Investment Speech -- Atlanta

My Name is Dean Parisian. I am the Chairman of Chippewa Partners. Chippewa Partners is a private investment management firm and the first mutual fund manager in Alpharetta.

We are money managers. We manage investments across the globe for some very wealthy people and, for some individuals who are much less fortunate.

First let me tell you what we don’t do; We are not financial planners, we don’t sell insurance, we don’t do taxes, we don’t draw up trusts. We do not involve our clients in annuities, commodities, futures, currencies, derivatives or foreign stocks. Period.

Now let me tell you what we do. We manage wealth. We manage investments for clients in Alaska to Europe. Now, let me tell you what we are really about. We are about doing the right things the right way for the right reasons.

We work with a certain number of investors like you to establish and maintain specific goals for the growth and preservation of their assets.

It is a pleasure to be here. (I couldn’t sleep last night. I finally got up at 4 am this morning, got dressed and went through this presentation 37 times. You loved it!)

I encourage you to take notes and write down any questions… Chances are good that your question is what’s on the mind of others ….

I was born in 1953. That year the price of a 1st class postage stamp was 3 cents.

In 1982 I began my training on Wall Street with Kidder Peabody. The Dow Jones Average was 680 and the price of a 1st class stamp had increased to 8 cents.

In 1995 I founded Chippewa Partners, to manage serious money for Native American tribes who had found wealth in casino gaming.

I like having fun and I want to conduct a simple exercise to help me get a better feel of where the stock market is headed. I would like to ask each of you to close your eyes, ……. Now, if you think the market is headed higher by the end of the year please raise your hand….great ...now, if you think the market is headed lower, raise your hand….. (It looked like a tie….)

Lets talk about why we need exposure to the stock market and not just keep our money under the mattress, in money-market funds or in US Government bond funds.

Maybe I’m old-fashioned, maybe I’ve been around too long, maybe I’ve made far too much money sitting in stocks over the long term. You see I am one of these guys that believes stocks solve long term problems. You should too. If you are like a lot of investors maybe you have turned off the TV and the financial news as the market has corrected. I know the drivel on CNBC from the buy-this, sell-that crowd drowns out basic, common sense.

To me and probably to you, the hallmarks of a successful retirement are dignity and independence. Today the average American male lives to be 74, the average female lives to be 80. I know the key to financial independence, perhaps over decades of retirement is an income you can’t outlive—an income that’s rising even as your cost of living continues to go up. Remember the price of stamps?

The biggest financial risk to all of us in the 21st Century, besides not losing one’s money, is outliving it, which means owning the stock market is more critical today than ever before. Remember, the CPI over the last 30 years has tripled, who triples their income? Risk is the extinction of their purchasing power. Safety is increasing their purchasing power.

Last week I paid 39 cents for a postage stamp. I will bet you my shoes that the price of stamps is only going one way. Would anyone care to guess which way the price of stamps is going?

Let’s talk about the Stock Market - What is the stock market? the stock market is simply a facility for the exchange of shares. Just like the markets for fish, or grain, oil or butter. It is driven by supply and demand. Investors often forget that stock prices are set “at-the-margin”, that is, by the selling pressure or buying interest at a central location. Share prices are NOT set by any kind of fundamental valuation formula’s or by the talking heads on CNBC….Friends of mine who work on the floor of the New York Stock Exchange understand fear and greed better than most investors but they can’t tell the difference between a preferred stock and livestock. When I last checked greed and fear hadn’t changed for around 10,000 years.

As an economist by training, I understand that contrary to what I was taught, supply and demand in the stock market are in equilibrium only a very small fraction of the time. Price and value are two completely separate things in the stock market. The market is not always efficient but it is always very effective.

Securities markets are fundamental to the capital formation process in a free economy. They enable businesses to raise capital by offering shares of stock to investors. After the IPO’s, companies can invest in plants and in new equipment that produce goods and create jobs which develop a better quality of life in our communities.

Today, capitalism is the organizing principle for most of the human activity on the globe, for no one can stop capitalism.

