Learn the secrets to long-term investing success! In this seminar series Bob Sloma, MBA, Principal of Sigma Advantage, shares the investing process he developed in the mid-nineties to manage his own and his wife’s retirement investments. His process has consistently beaten the S&P 500 return on a three, five and ten year basis, making changes only once a year, with between two-thirds and three-quarters of the market’s risk!

1. Session 1 – Portfolio Management Facts
and One Little Known “Secret”
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2. Disclosure
 The Model Portfolios seek to obtain better long-term results than the S&P 500, but at a lower risk level. The depending
on the portfolio, models include mutual funds or stocks and a short-term Treasuries fund as a risk-adjustment
mechanism. The risk-free, short-term Treasuries fund helps ensure that the models maintain optimal risk-adjusted
returns in accordance with Modern Portfolio Theory. The model portfolios' allocations to this fund have ranged from
2% to 99%. The volatility of the Model Portfolios may be materially different than the benchmark because it does not
invest in only equity securities tracked by the S&P 500 Index.
 Model Portfolio returns shown were calculated with the mutual funds or stocks used in the Model Portfolios (“Model
Portfolio”) and the allocations currently recommended by Sigma Advantage Investments, LLC (“SAI”). Historically, the
Model Portfolios may have had different allocations among the mutual funds or stocks and the Treasuries mutual fund
and may have had different mutual funds or stocks within a particular portfolio. The returns are not actual returns nor
do they reflect actual trading. Actual results for investors who were invested in accordance with the Model Portfolios
during the same time periods shown may have been higher or lower than the Model Portfolios' results.
 Model Portfolio performance and historical benchmarks results were calculated assuming reinvestment of all
distributions and other earnings; they do not reflect the effects of income or other taxes.
 The performance results shown are presented net of all costs associated with investments in the mutual funds or stocks
and the Treasuries mutual fund, such as management fees, transaction costs, and custodial service costs incurred by
the mutual funds and transaction costs incurred with stock investing. The Model Portfolio performance results also
reflect the deduction of fees charged by SAI for investment advisory services and by its third party custodian.
Investment advisor fees reflected in the Model Portfolio performance results have been calculated using SAI’s highest
annual rate of 0.75% and the third party custodian fee of 0.25%. Actual SAI fees charged to clients decline from this
rate based on the amount of assets invested.
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3. Disclosure
 Benchmarks or indices are used to track current and historical market performance by specific market segment (e.g.,
large/small capitalization) or investment style (e.g., growth/value) and are meant to provide a basis for comparison.
Indices are unmanaged, pay no transaction fees, reflect past performance and typically reflect the reinvestment of
dividends or income. For comparison purposes, the unmanaged indices are fully invested and returns are gross of
investment management fees. Investors cannot invest directly in these unmanaged indices.
 We use the S&P 500 index because it is a capitalization-weighted index consisting of 500 stocks chosen for large
market size, liquidity, and industry diversification, among other factors. It is designed to be a widely used indicator of
the U.S. economy and reflects the risk/return characteristics of the large-cap universe. The S&P 500 index is
unmanaged, does not incur fees, and cannot be invested in directly. Because the Model Portfolio may invest in stocks
whose securities may not be tracked by this index, the volatility of the Model Portfolio may be materially different than
this benchmark.
 Investing in non-U.S. securities may entail higher risk due to non-U.S. currency fluctuations and political or economic
uncertainty which may be especially heightened when investing in emerging markets. Diversification does not ensure
against loss.
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4. Define the Problem
How can I improve my investments’ performance?
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5. Define the Problem
I don’t know how much risk my advisor is taking to
obtain better returns.
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6. Define the Problem
Everything I read says that…
If this is true, then how can I be sure that anyone can do
better than the market?
Short Answer: You can’t.
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7. Define the Problem
Efficient Market Theory says that generally stock prices
already reflect all known information at any point in time,
therefore index-based investing is the only way to go.
