Broken Pie Chart

Derek Moore and Jay Pestrichelli are back with part 2 of their discussion around the myths prevalent in the 60/40 portfolio. This week they highlight how bonds with low yields may have even more potential interest rate risk than investors think. Plus, they elaborate on why some diversification strategies fail touching on increased risk of the All-Weather Portfolios and Risk Parity Strategies. Finally, they expand on the "Hedgers Opportunity" where a good hedged equity strategy may allow investors to miss much of a selloff and have a chance at buying more shares when prices are depressed. • How is sensitivity to interest rates determined for bonds? • How is Modified Duration or Macaulay Duration altered by time to a bonds maturity and coupon percentage rates? • What would happen to bonds prices should interest rates rise? • How interest rates rising would affect the real return for bond investors • What is the All-Weather Portfolio concept? • What are the assets in an All-Weather Portfolio? • Why the All-Weather Portfolio concept may have more risk than before? • Why using historical back testing for All Weather Portfolio Strategies may not pick up future expected returns and risks • What is the Risk Parity Strategy? • How a Risk Parity Strategy leveraging up the fixed income or bond component may have more risk than people think • How changing correlations between equities and bonds could break the Risk Parity Strategy • What is the Hedgers Opportunity and how a good hedged equity strategy can allow potential investments and lower prices? • How alternative strategies like Hedged Equity have more defined outcomes including downside floors than normal diversification. • Discussion of real versus nominal returns Mentioned in this Episode: Part I Podcast Myths of the 60/40 Portfolio with Jay Pestrichelli and Derek Moore http://brokenpiechart.libsyn.com/discussing-myths-around-the-classic-6040-portfolio-part-i Contact Derek Moore www.razorwealth.com The Hedgers Opportunity by Jay Pestrichelli https://www.investmentnews.com/article/20190401/BLOG09/190409991/the-hedgers-opportunity Historical Gold Prices https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM#0 How do Treasury Inflation Protected Securities TIPS work? https://www.thebalance.com/how-do-tips-work-417128

You've probably heard about the so called "Unicorn" IPOs or Initial Public Offerings on CNBC. With Lyft already public and Uber, Pinterest, Air B&B, and more on the way, everyone will finally get a glimpse of the financials for all these names. Do they make money? How much or if they lose money, how big is the loss? For those looking forward to finally getting a look inside these companies it can be like Christmas morning. We'll review what information is disclosed and then compare Amazon and Pets.com S-1 information from back in the late nineties. • What is an S-1 filing by a company slated to do an IPO • What type of information can be gleamed from a firms S-1 • Reviewing Risk Factors, Use of Proceeds, Revenue, Earnings, and Balance Sheet date. • Using Lyft's S-1 to review various financial metrics • Remember the sock puppet Pets.com from the Dot.com era? A look back at their interesting risk factors from S-1 • What were some risk factors from Amazon's initial public offering S-1 document? • When will Uber's financials via their own S-1 be available? Mentioned in this Episode: Uber's S-1 Financials https://www.sec.gov/Archives/edgar/data/1543151/000119312519103850/d647752ds1.htm Lyft S-1 Document https://www.sec.gov/Archives/edgar/data/1759509/000119312519059849/d633517ds1.htm#toc633517_7 Pets.com S-1 IPO document https://www.nasdaq.com/markets/ipos/filing.ashx?filingid=1440847 Amazon S-1 IPO document https://www.nasdaq.com/markets/ipos/filing.ashx?filingid=1249014

For years you've been told that to get better risk adjusted returns you should diversify with some percentage in stocks and some in bonds. Yet when you look at the inflation adjusted annualized returns, is the idea of a 60/40 portfolio to manage downside risk more of a myth? In this interesting conversation Derek Moore and Jay Pestrichelli discuss why bonds may not offer much of a real return given where rates are. Plus, they delve into whether a 60/40 portfolio offers better risk adjusted returns using classic measures like a Sharpe Ratio. Also, is gold still a modern hedge in portfolios? Stay tuned for Part II coming soon. • Exploring historical real returns on a classic 60/40 stock and bond portfolio. • How real returns after inflation are determined and whether historical bond returns offer much growth • Has gold been an effective hedge of downside moves and inflation given its periods of negative real returns? • Historical risk adjusted returns measured by Sharpe Ratios • If a portfolio of stocks and bonds is so good, why does it have theoretically subpar Sharpe Ratios? • What are TIPS (Treasury Inflation Protected Securities) and how do they hedge inflation? • Real versus Nominal returns for stocks and bonds • Why investors need to not only keep up with inflation but exceed it to grow purchasing power • How using options to define downside risk may be a more optimal hedge • Introduction to the concept of Buying and Hedging a market with a defined downside floor. Mentioned in this Episode: Contact Derek Moore www.razorwealth.com The Hedgers Opportunity by Jay Pestrichelli https://www.investmentnews.com/article/20190401/BLOG09/190409991/the-hedgers-opportunity Historical Gold Prices https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM#0 How do Treasury Inflation Protected Securities TIPS work? https://www.thebalance.com/how-do-tips-work-417128