I want to give you 10 reasons why the stock market is going to continue to go up much like it has during your entire lifetime.
First, the United States has the greatest number of Entrepreneurial Managed companies in the world, bar none.
2. we have the Leading Military in the world.
3. we have the Leading High Technology in the world both in hardware and software.
4. we have the Leading Medical Technology in the world.
5. we have the Leading Political System in the world.
6. We have 25 times more Nobel Prize winners than any other country.
7. We create more Jobs than Japan and Europe together.
8. We have 11,000 companies in the US that trade publicly under some of the better accounting rules anywhere.
9. you as an American have the Freedom to accumulate Wealth and extract out of life what it is you want.

And finally, the stock market Doesn’t Care who you are, what color you are, where you went to school and, because I grew up in the poorest county in America, it doesn’t care where you came from. Tell me, do I look poor?

Things are great and they are going to get better. I feel the 21st century started in 1989 when the Berlin wall came down. Change is certain. I am one of these guys that believe you set your goals in life ahead of time. Mine include being a free person; freedom is what this country is about. if I am doing what I want to be doing I am free.

The opportunities for success are greater now than ever before. For the first time in the history of the world all the people who are poor, know that they are poor. Success has nothing to do with money; it has everything to do with how you feel about yourself. Your net worth is basically your ability to function and I feel blessed that I have a high ability to function.

When I was headed to the U.S. Military Academy at West Point in the fall 1972 postage stamps cost 8 cents and the Dow crossed 1000 for the first time. That year the first microprocessor was invented. Today 85% of the scientists who have ever lived are still working!

The internet is getting a start but remember, the internet is only another channel for communication; it resembles a tool called the telephone. And technology is a tool--- a wonderful tool in terms of saving time, effort and energy, but ultimately just a tool.

In 1976 when I completed my Economics degree the price of a postage stamp was 13 cents

As you can see, consumer prices have roughly tripled since then.

The stock market has gone up thousands of points since then.

Is there anyone here who thinks they don’t need stocks for the long-term?

The stock market is a funny place. It is the only business in the world where when things are on sale, people don’t want to buy. The greatest single enemy of long term investment success is not ignorance, it’s FEAR. You see, fear leads to panic and panic breeds the inability to distinguish between temporary declines and permanent losses. When people panic they don’t discriminate. Investors are more predicable when they’re scared and it makes it easier for those of us who can take advantage of that indiscriminate selling.

Since all declines have been temporary in my lifetime, and all advances have been permanent, we know the key to investment success is not found in intellectual gobble-de-gook like beta’s, standard deviations, quantitative analysis, chaos theory or inefficient markets. Successful investing in the stock market is about time in the market , not timing the market. Put time on your side. The single greatest thing you can have going for you is time because no on can successfully forecast interest rates over the long term and no one can forecast short to intermediate term stock market gyrations. Long term the market always goes up, that is inevitable.

Why do investors lose in the stock market? I don’t want to be critical, a tenant I try to live with is don’t criticize until you have walked a mile in somebody else's moccasins.

Investors lose because they don’t make good trading decisions, they fail because they don’t understand the market, they don’t control their risk, they don’t trade in defined time frames, they don’t understand themselves, they don’t use the right tools to help them, they get advice from brokers whose motivation is to generate sales charges and commissions and they fail, …….. because they sell-out at the bottom of temporary market declines……
Is it any wonder that the average American spends more time planning their vacation than they do planning for their retirement?

Another reason that investors are losing the investing game is because they have bought into what I call the Sponge Bob School of Selecting Mutual Funds. Some journalists and many in the brokerage community tout the mantra of counting the number of stars in ranking mutual funds, thinking, you will enjoy superior investment results with owning so many stars next to the name of your mutual fund.

