1. Cabot Investors Conference 2013www.cabot.net A Tandem Walk Down Wall Street Robin Carpenter Analyst, Cabot ETF Investing System robin@cabot.net

2. Cabot Investors Conference 2013www.cabot.net What’s A Random Walk? “A random walk is one in which future steps or directions cannot be predicted on the basis of past actions.” “When the term is applied to the stock market, it means that short-run changes in stock prices cannot be predicted.” —Burton Malkiel, A Random Walk Down Wall Street

3. Cabot Investors Conference 2013www.cabot.net …and One More Thing! “A random walk model states that investment returns are serially independent, and that their probability distributions are constant through time.”

4. Cabot Investors Conference 2013www.cabot.net Bear Market & Bull Market 10/2007–3/2009 and 3/2009–8/2010

5. Cabot Investors Conference 2013www.cabot.net Bear Market Returns

6. Cabot Investors Conference 2013www.cabot.net Bull Market Returns

7. Cabot Investors Conference 2013www.cabot.net Bull & Bear Distributions (“Constant through time?”)

8. Cabot Investors Conference 2013www.cabot.net Or do Stocks make Trends?

9. Cabot Investors Conference 2013www.cabot.net Random Trendiness (Or Trendy Randomness) Returns come from probability distributions Distributions keep changing We never know the current distribution… …Except by its outputs (returns stream) “Momentum” is a distribution that persists A return-generating simulation….

10. Cabot Investors Conference 2013www.cabot.net

11. Cabot Investors Conference 2013www.cabot.net