VectorVest at the Master Investor Show 2015

good afternoon everyone it's great to be here I'm coming on after a fairly accomplished speaker let's see how I do okay maybe I'll offer me a job I know some of you really well for those Victor fist customers that have come along to offer support that's that's just wonderful thank you for making the effort you've heard this little talk quite a few times before my background is checkered I've got as the young man says a degree in engineering I've got an MSC in mythology I've got a PhD in mathematics all of which I assure you is totally and utterly useless in taking money out of markets regularly and consistently those of you and who's at university here anybody at university those things that they teach you at university I use them every single day there's not a day goes by that I don't use all of that stuff so without a doubt the the thing that I've done in my life that's helped most with my trading is that in my youth that was an officer in the Royal Marines and that's given me a level of confidence and discipline that I've used for a very very long time some people say that you can still see it what do you think I can still fit into the uniform and it's closer to 40 than 30 years ago the reason why I'm here is that Aboy talked a long time ago 35 years ago I was playing really really good rugby in London and I accepted a position to play rugby sort of semi professionally and Transvaal in Jihad in Johannesburg so I went off to Johannesburg to play rugby played at the opening of Ellis Park and while I was in South Africa I was billeted into an office with an old fella long since dead from Cornwall and he was in fact trading the stock market every day he was trading the stock market technical he'd started life as a draftsman but he'd ended up as a metallic just like myself on every single day he would hand chart the top 50 shares in Johannesburg that he was following his charts were an absolute work of art and I've still got one of his charts in my office wall a chart of SABMiller I watched what the old fellow was doing and I saved up some cash and October 1982 I put on my first trade and it was a winner and they say that if your dad takes you fishing and you catch a fish the first morning will you fish for the rest of your days and that's what happened to me I put on my first trade in October 1982 between October 1982 and 1988 I saved up my looked carefully like the hand of Hounslow I lived on Mars bars what does that fellow doing I would like to know okay I lived frugally and I put together a sum of money it was a fairly small sum of money by today's standards but I felt it was enough to cut the corporate umbilical cord for good and I've been training on my own ever since for the first 10 years of that I traded on my own mostly in gold stocks gold stocks there was no leverage in those days you bought the share and gold stocks would go up a fair clip and they would fall a fair clip and there was good money to be made in the ranges and I paid off my first house in a South African gold stock called Ram Fantine estates it was listed in Johannesburg London and New York City great little trading stock that's now called harmony one night in a mining term has anybody ever owned any platinum shares here no so a lot of wise people here but if you don't some platinum shares they would have come from a small term in South Africa called Rustenburg and one night in rustenberg of the speaker at an investment meeting got laryngitis and they asked me to talk it was a toque organized by stockbroking company called ferguson brothers that you haven't heard of but you've heard of what ferguson brothers have morphed into they're know called invest ech the talk went well I was scared stiff I've told Simon this many times I told my mother who was alive at the time that I did a talk in the stock market and people loved it and she said well David if you remember we wanted you to be a presbyterian minister and at one stage I was enrolled sir at the Church of Scotland's Academy in Edinburgh so invest accosted me to come and mentor their traders which I've done and I've been doing for the last 15 to 20 years I have a big program of work this year with forex traders at Barclays and Standard Chartered all around the world and at this stage of the game I actually only teach forex trading to institutions I don't teach it to retail traders anymore why you say what do you think I don't teach it to traders and retail traders anymore it's just too bloody difficult sir it's just too bloody difficult that's all so I don't need somebody's putting 50 grand into the market and losing it in a fortnight that just don't need that on my conscience I did a seminar some years back for London listed old mutual and after seminar there was a fellow in the back called Tom Hogarth that many of you will have tripped across and I tried to retire at 54 and I went to have a nice place in Cape Town overlooking the sea and I tried to retire but I got bored and Tom came from London to Cape Town and dragged me back to London to start up a little company called which way today which I'm still a shareholder in but I don't do anything anymore because I'm working with vector vest Simon our man here at the front and the pinstripe was the CEO of Victor vast some of you will known from the room the clock trader Simon has got a vision to be Scotland's answer to Rupert Murdoch so he decided that he wanted to focus in this media business I had been running vector vest in South Africa and vector-based asked me to run it in the UK and I've been doing that for the last couple of years now it's helped me tremendously with the discipline of my training