You see, unaided, most people, invest through the rear-view mirror. They buy mutual funds after they’ve gone up substantially. They buy shares in the hottest fund, in the hottest sector, in the hottest country, the one that has the most stars next to its listing in Money magazine. Then what happens? You know the drill. They turn cold. In fairly short order, a perfectly normal market correction comes along. The cycle comes to an end. Investing like that is like enlisting in the Taliban on September 12th, 2001. You are joining the proudest fighting force in the world on that day. Yes your outfit just pulled off one of the greatest disasters of all time. But you know what? You are toast. Your obituary is written. It’s all downhill. Anyone want to enlist in the Taliban after loading up on the hottest 5 or 10 or 15 star mutual funds?

When you invest like that, the chances of you selling out at the bottom of the cycle, being influenced by negative journalism is pretty high.

I have no wish to drive this message into the ground like a Cruise missile but I want to make one point very clear: Pay attention. At the end of an investors life, less than 5% of his total lifetime return will come from what his investments did versus other similar investments. The other 95% will come from how the investor behaved. Let me explain…
I have a firm belief that there is absolutely no relationship between Investment performance and Investor performance. Stock market success is a function of two things: one, recognition that the markets will go down and sometimes go down a lot and two: preparation to regard those declines as either non-events or buying opportunities, and never as an occasion to sell in a panic.

With all certainty, I know that the most boring and mediocre stock fund in your portfolio, the one that you hold onto during a vicious and severe bear market is infinitely better than that world-class stock fund that you sell out of at the bottom of a temporary decline.

Now, if your portfolio is making you feel like you are sitting outside your first class cabin on the Titanic let’s talk for a moment on what you might do to help yourself as an investor. The first thing would be to shut off CNBC. I hope someday CNBC will be required by law to flash on the TV screen a graphic that says “Nothing that happens in the market in the next 30 days will matter in 10 or 15 years”.

Another thing you might want to do is fire your stockbroker. Wall Street investment firms only care if they can sell stocks, not what happens to investors. They are not paid to make clients money and are not fiduciaries. We can cover more on that that later.

Another thing might be to stop reading the financial press. Yes, I admit that I read 3 papers every morning before the average guy gets out of bed, but journalism always gets it wrong! It has a relentless bias to the negative. I call it financial pornography. Reporters haven’t written much lately about my reasons why the stock market is headed up in our lifetime and it isn’t the job of journalists to make people great investors. It’s their job to make people come back for more journalism.

Another approach in the market would be to copy Warren Buffet. He finds the right situation by locating value in businesses. He trades an economic purpose in the largest timeframe, the timeframe called forever. He spends essentially no time thinking about unemployment numbers or interest rates, the big factors that so many investors think about. He does care about the potential impact that inflation might have on various businesses much like our worry about the cost of postage stamps going up year after year after year. Warren Buffet, on October 19th, 1987 had his personal stock holdings marked down by a staggering $342,000,000. My one question to you is: How much money did Warren Buffet lose on October 19th, 1987 when the market cratered 508 points and an astounding 22%?

Do you know why he didn’t lose any money that day? On that day he didn’t sell. He was a buyer.. It was a bear market. Stocks were on sale. If the stock market falls 25% that does not mean a loss of 25%. If you don’t panic, there is no loss. If you don’t sell, there is no loss. Warren Buffet knows that no one can forecast interest rates and that no one can forecast the short term swings in the stock market. Long term, the market always goes up. Always. Today, half the volume on the NYSE is generated by traders whose long-term horizon is the weekend. The secret to making big money in stocks, is to not get scared out of them. Americans, God bless them, are totally unable to distinguish between fluctuation and loss.

[There are hundreds of thousands of Americans walking around out there, unaware that they own equity mutual funds that went down 40% and more in the 3 months that ended on that October 19, 1987 had also gone up about 40% in the first seven months of that year.]

Another approach for success might be to invest with the corporate insiders, the management teams of these companies. These managers usually have a significant vested interest in the performance of their companies shares. They usually have to justify getting in and out of their shares and we like to know what they are doing. We like to know if they put their money where their mouth is…..where the rubber meets the road…we like to know if they focus on the earnings growth of the company rather the next golf outing on the corporate jet or how much they can spend on perks provided by shareholders. And we like to know if they buy shares with real money or just exercise options that cost them little or nothing.