The yield curve has inverted. Well it did at certain points last December already. Now that the 3-month Treasury Bill yield went above 10-year yields, historically what does that mean? Has the yield curve inversion predicted every recession and if so how long in advance? Plus, calculated annualized returns doesn't need to be that complicated right? Learn the differences in annualizing using simple averages versus geometric compounded averages. Finally, how do you calculate a real inflation adjusted return? • Yield Curve Inversion: 3-month Treasuries yields higher than 10-year yields? • How long historically has yield curve inverted prior to recessions? • Difference between Fed Funds rate, Discount Rate, and IOER or Interest on Excess Reserves • What are real returns versus nominal returns • Why is it potentially bad for short term bond rates to be above long-term rates? • Why do people think yield curve inversions are bad? • How to calculate simple average of annual investment returns • How to calculate real inflation adjusted investment returns? • Geometric annualized returns calculation and use Mentioned in this Episode: Federal Reserve Bank of Cleveland Yield Curve article https://www.clevelandfed.org/our-research/indicators-and-data/yield-curve-and-gdp-growth.aspx Podcast Explaining What Yield Curve Inversion Means https://www.iheart.com/podcast/269-broken-pie-chart-29878781/episode/what-is-the-yield-curve-inversion-29880275/

You'll often hear things like "The US Dollar is losing purchasing power". But what exactly does it mean when the dollar loses value? In this episode Derek Moore will explain how to calculate dollar purchasing power over time and how to adjust for inflation the costs of good and services. Plus, why inflation is so hurtful to investors. • How does inflation affect retirement investors? • How do you inflation adjust something? • Why a dollar in 1800 is only worth a little less than 7 cents today • What are real returns versus nominal returns • What was hyperinflation in Zimbabwe and Weimar Germany? • Average annual inflation over several time periods. • What is the CPI or Consumer Price Index basket of goods indicator? • Formula to inflation adjust current year dollars to a previous year • How to explain the loss of purchasing power in the dollar • Inflation adjusted costs of goods and services 1976 to 2016 • Inflation adjusted cost of New York Yankees box seats in 1976 Mentioned in this Episode: Federal Reserve Bank of Minneapolis estimated inflation from 1800 to 2018 https://www.minneapolisfed.org/community/financial-and-economic-education/cpi-calculator-information/consumer-price-index-1800 CNBC article comparing various costs from 1976 to today with purchasing power https://www.cnbc.com/2018/04/17/how-much-more-expensive-life-is-today-than-it-was-in-1960.html Federal Reserve Bank of Minneapolis inflation calculator (bottom right of page) https://www.minneapolisfed.org/

Have you ever watched CNBC or Bloomberg and wondered what commentators are talking about with earnings and valuations on individual stocks? Derek Moore explains common financial metrics and ratios to help listeners become informed and how to interpret things like PE Ratios, Earnings, EBITDA, and more. Plus, hear what back testing is and pros and cons of it. Key Takeaways: • What is the difference between top line and bottom line in an earnings report? • How to calculate what a company's market cap is? • What makes up the PE Ratio and how to calculate it? • Where to look to see how much debt a company has and its net interest rate on debt? • Dividend Discount Model versus Free Cash Flow Valuation • What is free cash flow of a stock? • Dividend payout ratios versus retention or plowback ratios on reinvested growth • What is EBITDA and what is amortization and depreciation? • What is backtesting investment strategies? • Pros and cons of backtesting Mentioned in this Episode: See stock earnings financials and ratios www.marketwatch.com Podcast comparing hedging portfolios to efficient frontier portfolios https://www.stitcher.com/podcast/broken-pie-chart/e/58410386