but to give you an idea who's new to stock investing who hasn't put a trade on ever okay there's a few of us there a few of us well I have two boys adopted them along the way they're not my own Mark Twain says so beautifully that there's only two important days in your life sir one the day you were born and two the day you work out why you were born and I am quite sure that the reason I was born was for those two boys okay and I'm sure many of you will think the same about your kids so the eldest point is a rugby coach in Pretoria the second boy I struggled to get out of bed at one o'clock does anybody get children like that I tried a hoofer mother bear to one o'clock I got him interested in vector vest and he got into the program he got interested in stock trading he built a track record and in two years I took him from knowing nothing about the stock market to being a portfolio manager at a large Johannesburg fund managing millions and by ticking the boxes and vector vest he's outperforming traders that have been trading for 30 years in two years so those of you that are new to this you can get really really good at it and in many occasions those of you that are new that don't have a bad swing will do much better than the old folks that have been at this for a very long time with a bad swing and lots and lots of bad habits and big egos I can't be wrong this is the way so I take heart in that Simon the next slide please you've been waiting all day for this okay clearly all day for this we are fully authorized by the FCA Simon is our compliance officer and we're probably pretty much the only company here that is I can't give one-on-one financial advice because I haven't done a fact-finder I'd need to sit down I have no idea whether you're a multi multi-millionaire or whether you're flat broke busted flat in Baton Rouge and heading for the Train as somebody once said we have no idea okay before I can give one-on-one financial advice I would have to sit down with everybody and go through a thick thick thick fact fine so that said we can move on thanks I'm a next one please what's vector vest and what's so special about vector vest well vector vest is like the chair that's keeping it off the floor there's four legs on it the first leg is to do with value and every evening Victor vest puts a value to every share on the london stock market know you understand we have a little green book and in the green book written by dr. Bart Toledo we put this product together 26 years ago he fully reveals the algorithm that's used to value the stock when I started with activist I checked our valuations against institutional valuations and rarely rarely our valuations more than 10% away from the institutional valuation so our valuations are robust we put a value to every stock every evening now when I was a youngster my old granda give me a sort of one-on-one MBA and he used to say so beautifully that the only way to make money in anything is to find the value of something and then pay less for it now if you're in the used-car business that's exactly what you do okay you see the mark coming you're a very unlikely looking used car dealer so you see the mark rolling onto your forecourt you get out that the other book they've got they keep down here and you look and you see well the Merc is worth 25 grand but the dudes desperate and you offer him 17 for it he takes it and you can make a turn in the middle now many years after my grandfather told me that I read Benjamin Graham's book the Intelligent Investor so show of hands who's read Benjamin Graham's book it's 20 quid Warren Buffett says it's the best book that he's ever read on the stock market maybe it'd be worth your while to have a little flick through it there are there is about 10 chapters in the book the first 8 he talks about how to value a stock and the last two he says wait for mr. market to do something dumb so you can get it cheap so largely what he was saying was what my granddad was saying so many years ago the only thing that I can pretty much guarantee today is that my granddad had not read any of Benjamin Graham because his parting shot as I went off to university was education shines a stone and tarnishes a diamond that was his last words to me before I went to university so we look at value the second-leg as we look at earnings potential over the next three years we look at earnings safety and we look at the direction of the share itself so Simon the next slide this summarizes if what we want to try and do is do we want to try and find what's the share really worth back at one Simon how safe is the earnings stream are we talking about the Prudential here are we talking about Rheingold resources Prudential nice safe money coming in Ram Gold resources pulling gold out of the ground and some ghastly place in West Africa I mean ghastly have been there high safe is the industry and some idea about the trend and it's in this short presentation that's what I want to try and answer Simon next one there are lots lots of things that affect value earnings inflation and interest rates our next one every day as I've said earlier we put a value to every share in the stock market and as a default we favor undervalued shares and when we get to the program I'll show you in a second Buffett says it's so much better than I when he says that you don't know who's been swimming naked on till the tide goes out so we've favored undervalued shares the only way to make money and anything from used cars to property to stocks is to find the value of something and pay less for it if we're very happy with that concept the most important number on vector vest is relative value so we work out the