Another approach would be to look at the institutional ownership of a company and the quality of the institution that owns it. Fidelity is probably the largest client of the top 200 brokerage firms in America, they generate hundreds of millions of dollars in commissions and they manage a lot of money. They own a little bit of everything. There are great companies that are in demand by the largest institutions like Fidelity and you want to be on their side when they are making a move to accumulate more shares that they think have value . And speaking of money, value to me is a funny word. Value and growth are joined at the hip. Value to me doesn’t mean stocks with low price-earnings multiples or a low price to book-value relationship. Value to me is time-related. Value could mean the bond market at a point in time. Value could mean a once high-flying growth stock that has come down in price. Value could be an absurdly overpriced stock that is ripe to short…..Value shows itself in the market during times of great fear and greed and one should take a very aggressive stance in taking advantage of the imbalance.

I don't like to describe my market activity exactly, because what I do is appropriate for me and not necessarily anyone else. So by design, I am slightly vague most of the time. I would rather my comments about individual stocks be used as food for thought than as a road map for action.

If you invest for the long term in individual stocks as many of you should, the most important thing you can have working for you is the management of the company. We look for honesty and leadership and we want a protected defensible niche: let me give you an example: My wife loves to shop at WalMart, to get to WalMart in my Ford I buy gas at Exxon and when I need to fix up the house I go to what I call the “100-dollar store”, The Home Depot. After I take my two sons to lunch at McDonalds I start fixing up the house. In the evening, I take a muscle relaxant made by Merck right before I turn out the lights made by General Electric, powered by Southern Company. You see, the great franchise names in America today should be owned for the long term, not just until the market goes thru a healthy correction like it does every five to 10 years or so, heavens, the longest bear market in history, from 1929 to 1933 only lasted 4 years. …….remember, bear market, big sale…..

Now let me talk about the brokers for a bit…..A few years ago a study was done by a firm out of Chicago. They looked at around 150 families each having at least 100 million dollars in assets. There were some common denominators in the group, the obvious being money can’t buy happiness, the second was that they all thought they should be able to get 8% returns with no risk and for what they were being charged in fees they expected at least 20-25% returns every year……. Now really????

Now what they did do was put a hefty premium on paid investment advice from investment managers. Guys like myself. By comparison, trust officers, bankers and stockbrokers were relied on by no more than 4% of the group or roughly 6 out of 150. If you think you are getting sound advice from a brokerage firm or worse yet, a bank, you better think long and hard. I don’t have the time this month let alone right now to tell you the horror stories. Just never forget, there is significant potential for conflicts-of-interest in commissions. If you ever have a question on what you might be paying a broker, give me ring. I love to show investors the hidden fees. I love to talk about fees.

A few times a year as my schedule permitted I worked for the New York Stock Exchange as an arbitrator. I was a judge for investors who sue brokers and brokerage firms. It is a demanding task. But I must tell you, the longer I was at it, the more fearful I was of Wall Street brokerage firms as well as the legions of attorneys who don’t understand securities laws.

The question that I put to you is: Who is being compensated to look out for your hard-earned money and what is their motivation?

Do you think Michael Jordan logs on to the Internet to get some coaching on his portfolio? That Internet broker never, not once, talked anyone out of a bad decision. No amount of fast Internet access saved the legions of newly impoverished who bought one dot.com stock after another in the last bear market. Investors who confuse a sales pitch that generates a broker’s income with impartial investment advice continually amaze me. Do you think Tiger Woods uses a broker who is paid to sell him something or an investment management firm that is hired to increase his net worth and protect his assets? The answer is they have competent, unbiased investment managers. They hire investment management professionals to manage their assets. You probably should too.

What is a broker? Stock brokers are merely small business people that buy services from the firm with whom they are licensed. Invariably they are more concerned with their income than your outcome. Have you ever looked in an annual report from a brokerage firm and tried to find how much money they made for their customers in dispensing their expensive research? It isn’t in there. I wonder why? No one on the planet knows the folly of brokerage firm research better than a retail broker.