In this episode Derek Moore explains the one benefit most investors overlook as a very important benefit of using a hedged equity strategy. The benefit of reinvesting avoided losses or hedging profits to pick up more shares while markets are lower. Key Takeaways: • If you lose this much, how much is needed to get back to breakeven level? • Benefits of using a hedged equity strategy • How hedged equity can take out some guesswork on timing the market. • Explaining how monetizing hedging profits or avoided losses can buy more shares at market lows. • Expected returns depending on annual market return. • How avoided losses or hedging profits can bee reinvested at lower levels • What are the historical occurrences of market returns between certain ranges? • How reinvesting hedging profits potentially allows for more upside capture in market rebounds. Mentioned in this Episode: Jeremy Seigel "Stocks for the Long Run" book https://amzn.to/2GVctSC Robert Shiller "Irrational Exuberance" https://amzn.to/2BNQGJf Broken Pie Chart Book by Derek Moore https://amzn.to/2COXRAS Podcast on hedging for protection https://razorwealth.com/why-investors-need-a-protective-hedged-equity-strategy/

In this episode Derek Moore discusses situations where investors might own a concentrated position in one stock or more with low cost basis. These present difficulties as selling would incur tax consequences however owning non-diversified positions pose significant single stock downside risk. Key Takeaways: • What is a concentrated stock position? • What are the risks of single stock holdings versus diversified portfolios? • Tax consequences of trying to diversify low cost basis positions. • Explaining options to hedge the downside and build protection on individual positions. • Ways to hedge portfolios using beta weighting to design downside protection. • How avoided losses or hedging profits can bee reinvested at lower levels • How hedging profits can enable investors to diversify into other strategies. Mentioned in this Episode: Broken Pie Chart Book by Derek Moore https://amzn.to/2COXRAS Podcast on How Diversification Can Fail When You Need It Most https://razorwealth.com/does-diversification-alone-reduce-systematic-stock-market-risk/ Podcast on hedging for protection https://razorwealth.com/why-investors-need-a-protective-hedged-equity-strategy/

In this episode Derek Moore discusses what Modern Portfolio Theory (MPT) and Efficient Frontier Investing means and how traditional investment risk rely heavily on standard deviation and variance to determine where a portfolio fits into a risk metric. Plus, Derek comments on how positive upside returns can actually increase traditionally used investment ratios like Sharpe. Key Takeaways: • What is Modern Portfolio Theory • What is an Efficient Frontier Portfolio? • How is investment portfolio standard deviation calculated? • Easy ways to understand standard deviation using simple three-day temperature example • Explain what a risk adjusted return means in relationship to portfolio returns and volatility • Problems with traditional portfolio design especially given low bond yields • Why being long markets while being hedged may be more optimal for investors near retirement? • How Sharpe Ratio may get worse after strong upside market move. • Alternatives such as post-modern portfolio theory only considering downside deviation. Mentioned in this Episode: Broken Pie Chart Book by Derek Moore https://amzn.to/2COXRAS Target Date Funds https://razorwealth.com/podcast-target-date-investment-funds-good-bad-or-just-misunderstood/ Modern Portfolio Theory (MPT) + Efficient Frontier https://www.investopedia.com/terms/e/efficientfrontier.asp

In this episode Derek Moore discusses the various ways the Federal Reserve through its FOMC committee utilizes interest rates, buying or selling bonds, and the banks reserve ratios to increase or decrease the money supply. Plus, when pundits on CNBC, Blooomberg, or Fox Business talk about probabilities of future rate decisions, how do they come up with those and where to find them. Key Takeaways: • What are Fed Funds Futures? • How are Fed Funds Futures utilized to determine probabilities of future months interest rate decisions? • What is the difference between the Fed Funds Rate, Discount Rate, and IOER or Interest on Excess Reserves? • What is the Federal Reserve's Dot Plot and where to find this so-called Dot Plot? • Where to find current probabilities of the Fed raising or lowering interest rates by month • Why are interest rates important to the economy and stock prices? • Who makes up the FOMC or Federal Open Market Committee • How often are FOMC meetings held? • What is Interest on Excess Reserves (IOER) Mentioned in this Episode: CME Fed Funds Watcher Probability Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html FOMC Dot Plot Graph https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html Tracking Changes to Federal Reserve Fed Funds Probabilities https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html Effective Fed Funds Rate % Chart From Federal Reserve Bank of St. Louis or FRED https://fred.stlouisfed.org/series/DFF#0 FOMC Meeting Calendar https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