value of every share and that's the value of the share today relative value is our best shot at the earnings potential over the next three years it projects the future now the future again to quote Mark Twain is a very slippery commodity here's how we do it we project the earnings of every company on the LSE for the next three years we do that by extrapolating the past and incorporating a earnings flow estimate that we source from Thomson Reuters we assume that those earnings will be fully discounted into the price at some time over the next three years not when they will be discounted into the price as a function of sentiment and sentiment is really really difficult to predict in fact the father of sentiment is a fellow called Ralph Elliot who's done battle against the Elliott Wave Principle here anybody I probably invested twenty years of my life studying the healthy way principal I'm sometimes I think it was a complete blind blind alley so Elliott says himself that the market normally does what I think it's going to do but never when so sentiment is really difficult to predict so in relative value we work at the earnings of the share over the next three years we assume that those earnings will be fully discounted into the price at some time over the next three years we work out what the price will be we take the projected price and we subtract the price today to calculate the upside and we divide that upside by what a treble a rated corporate bond will pay over the next three years now the Triple A rated corporate bond is our measure of the risk-free rate and a ghastly thing called the capital asset pricing model that again many of you will done battle with I think it's the most important number on vector vest everything Objectivist is run between zero and two if you've got a share with a relative value of 1.

4 that's saying that we believe this share has a high probability of outperforming the risk-free rate by 40% at sometime over the next three years anything above 1. 3 vector vast rate as excellent don't give me a heart attack Simon okay I find the trading quite easy compared to the IT and Windows 8 has completely left me 8. 1 has completely killed me it's no I'm rated to manage money in South Africa I'm not rated to manage money in the UK as yet but I'm working on the exams presently and it is my vision to start my own little fund over the next year or two why I would want to do that at 60 I have no idea but what else would I do all day so I would not dream of putting any any of my high net worth individuals that I manage money for into a share that's got a relative value of less than 1.

3 and at the moment because there's so many I've actually pushed up the relative value requirements 21. 4 it drives the share price really cool number it's the most important number on vector vests the next slide Simon the next number folks is relative safety as the slide says it's an indicator of risk it measures the consistency and the predictability of the financial performance so what the computer does is that it over the last five years it looks at the balance sheet the income statement the cash flow statement margins and it works out are these numbers getting better or these numbers getting worse the numbers are mathematically massaged between zero and two above one good the further above one the better if you've got a company with the relative safety above 1. 3 and higher you've got a company that's making lots and lots of money and those ratios are getting better okay now I have been told that I'm too conservative in the past that I've looked for companies and missed a lot of opportunity and because I pushed the relative safety up too high but can you think of any reasons why you wouldn't want to put your hard-earned after-tax money into a company that's making lots and lots and lots and lots of money safely now to go back to my son Mike Mike sits in front of six screens all day he is looking for shares that are undervalued he's looking for a share with a really high relative value but he's not worried about the relative safety because he's sitting in front of those screens and he's managing risk proactively every single day because those shares can quite easily double but they need to be watched there's absolutely no way that I would put your money into that share circuit you're a nice lad but if I lost money on you let's say you give me a hundred grand and I lose 25 grand you're a nice guy you're not gonna give me a hard time but you wanna look at me funny and you're gonna say hey dude I could have lost money on my own I didn't need to pay you to lose money okay so I would not put your money into a company with a low relative safety because I just don't need that hassle in my life but my son is managing money for youngsters his own age and they all want to get rich quick so he's looking for nice big movements and he's happy to sit there I'm happy to report that he's out of bed these days at six o'clock to get to the office for the call for the conference call so it's completely changed his life and he's making big money and he's just - by about Tobias first convertible okay I don't want to do that anymore this summer my brother and I are riding her Harley's up the west coast of Norway and the last thing I want to be doing is to be looking at bloody shares when I'm cruising up the west coast of Norway okay so I don't want any surprises and if you're managing money for somebody the last thing you want surprises okay you make fifty percent one year you lose ten percent the next year the year you lose the ten percent you've got to hold the phone out here somewhere and the plastics melting in your hand so you don't want