Investment Strategy Utilizing Economic Indicators Kenneth M. Lavin, DPM, MSF, Economic Consultant for the 360 Huntington Fund

Success as a Doctor Doctor Needs to be 80%-90% Successful in Diagnosis and Treatment Medical Decisions involve Differential Diagnoses and Various Treatment Options Including Precise Surgical Skills ``````````````````````````````````````````````````

Success as an Investor Trading is a Binary Decision: Buy or Sell Average Investor is 50% Successful in His Trades If an Investor is 60% Successful in His Trading Decisions, He/She can Make a Very Good Living Leverage Up the 10% in Opportune Trades

Return on Investments (R.O.I.) Annual Savings versus R.O.I Critical Mass of Portfolio : $500,000 Savings of $50,000 = 10% of $500,000 Portfolio Losses are More Painful than Gains i.e. a Loss of 20% in your Portfolio Needs to have a 25% Gain to Return to the Same Value Need to Limit Losses

Financial Planner Doctors Who Have A Financial Planner? All Assets? Portion of Assets? Portfolio Based on Age and Risk Assessment Example: 50% Domestic Equities, 20% Foreign Equities, 20% Bonds, 10% Misc. Personal Oversight of the Investment Decisions by the Financial Planner?

Madoff Factor Academic Background of Mr. Madoff? Academic Background of a Financial Planner? Performance of the Financial Planner 2008 Investment Performance?

Counter Party to the Trade M.B.A., M.S.F., C.F.A. Academic Background – Economics, Accounting, Investments, Equity Valuation, Fixed Income, Portfolio Management Analyst Following that Stock for 2 Years Academic Background of Doctor – Disadvantage in the Trade

Analyzing Individual Stocks Catalyst for Buy Position Evaluate Management Evaluate Balance Sheet, Income Statement, Cash Flow Statement and Foot Notes Numerous Variables with Individual Stock Analysis Need 30 Stocks to Get a Sufficient Diversified Portfolio (Diversifiable Risk)

Valuation of Stocks Ratio Analysis : P/E, P/B, P/C.F., P/E/G Compared to Industry Discounted Cash Flow Analysis: CF1/(1+r)1 +CF2/(1+r)2….+ CFn/(1+r)n Weighted Average of Ratio Analysis and D.C.F. Alpha = Weighted Average minus Present Value

Economic Investment Strategy Analyzing Economic Data = Analyzing Patient’s Lab Data Few Economic Variables to analyze Economic Data is Widely Available Barrons, Yahoo Finance, Bloomberg Economic Investment Newsletters with Timely Alerts Trade Indices i.e. Exchange Traded Funds

Macroeconomic Analysis of the Markets Objective: Get 60% of the Upside of the Market and Avoid 60% of the Downside of the Market

Macroeconomic Indicators Conference Board: Leading, Coincident and Lagging Indicators Yield Curve of Treasuries T.E.D. Spread : Credit Risk= L.I.B.O.R. –T. Bill Sovereign Debt Yields: Greece, Portugal, Italy Oil Prices: Brent Crude Volatility Index: VIX

Macroeconomic Analysis Federal Reserve Policy: Federal Funds Target Rate World Events Historical Trends with Indicators and the Markets Follow the Most Timely Indicators

Investment Strategy Most of the Time there is no Clear Consensus of Where the Market is Going – Competing Economic Forces Major Upside or Downside Movement Occurs When All the Economic Forces are Aligned in One Direction Make Significant Asset Allocation Decisions When These Factors are All Aligned with ETFs

Previous Asset Allocation Decisions Based on Economic Indicators October, 2007: Oil Prices Up, Negative Yield Curve in 2006 March, 2009: Housing Starts Improved from Previous Months i.e. Less Negative, Stimulus Package Introduced September, 2010: Back to School Sales Up, Decreased T.E.D. Spread, Decreased Social Security Taxes

S&P 500 Annual Returns Year Returns % % % % Need Another +16% to Return to January 1, 2008 Value

Investment Summary Aware of the Macroeconomic Environment Understand Your Investments in this Environment Need to Avoid the Painful 2008 losses of 30+% Primary Care M.D. = Financial Planner (Fixed Portfolio) Need Specialist Doctor = Economic Consultant (Get 60% of the Upside of the Market and Avoid 60% of the Downside of the Market)

Questions and Answers Kenneth M. Lavin, D.P.M., M.S.F. (508)