In this episode Derek Moore is joined by Jay Pestrichelli, Founder of ZEGA Financial and author of Buy and Hedge: The 5 Iron Rules For Investing Over the Long Term, to discuss how if a bear market materializes clients using a hedged equity strategy have already planed for it and have defined downside floors in portfolios. While not predicting themselves what markets will do, Jay and Derek discuss the features and benefits of limiting downside, participating in the majority of the upside, while having the ability to reinvest at much lower levels should the market selloff materialize. Key Takeaways: • How investors using a hedged equity strategy are prepared for a bear market should it materialize • What is a hedged equity downside limiting strategy? • What is the difference between an investment strategy that has a downside buffer versus a downside floor? • How the risk profile is swapping equity risk and volatility for fixed income (bond) risk • Why people with hedged equity strategies might want the market to continue down • How a good hedged equity strategy avoids losses and has ability to reinvest those avoided losses in more shares • How hedged equity strategies give investors piece of mind and sometimes called the "sleep at night portfolio" • The difference between holding short duration bonds to maturity versus longer maturity dated vehicles • Hedging not only the equity portion but hedging the hedges when it comes to high yield • Comments around recessions and how sometimes the crowd is wrong when everyone says there is going to be a recession • How using hedged equity strategies like "Buy and Hedge" can reduce fear about investing at the wrong time in markets. • How the fixed income portion of the portfolio has been performing in 2018 Mentioned in this Episode: Article by Jay Pestrichelli "This selloff is what you prepared for" http://zegafinancial.com/2018/12/18/this-sell-off-is-what-you-prepared-for/ Article by Derek Moore "Buy and Hedge Fixed Income Update" http://zegafinancial.com/2018/12/14/buy-and-hedge-retirement-fixed-income-update/ Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk

Welcome to the Broken Pie Chart Podcast Episode 15. In this episode Derek Moore discusses the often-misunderstood target date funds prevalent in many workers 401k accounts and whether they are a good or bad idea especially given their drawdowns during the 2008 financial crisis. Key Takeaways: • What are target date funds? • How did target date funds do during the 2008 market? • What was performance so different between some target date funds during financial crisis? • What is the purpose of target date funds in retirement accounts? • How target date funds are really just age-based asset allocations adjusted as a person ages. • What are the drawbacks of target dated funds? • Why are target date funds so misunderstood? • How do target date funds compare with college saving accounts and 529 plans? • How target date funds do not take into account outside assets when making allocations • Understand why target date funds may not allow for more personalized advice • Did Congress really hold hearings about target date funds post the Great Recession? • What is the target date glide path and asset allocation adjustment schedule? • Target Date funds do not have embedded downside protection • What are alternatives to target date funds? • What was the target date surprise? Mentioned in this Episode: Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk Report From Committee on Aging Congressional on Target Date Funds https://www.govinfo.gov/content/pkg/CPRT-111SPRT53067/html/CPRT-111SPRT53067.htm

In this episode Derek Moore discusses the concept of Risk-Adjusted Returns, Standard Deviation of Returns, Sortino Ratio, Risk Free Interest Rates. Plus, how to compare two investment returns against one another on a risk adjusted basis and why many investors might be using the wrong investor benchmarks against their portfolios. Key Takeaways: • What are risk adjusted investment returns? • What is the standard deviation of investment returns? • What is the Risk-Free Interest or Discount Rate? • Why do people use Treasury Bills or Treasury Bonds as the Risk-Free Rate? • What is the Sharpe Ratio? • How is the Sharpe Ratio calculated? • How is the Sharpe Ratio different than the Sortino Ratio? • How larger than expected upside investment returns can actually raise the standard deviation of portfolios • The pitfalls of using past historical returns to try and evaluate expected returns • Why do many investors always use the S&P 500 Index as the benchmark? • What would be a more appropriate way to choose investment benchmark indexes for comparison? Mentioned in this Episode: Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk Sortino Ratio https://www.investopedia.com/terms/s/sortinoratio.asp Sharpe Ratio https://www.investopedia.com/terms/s/sharperatio.asp

Welcome to the Broken Pie Chart Podcast Episode 13. In this episode Derek Moore is joined by ZEGA Financial Founder Jay Pestrichelli to discuss volatility as an asset class, implied volatility, the VIX Index and more. Key Takeaways: • What is the VIX Index? • Volatility Indexes for the Nasdaq 100 VXN and the Russell 2000 Index RVX • How is the VIX Volatility Index constructed? • What is implied volatility vs historical volatility? • How implied volatility looks to predict perceived potential trading ranges for underlying assets • Options premium pricing around earnings and other events • Probability based credit spread selling strategies • How probability calculations illustrate options market perception of 1 standard deviation and 2 standard deviation moves • Benefits of adding alternative income strategies such as short volatility to potentially provide income compared to bonds • How selling deep out of the money credit spreads can potentially generate returns in up, down, or flat markets • Differences in ZEGA's High Probability Options Strategy compared with the ETFs and funds shorting volatility using VIX Futures and options • Thoughts around the "Volpocalypse" or "Volnado" when funds shorting volatility ran into trouble • How risk management in selling volatility is key and picking spots to tactically enter markets increases probabilities Mentioned in this Episode: Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk Buy and Hedge Book by Jay Pestrichelli and Wayne Ferbert https://amzn.to/2TaBmO5