that sort of thing as a money manager so relative safety folks you need to doctor as to where you want to be and your own stomach for risk who would call themselves conservative investors here well then you'll want to push your relative safety relatively high okay so you need to think about that vector vest is a massive toolbox and you it's not a black box you need to think about what you want and tailor that to your own we certainly get dozens and dozens of cans searches that you can use but nevertheless there's a great deal of tailoring that you need to think about to find shares that sit here next one Simon relative timing measures the trend that's probably the easiest of the numbers it again it's mathematically massaged between zero and two above one the darn things going up the further above one the faster it's going up so we've got a few Kevin's here a few conventional analysts it's probably closest to the MACD in its derivation it measures both the trend and the momentum of the trend all rolled into one for those of you new to this MACD was designed by a very good friend of mine called Jerry Appel and it's called moving average converging diverging and there is an axiom of investment education in that the more complicated it sounds the more you can sell it for and Jerry Appel felt that moving average converging-diverging was suitably complicated and as a result he sold 50,000 copies of his book at 48 dollars each in 1978 which is a fair amount of loose change so and then what Bart Toledo did is that he put them together Thank You Simon and I couldn't believe this when I first saw it because what he did was that he put relative value in Revit relative safety which are fundamental measures of the share he put that together with relative timing which is a technical measure of this year and for the first time in my 30-plus years of experience I know I saw a number which in fact looked at both fundamentals and technicals in the 1 number now if you've ever been to an investment meeting you'll know that the technical analysts sit in one corner and the fundamental analyst sit in another corner and they don't speak the fundamental analyst thinks that the technical analyst is reading the tea leaves and the technical analyst thinks that the fundamental analyst is reacting to numbers that by definition are 6 months old they don't speak until the second drink and then they throw a Buse at each other for the rest of the evening ok now here was this guy Park Toledo's got a PhD and Chemical Engineering and he pragmatically said I just want to make some money and he put fundamental analysis and technical analysis together into the master indicator VST and as a default all of the shares on vector s UK are graded by D sending VST and that's where the winners are which I'll try and show you in a few minutes next slide some folks there is risk and reward and there wasn't risk there'd be no reward god help us we would all have to get jobs okay so if there was no risk there'd be no reward so we we calculated a stop loss for every share every evening which is alive in the sand where you need to think that you know this is not going my way at least you need to re-examine why you got into the darn thing in the first place it's quite a clever stop-loss it's based around a 13 week moving average but it's adjusted for two things it's adjusted for the volatility of the share and Technical Analyst would be familiar with a concept called Average True Range okay and it's also adjusted for the fundamentals if the fundamentals are good we widen the stop-loss we give the share plenty of room to move if the fundamentals are drawing in in other words the relative value is coming down towards one the relative safety is coming down towards one we tighten the stop-loss up our objective ladies and gentlemen is to find a share that's undervalued that's aggressively growing its earnings relative value safely relative safety that's going up and largely we want to get the hell out of the way and just let it go up who's read reminisces of a stock operator here it's a cracking read folks and if you haven't read it then Abaddon and you you want to start to trade or get involved in markets I would recommend it it's about a guy called Larry Livingston who in fact was based on the real-life exploits of Jesse Livermore written by a guy called Edwin Lefebvre and it was a chauvinistic age ladies so he left a bear was written in 1930s and he says Livermore says so beautifully in the book he says that those that can be right and set are uncommon what a line those men that can be right and set are uncommon and then in the next chapter he says the following the money's made by the sitting not by the thinking what a line the vector of a stoploss is doing its best folks to put the stop-loss at a place where you won't get easily kicked out by the noise but at the same time protect your capital that's what it's trying to do now every now and then you get spikes and and the market stop losses are hell there's no doubt about that they'll do their best to kick you out for example look at that spike darlin JD Sports did you see that when right down Imperial Tobacco did the same thing and my blog last weekend I wrote what happen period tobacco and JD sports got in common that was the title of my Edition last weekend they both in fact had exactly the same technical fade before they went up so markets do that all the time and stop losses are difficult the vector of a stop loss does its best to allow you to ride winning trades does its best every now and then the market will spike and you'll swear and kick the dog because you get out and it goes up another 25% that's happened