And let me touch briefly on these Wall Street analysts. I know several of them.
Investors who rely on earnings estimates of Wall Street analysts usually get clobbered. Analysts avoid writing anything negative about a company. My own view is that anyone who buys a stock solely on the basis of a research report deserves whatever carnage comes their way. Most research, by the way, is NOT geared for the small retail investor. No one on the planet knows better the folly of analysts research than a retail stockbroker. The reason they pay analysts so much money is that they continually embarrass themselves.

Investors should pay heed. 1.Analysts who work for major wall-street firms are forced to spend increasing amounts of time marketing. Their time demands are critical factors in leading to error. 2.Analysts are now reporters. Their earnings estimates are based more on their latest conference calls with corporate chieftains than on analysis. They “fudge” the numbers to agree with the latest guidance from the management team. 3.Most analysts understand macro factors, but they can always find reasons why the company they are recommending will withstand the negatives of the industry. Like I said earlier, it is difficult to swim upstream. 4.When there is a shock to the financial system such as the crisis in the fall of 2001 it takes a while for all the implications to be factored in. The “herd” mentality envelopes the analysts and they then rely too much on the latest conference call “guidance”. Indeed a vicious circle because the whole game had evolved into nothing more than a big conference call with the implementation of Regulation FD.

I have always felt it is important for an investor to have a disciplined investment approach and to understand the level of risk that he or she is willing to take. But what is risk ? What is risk management ? Is it to prevent loss? If that is your objective then put your money in US Treasury bills and stay away from the bank and stay away from stocks. Warren Buffet says that if you aren’t willing to see your long term stocks go down by 50%, you shouldn’t own stocks at all. The objective assessment of risk is a money managers foremost consideration.
My definition of risk is simple. I like to define my risk ahead of time. I define risk as the amount of money I am willing to lose on a trade before I exit the trade. To do that I had better understand in what time frame I am trading in..

Am I trading in a Short time-frame of days to weeks?---am I risking my capital in an Intermediate time frame of weeks to months or,,,, in the Long-term time frame which I like to call FOREVER. Another idea that should be considered is having your money managed on an absolute basis versus a relative basis and we can discuss that later.…….

For most Americans investing in mutual funds is their exposure to the stock market.
There are two easy ways of investing in Mutual Funds. You can do it thru ACTIVE investing, that is owning mutual funds that promote the active buying and selling of stocks or PASSIVE investing; the ownership of index mutual funds.
Why do index funds make sense for virtually all investors?
One, low portfolio turnover resulting from a commitment to long-term investment in asset classes 2) the relative certainty of achieving the expected return of an asset class invested by an index fund 3) minimal costs and taxes that maximize performance 4) broad diversification that impacts investment risk and 5) full investment in the respective market at all times due to the absence of cash reserves and any market timing activity.

With very low costs involved in the ownership of index funds, they prevent the long-term tyranny of costs compounding against investors.

With Index Funds the investor is saying to himself: “I don’t want to try my hand at being smarter, or faster or better in selecting individual securities. I am going to leave that out.” The whole point of indexing is that you are investing via a process and not a manager who is buying this and selling that. A key attraction of simply buying the index is the assurance, in every single time frame, of avoiding below-market returns.

By leaving out the most time demanding, attention gathering and expensive part of the business. It is simple, buy an index fund. You are free to de-index, to go neutral and stay neutral at a very low cost. Wall Street does NOT want you to be buying index funds.
I wonder why?

The evidence on mutual fund managers success with market timing is impressive--- and overwhelmingly negative.

A few years a fancy, academic study concluded that asset allocation is the most important determinant in investment returns. Stockbrokers love to tout that this means that the way in which an investor allocates his money among different asset classes will determine over 90% of his overall return. What they want you to believe after they rearrange your portfolio with the highest “yield to broker” investments that you will be okay. What that study really said, listen to me, is that stocks, long term, produce higher returns than bonds and it says nothing about investor behavior.