Welcome to the Broken Pie Chart Podcast Episode 12. In this episode Derek Moore discusses why diversification alone may not reduce systematic material stock market risk using the backdrop of the 2008 Financial Crisis. Plus, potential solutions using real hedging in portfolios. Key Takeaways: • What are the two main types of stock market investment risk? • What is single stock or concentrated stock risk? • What is systematic market risk? • What is diversifiable stock risk? • Why spreading investments between sectors or regions may not reduce risk in a material correction • Comparing investment returns during the 2007 to 2009 peak to trough in areas of the market • What typical advice from "experts" you tend to hear during market selloffs • How dividend paying stocks only provide so much protection against market selloffs • Strategies that have embedded hedges, floors, or buffers to reduce stock market risk • How bonds low interest rates may make them less appealing as a stock market hedge • Alternative investment strategies to manage systematic risk in markets Mentioned in this Episode: Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk Mark Cuban says "Diversification is for idiots" https://www.youtube.com/watch?v=u5Pp1HEKSPM Episode Talking About Buy and Hedge Strategies https://player.fm/series/broken-pie-chart/why-investors-need-a-protective-hedged-equity-strategy

Welcome to the Broken Pie Chart Podcast Episode 11. In this episode Derek Moore discusses how changes in interest rates affect not only obvious things like car loans and home loans but also potential stock market and stock valuations. How does a higher discount or interest rate change the present value of earnings? Key Takeaways: • How Do Higher Interest Rates Potentially Affect Stock Valuations? • What is the Discount Rate? • How Do Interest Rates Affect the Value of Future Earnings or Cash Flows from Companies? • How Do Interest Rates Affect the Present Value of Payments? • Why Net Present Value Changes Depending on Higher Discount or Interest Rates • Comparing the Value of Future Earnings Across Various Interest Rates • Difference in Home and Car Loan Payments Depending on Interest Rates • Fundamental Analysis and Interest Rates • What is Free Cash Flow? • How the Fed Keeping Rates Low Encouraged Investments That Otherwise Wouldn't Qualify • Interest Rates Rising Effect on Bonds Mentioned in this Episode: Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk Buffett Indicator https://razorwealth.com/the-buffett-indicator-explained/

Welcome to the Broken Pie Chart Podcast Episode 10. In this episode Derek Moore discusses some economic indicators that matter to investors. Many people hear the terms GDP, Inflation, Unemployment, and the Fed Funds Rate but aren't exactly sure what they really mean. We look to deconstruct these popular indicators and show how they are important to investors. Key Takeaways: • What is Inflation and the Consumer Price Index or CPI? • What is GDP (Gross Domestic Product)? • What is the difference between real and nominal returns and indexes? • How is unemployment in the US constructed? • Who gets included and excluded from unemployment numbers? • Does people working two jobs impact the unemployment figures? • Hedonic adjustments to CPI • How CPI uses substitutes to put in and take out items from the basket • How the economic indicators can help determine future Fed Funds changes • Nominal versus Real GDP • Employment indicators like Quit Rate and Labor Force Participation • Measuring Wage Growth in the economy • How Social Security cost of living adjustment or COLA is calculated? • When is GDP number released? Mentioned in this Episode: Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk Real GDP Growth Rate https://fred.stlouisfed.org/series/A191RL1Q225SBEA Unemployment Rate https://tradingeconomics.com/united-states/unemployment-rate US Atlanta Fed Wage Growth Tracker https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx?panel=1 Atlanta Fed GDP Now Forecast https://www.frbatlanta.org/cqer/research/gdpnow.aspx CPI All Urban Consumers https://fred.stlouisfed.org/series/CPIAUCSL Inflation Rate https://tradingeconomics.com/united-states/inflation-cpi Shadow Stats Alternative Inflation Charts http://www.shadowstats.com/alternate_data/inflation-charts