everybody here am I correct not just me okay so stop-loss is a really cool stop-loss but stop stop losses can be troublesome so I'm in the next one folks every day we put a buy sell or ahold recommendation to every share in the market now it is a buy recommendation it doesn't mean go out tomorrow and buy the blessed thing we have probably got I think there's 500 buy recommendations in the London stock market so it's a buy recommendation and the reason we calculate it and give it out is that a big part of the vector-based market timing system is all about market breadth and every day we calculate the number of shares that are rising divided by the number of shares that are falling to work out the breadth of the advance so let's summarize a vector vest and it's vanilla state the way I use it I'm looking for shares that are undervalued I'm looking for shares that have got high earnings potential that are growing their earnings aggressively and safely that are going up and I want to buy them into a general market that's going up and a big part of the the vector-based market timing system is the breadth of the market itself and I'm going to talk about the market timing system if I've got a moment in US in a second so Simon next page please okay now I need to go to the product itself I think so Simon I think so now this is where Windows what's its name gives me a hard time because if I go into that now I know that no it stuffs me around terribly so I need to go function do this duplicate the screen I took this to Microsoft to try and tell me how I wouldn't have to do and they told me upgrade to Windows 10 that was their suggestion so I'm not going to go to viewers now the front page of vector-based folks is all about the general market and there's 569 shares in a buy recommendation and there's 280 falling on a sale recommendation that's their folks to measure the breadth of the advance that's what it's for okay the little traffic light at the top in fact measures the primary wave of the market which is the short-term trend of the marketplace I'll talk about the long-term trend of the underlying trend momentarily so the front page of viktor vest is a summary so when you look at that for the first time you can get a little bit gobsmacked of your pardon the expression because there's so much information there but it's it's done like that so that when you get used to that information you can see pretty much everything on the one page and it's all in your smartphone these days there's an app and it's frequently I have sorted at my portfolio before I get out of bed in the morning ah but we quick look at it while I'm still in bed at sixty there's not much else to do okay so the let's go to some shares we'll come to market timing in a second let me look at some shares and there's this is today's date I hope and those are our top shares by V St and that is the default sort now there is no income in this whatsoever at the moment so who likes who needs some income who wants some income anybody okay all right so you would have to write a search in uni search that would stipulate let's say a 3% dividend yield safe dividend yield that's growing at maybe say 8% a year so you would have to add a search and add and tailor those parameters for you at the moment although many of those shares do pay a dividend we haven't asked for a dividend specifically certainly the number second one I've just taken a really fat did anybody get a part of that persimmons dividend or real cracking dividend wasn't it sir yeah Beauty okay and there's many more of those coming for example Berkeley or Berkeley or whatever they're called and pretty much said they're going to pay an 8% yield for the next three years and the cash is already there okay so red rose at the top now red rope is trading at 379 we believe it's worth 636 are you falling asleep in my talk sir you sure okay I'll send you to the back and right lines okay your leg only pull throw obviously people who can take it alright so we believe it's worth 636 the relative values one point six one that means that over the next three years we believe that this share will I perform the risk free rate by sixty one percent now we could have got a wrong by a bit but not that much that looks really cool the relative safety is 1.

33 the relative trend is one point six three and when we square those we just sum of the squares workout VST and one point five three that's the top and it's on a buy recommendation with a stop loss at 3:42 this is just the percentage change yesterday that's the percentage that's what you can get from the newspaper so what victory is those folks is that it takes the fundamentals and we buy those fundamentals from Thomson Reuters we buy them and we buy the technical data from Thomson Reuters the technical data is cheap you can get it anywhere but the fundamental data is expensive and it's taken into the program and every evening the program crunches those up and gives us three numbers the value today the earnings potential relative value of the next three years and the earnings safety it gives us three numbers that we can react to let's go down to the bottom to share that we probably know it's been a great performer over the years just eat shires there the man grip gallop or try Savile's let's go a little bit further this has changed my resolution a little bit on this thing greg's how many people here have had a ghastly sausage roll from Greg's the grease dripping through your fingers as you eat it I'm 60 you got to be careful the chairs flowing up the page they've changed their strategy I'm sure you've all read about it's been a great performer over the years however Greg's it's trading at 10.