Lets not kid ourselves. The bottom line is this, and if you don’t believe it you have the right to be wrong….. but don’t forget it……the higher your equity exposure as a percentage of your assets, the better your overall return, over the long term. Listen carefully, assets having the least short term volatility embody the greatest long term risk. Conversely, those asset classes that have the greatest volatility near term supply you with superior returns.

As an investor you have the ability to control major investment variables

You can control Risk ----- by having predetermined exit points.
You can control Reward---- by how much money you choose to invest
You can control Diversification parameters by your asset allocation
You can control Costs by who you hire and prevent costs compounding against you.
The one variable you can not control is Time…. the amount of time you have available to invest your assets.
And time in the market creates the 8th wonder of the world……the power of compounding …. Time is the key element in the power of compounding stock returns.

Trading stocks is a very difficult endeavor. Professionals have a rough time of it. The largest hedge funds in the world went out of business in 2001. There are no market timers or day traders on the Forbes 400 list. Yet trading by individuals and professionals is reaching epidemic proportions. The average mutual fund has portfolio turnover of about 90%. The average holding period of the QQQ’s is about 4 days. If you are going to leave here and go it alone let me offer you some points to protect your capital when the going gets rough. And it won’t be a question of “if”, it will only be a question of “when” because the public never understands until it is too late.

First, you have got to plan. Have written goals. Treat your trading P/L as a business.
Take small losses. No one wins 100% of the time Protect your capital, play great defense.
Integrate chart analysis. Charts show 2 things….price and volume…charts are facts, not opinions. They show fear and greed, supply and demand. Learn to understand chart action.
Stay with the trend. Make sure the stock is right, the sector is right and the market is right…..it is hard to swim upstream when 7 out of 8 stocks move with the general trend of the market.
Understand proper position-sizing techniques. If you don’t know what they are you better get some help….. and quick…….
Never average down in stock trades. Always average down in mutual funds in bear markets….when things are on sale…….when the stock market averages come down 30-40-50% off their highs you have got to be a buyer.
Control your risk. Have predetermined exit points.
Stay off margin. Leverage cuts both ways. It is intoxicating on the way up but it can take you out on the way down. The markets are organized around nature and physics. Stocks fall 3 times faster than they go up. Things are destroyed quicker than they are created.

I tell clients that, in the long run, no mutual fund manager controls their investment fate. They control it. Bailing out of markets is like quitting a marathon because you get tired. Stocks solve long term problems over the long term. Patience, discipline and faith in the future are virtues that with a good investment manager by your side, will determine 90% of your lifetime returns.

Before we begin taking some questions I want to make a commitment to each and every one of you if you decide to hire Chippewa Partners. I can promise you that, throughout all the years we work together, you will never find another investment advisor who will care more about you and your family, or who’ll be more deeply committed to the realization of your financial goals.
I promise to invest your capital as carefully as I do my own, because I know that your hopes for your future are every bit as sacred to you as mine are to me.
I commit to tell you the plain, unvarnished truth all the time, especially when you may not want to hear it. I will never, ever, tell you I can do something I can’t do. Nor will I tell you I’ll do something and then not do it.

You will surely encounter financial advisors “smarter” than I am. You’ll run across advisors who are cheaper than I am. But you will never in your life find an advisor you can trust more implicitly than you can trust me. I insist my clients plan and stick to their goals. Their goals, not mine. Beyond that, I encourage them to hope, because I know that long-term optimism is the only realism.

Clients understand that the serious money we manage for them is serious business. It deserves our serious attention. We view money management as a profession that takes tremendous effort and expertise to achieve excellence. Our partners recognize that what distinguishes us from others is that our assignment to manage investments is just not about portfolio growth but about financial goals, retirements, hopes, dreams and to improve the quality of our clients lives.

Understand clearly you are being asked to entrust your financial future to Chippewa Partners.

Not to a generic financial plan spit out from some computer and not to the latest investment fad de jour…..… to me.

And I, for my part, am offering to accept that responsibility.