
• Both up and down
• on 2,000 actively-traded stocks

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Market Forecasts
Analysis
Economics
Fundamentals
Washington Influences
Company Reports
Earnings Estimates
Order Flow
BLOCK TRADERS
Price Range Forecasts
BLOCKDESK.COM
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A NEW LOOK AT OLD NAMES
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THE SAME LOOK AT GROUPS
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VALUE RANKINGS - SP STOCKS
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What are Your Win/Loss Odds ?

• New ways to build portfolios
• that win the
• RewardRisk Tradeoff

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A look at all groups
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A new look at old stocks
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TYPICAL STOCK PRICE BEHAVIOR (institution-grade
stocks, year-by-year average 1984-1999)
86
72
Standard institution-grade stock falls 60 in an
average year
Standard institution-grade stock rises 72 in an
average year
12.0
56
NET EFFECT Standard institution-grade stock
appreciates 12 in an average year
50
Change in Stock Price
Stock Price
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HOW WE LOOK TO BLOCK TRADERS
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