Welcome to the Broken Pie Chart Podcast Episode 9. In this episode Derek Moore discusses the relationship between bonds and interest rates. Plus, what everyone gets wrong when pointing to bond returns during the late seventies when interest rates were rising and how returns weren't that bad. While we can't predict where interest rates will go, we certainly can learn a lot about what drives bond market values regarding interest rates and how a spike in rates now would be different from the nineteen seventies version Key Takeaways: • What is the inverse relationship between interest rates and bonds • Explaining bond par value, coupon interest payments, payment frequency • How much bond market values are impacted by changes up or down in interest rates • Understanding how Macaulay Duration and Modified Duration can show how sensitive bonds are to changes in rates • Examining article from New York Times February 1982 when 30 Year Treasury Bonds yielded nearly 15% • What the media is missing when saying bonds returns during 1970 to 1982 period weren't that bad? • How higher coupon interest payments and lower modified duration buffered against larger losses in the seventies • Nominal returns versus real returns when accounting for inflation • How in the long run total returns from bonds are driven mostly by the coupon interest payments? • Discussing present value of future interest payments regarding bond principle repayment risk. • US Aggregate Bond Index AGG movement thus far in 2018 Mentioned in this Episode: Global Bond Yields http://www.wsj.com/mdc/public/page/2_3022-govtbonds.html 1982 New York Times Article Archive All Time High In Bond Yields https://www.nytimes.com/1982/02/05/business/record-set-on-30-year-us-bonds.html Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk US Aggregate Bond Index Returns vs S&P 500 Index Returns 1980-2017 https://www.thebalance.com/stocks-and-bonds-calendar-year-performance-1980-2013-417028 Current US Treasury Bond Yields as well as Modified Duration http://www.wsj.com/mdc/public/page/2_3022-bondmkt.html

Welcome to the Broken Pie Chart Podcast Episode 8. In this episode Derek Moore reviews the so-called Buffett Indicator as well as the Shiller PE Ratio. With markets once again at all-time highs we are seeing some various articles and commentary on how to tell what market valuations might be considered too high or low. Key Takeaways: • What is the Warren Buffett Indicator? • How is the Buffett Indicator calculated? • Where to find the Nominal GDP and market cap to use to calculate the Buffet Indicator • How do interest rates affect stock market valuations? • Present value versus future value of future earnings estimates • What is the Shiller PE Ratio? • How is the Shiller PE Ratio Calculated? • Rolling average of S&P 500 Index earnings vs current PE Ratio • Possible solutions to protecting downside market moves • How valuation indicators may or may not predict future market moves Mentioned in this Episode: Razor Wealth article explaining Buffett Indicator https://razorwealth.com/the-buffett-indicator-explained/ Fortune Article http://archive.fortune.com/magazines/fortune/fortune_archive/1999/11/22/269071/index.htm Nominal GDP https://fred.stlouisfed.org/series/GDP Wilshire 5000 Full Cap Price Index https://fred.stlouisfed.org/series/WILL5000PRFC Nonfinancial corporate business; debt securities; liability, Level (NCBDBIQ027S) https://fred.stlouisfed.org/series/NCBDBIQ027S Shiller PE Ratio http://www.multpl.com/shiller-pe/ Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk

Welcome to the Broken Pie Chart Podcast Episode 7. In this episode Derek Moore is joined by Alpha DNA Founder Wayne Ferbert to discuss how they are using big data, machine learning, digital internet analytics, and proprietary algorithms to detect changes in consumer demand which can lead to pinpointing earnings surprises in a universe of 3000 companies across various market caps. These changes in trends seen by analyzing the digital internet footprint looks to determine whether companies' quarterly earnings announcements will surprise the street and by how much. Wayne also discusses turning these high-level analytics into investment strategies including a long/short version and a best picks strategy. Key Takeaways: • The early ways institutions tried to generate alpha including overhead parking lot photos at Walmart and satellite photos of oil tankers • How analyzing internet data can identify changes in trends and potential earnings surprises • The complexity of turning raw "big data" into something usable • How the Internet Advantage Strategy (IAS) Long/Short looks to own the best companies and short the worst ones to minimize systematic market risk • The goal of delivering alpha through Alpha DNA's Best Picks Strategy • How analyzing the hidden demand trends can help to find edges in earnings forecasting • Discussing the Harvard Business Review article around measuring digital strength of a company versus its market cap • Opportunities for companies to increase their digital footprint • How President Trump's comments about going to a twice a year earnings release versus quarterly might affect company forecasts. • What effect if any the recent Facebook data controversy might have in the ability to continue to utilize internet data in their strategies Mentioned in this Episode: Harvard Business Review Article https://hbr.org/2017/09/are-you-accurately-measuring-your-companys-digital-strength Alpha DNA www.alphadnaim.com Buy and Hedge Book by Wayne Ferbert and Jay Pestrichelli https://amzn.to/2xcfeZv Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk

Welcome to the Broken Pie Chart Podcast Episode 6 Adding Downside Buffers to Investment Portfolios Using Options. In this episode Derek Moore is again joined by Jay Pestrichelli, founder of ZEGA Financial and co-author of the book Buy and Hedge to discuss using options to create positions which control but don't own shares of stock market indexes. These positions have the goal of providing upside greater than the market while installing a downside buffer down to a certain level in case markets sell off. Also discussed is the idea of using fixed income as a funding source via dividends to pay for long stock ownership. This switches the risk from an un-buffered long stock profile to more of a short duration high yield fixed income risk profile. Key Takeaways: • What are long stock portfolios with embedded downside buffers? • How are options utilized to reduce risk by building a synthetic long stock position? • Targets of utilizing a Buffered Index Growth strategy include greater upside participation. • Targets also include not participating in the first roughly 25% down moves in markets thus providing a buffer. • Understanding frequency and size of downside market moves. • Why everyone doesn't adopt a Buffered Indexed Growth strategy • How a portfolio has the goal of shifting from a stock risk profile to a fixed income risk profile. • How short duration fixed income (bonds) can perform in various market conditions • Why losing less in a stock portfolio leads to potentially growing more over time • Those within 10 to 15 years of retirement may need more growth but can't take more un buffered, un hedged equity risk • Bonds usefulness at low interest rates in portfolios may not be as helpful as they once were Mentioned in this Episode: Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk Buy and Hedge Book by Jay Pestrichelli and Wayne Ferbert https://amzn.to/2xcfeZv

Welcome to the Broken Pie Chart Podcast Episode 5 Do Presidential, Senate, and House Party Affiliations Really Impact Stock Market Returns? In this episode host Derek Moore takes listeners through historical S&P 500 Index Total Returns back to 1923 matched up with the President, whether they were republican or democratic, as well as the party affiliation of the senate and house. Many might be surprised at the results when Derek explains the annual average stock market returns by various combinations of control. Plus, see how Presidents back 96 years average annual stock market returns have faired against one another. Including Presidents Coolidge, Hoover, FDR, Truman, Eisenhower, Kennedy, LBJ, Nixon, Ford, Carter, Reagan, G.H. Bush, Clinton, G.W. Bush, Obama, and Trump. Plus, see which presidents have enjoyed the best annual non-seasonally adjusted Gross Domestic Product (GDP) growth on an annual basis. Key Takeaways: • What are the stock market historical results by past presidents? • How does the market do when comparing republicans to democrats? • How does the stock market perform when republicans or democrats control the presidency, senate, and house? • What are historical market returns based upon combinations of party's president, senate, and house? • The time a president takes office in an economic cycle may have more to do with results • Should the Federal Reserve of the President get more credit for the stock market and economy? • Role of inflation and interest rates in stock market returns • What was President Obama's average annual GDP growth rate non-seasonally adjusted? • How does Trump's GDP annual growth rate in 2017 compare to past presidents? • Compare historical per president average annual GDP growth rate. Mentioned in this Episode: Article Showing Historical S&P 500 Returns by President, Senate, and House Party https://razorwealth.com/do-presidents-and-the-congress-really-impact-stock-market-returns/ Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk

Welcome to the Broken Pie Chart Podcast Episode 4 Hedged Equity and Protective Investment Strategies. This week host Derek Moore , author of Broken Pie Chart, is once again joined by Jay Pestrichelli of ZEGA Financial and author of Buy and Hedge. Investors often miss out because of staying un-invested for fear of large market drawdowns or try to pick the absolute market top and sell too early. Derek and Jay have a lively discussion around what exactly strategies that hedge downside risk are and how they may solve some dilemmas for investors. They also examine how the trick is shifting equity risk for more short duration fixed income risk while keeping the cost of downside protection low. Later they discuss how investors often want insurance at the very worst times when it costs the most while shunning the idea for protective strategies when they are the cheapest to put on. Learn how investors can look to have the goal of capturing much of the upside in markets while eliminating most of the downside. Key Takeaways: • What are hedged equity strategies? • How do investment strategies protect the downside in portfolios? • Why do investors suffer from fear and greed? • Why simply getting long equities and buying puts is only half the story. • Derek Moore highlights parts of the book Buy and Hedge explaining who hedges work in portfolios • Jay Pestrichelli elaborates on the crafty change from Buy and Hold to Buy and Hedge • Are bonds and thus the old 60/40 portfolios a thing of the past? • Why investors within 10-20 years of retirement might need more growth that they think • When markets sell off substantially, it all goes down • Derek Moore elaborates on the chapter Why Diversification Fails from his book Broken Pie Chart • Later Jay and Derek discuss various approaches which offer only soft hedges and floors rather than hard floors. • Finally, they tease a future episode with a short introduction to providing downside buffers in portfolio strategies Mentioned in this Episode: Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk Buy and Hedge Book by Jay Pestrichelli and Wayne Ferbert https://amzn.to/2P3gw17

Welcome to the Broken Pie Chart Podcast Episode 3 Short Volatility. In this episode Derek Moore and guest Jay Pestrichelli discuss the emergence of short volatility strategies. How selling option premium with short put spreads and short call spreads can potentially generate income. With the low interest rate environment bonds are experiencing, will short volatility strategies start nudging fixed income's place in many portfolio pie charts? We also discuss how sometimes the VIX Index is mistakenly thought of as the only way to play volatility and how VIX strategies differ from other short volatility strategies. Key Takeaways: • What are short volatility strategies? • Selling put and call credit spreads to generate income. • Should short volatility strategies be part of portfolios given low bond interest rates? • What is the VIX index? • Why selling volatility premium doesn't necessarily mean the VIX • Broad based index options • How do probability calculations factor into position? • Implied volatility as a proxy for expected market moves • Implied volatility versus historical volatility • Risks in selling option premium • How high probability options selling might handle various market conditions Mentioned in this Episode: Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk Buy and Hedge Book by Jay Pestrichelli and Wayne Ferbert https://amzn.to/2P3gw17

Welcome to the Broken Pie Chart Podcast Episode 2 Yield Curve Explained. In this episode we will explore what the yield curve is, how the difference between short term interest rates and long-term interest rates can change the shape and look of the yield curve. We also touch on why everyone seems to be talking about potential yield curve inversions and what that means for the economy. Discussion builds around giving some historical perspective on past recessions in the US where we saw a yield curve inversion prior to it although how far before is another story. While many perceive a yield curve inversion as a good predictor of a potential future recession, undoubtably in a post zero interest rate environment enabled by the Federal Reserve Bank in the post 2008 Great Recession world, some may argue that this time is different. We'll look to cover why it may or may not matter this time. Key Takeaways: What is the yield curve? Why is the shape of the yield curve important? How many of the past recessions did the yield curve invert? What is a yield curve inversion? While the US is experiencing a flat yield curve, other countries like Germany see a more normal shape to their yield curve Negative interest rates in many European government bonds especially on the short end of the curve Short duration bonds seeing highest percentage increase in rates The Federal Reserve Bank Reasons to stay invested even in the face of a yield curve inversion Historical references to time between a yield curve inversion and a recession Mentioned in this Episode: Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk Bloomberg.com Country Government Bond Yields https://www.bloomberg.com/markets/rates-bonds Federal Reserve Bank of St. Louis chart of spread between 10 Year Treasuries and 2 Year Treasuries https://fred.stlouisfed.org/series/T10Y2Y

Welcome to the Broken Pie Chart Podcast. This is episode 1, and I'm your host, Derek Moore. Today we'll be discussing key factors in saving for retirement and a bit about retirement calculators. The genesis of this discussion came about when I was recently asked, "Do I have enough saved based upon my age? When do you think I can retire?" Where you are as an investor is a function of several inputs. So I thought it would be helpful today if I went through some of the inputs that go into these calculations, such as: the percentage you're investing annually, other means of income in saving, building equity, inflation, risk management, and more. I also talk about the different ways these calculators are programmed and what you have to be careful of, and consider, when inputting your information into these calculators. Key Takeaways: [:12] Today's topic of discussion: retirement calculators and what to consider when saving for retirement. [2:30] How these retirement calculators work and all the components you need to consider in your calculations. [9:09] The most important factor in saving for retirement. [10:42] The difference between the percentage of your contribution amount. [13:29] Accommodating for inflation and why it matters. [16:42] Why you shouldn't depend fully on social security. [19:16] Another extremely important factor: your return on investment. [22:12] What would happen if we had a year like the 2008 market crash again? [24:11] Other means of income in saving for your retirement. [26:13] About the Monte Carlo simulation. [27:12] Things to be careful of when calculating. [29:27] If you have any questions, reach out to me at RazorWealth.com. Mentioned in this Episode: Cost-of-Living-Adjustment (COLA) Social Security Monte Carlo Simulation RazorWealth.com