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8. Portfolio Management Facts
Less than 50% of Portfolio Managers match or outperform their
benchmarks over 3-year and 5-year periods. (Standard & Poor’s
Indices Versus Active Funds (SPIVA) Scorecard, August 2011)
Percentage of U.S. Equity Funds Outperformed by Benchmarks
All Domestic Equity Funds vs. S&P Composite 1500
Period Ending One Year Three Years Five Years
December 2011 84.07% 56.53% 61.88%
June 2011 48.99% 55.16% 58.27%
December 2010 49.31% 51.68% 57.63%
June 2010 55.98% 55.58% 60.64%
December 2009 41.67% 54.06% 60.61%
Source: S&P Indices, CRSP. Outperformance is based upon equal weighted fund counts. All index returns used are
total returns. Charts are provided for illustrative purposes. Past performance is not a guarantee of future results.
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9. Better Returns With Less Risk
Note: Model portfolios do not reflect actual trading costs, the effect taxes, or other costs associated with investing in mutual
funds or stocks. See disclosure on the beginning slides for more information.
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10. How Risk Is Measured
Risk is measured by
the Standard
Deviation of an
investment’s
monthly returns.
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11. How To Reduce Risk
Diversification
Invest in a variety of assets that do not move
up and down at the same time.
In other words, less correlation in returns
equals higher level of diversification.
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12. How to Reduce Risk
For illustrative purposes only. Stock and portfolio returns are hypothetical and not indicative of any investment.
Risk (Std Dev): 0.71% Risk (Std Dev): 1.43%
Average Return: 5.00% Average Return: 5.00%
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13. How to Reduce Risk
For illustrative purposes only. Stock and portfolio returns are hypothetical and not indicative of any investment.
Perfectly Negatively Correlated Perfectly Positively Correlated
Portfolio 1 Portfolio 2
Which is the better investment?
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14. How to Reduce Risk
For illustrative purposes only. Stock and portfolio returns are hypothetical and not indicative of any investment.
Perfectly Negatively Correlated Perfectly Positively Correlated
Portfolio 1 Portfolio 2
Risk (Std Dev): 0.36% Risk (Std Dev): 1.07%
Average Return: 5.00% Average Return: 5.00%
Stock 1 Stock 2
Risk (Std Dev): 0.71% Risk (Std Dev): 1.43%
Average Return: 5.00% Average Return: 5.00%
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15. How to Reduce Risk
For illustrative purposes only. Stock and portfolio returns are hypothetical and not indicative of any investment.
Highly Negatively Correlated Highly Positively Correlated
Portfolio Portfolio
Risk (Std Dev): 0.38% Risk (Std Dev): 1.06%
Average Return: 5.00% Average Return: 5.00%
Stock 1 Stock 2
Risk (Std Dev): 0.71% Risk (Std Dev): 1.43%
Average Return: 5.00% Average Return: 5.00%
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16. How to Reduce Risk
For illustrative purposes only. Stock and portfolio returns are hypothetical and not indicative of any investment.
Portfolio
Risk (Std Dev): 0.78%
Average Return: 5.00%
Stock 1 Stock 2
Risk (Std Dev): 0.71% Risk (Std Dev): 1.43%
Average Return: 5.00% Average Return: 5.00%
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17. How to Reduce Risk
For illustrative purposes only. Stock and portfolio returns are hypothetical and not indicative of any investment.
Which is the best investment from a risk & return standpoint?
Perfectly Negatively Correlated Perfectly Positively Correlated
Highly Negatively Correlated Highly Positively Correlated
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18. How to Reduce Risk
For illustrative purposes only. Stock and portfolio returns are hypothetical and not indicative of any investment.
Which is the best investment from a risk & return standpoint?
Perfectly Negatively Correlated Perfectly Positively Correlated
Highly Negatively Correlated Highly Positively Correlated
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19. Risk’s Relationship to Return
Apple Google
Apple (AAPL) Google (GOOG)
140.00%
Trailing 12- $60,000.0 80.00%
Trailing 12-
$30,000.0
120.00%
Month Sales 70.00%
Month Sales
3-Year Return $50,000.0
60.00%
$25,000.0
100.00%
50.00%
80.00%
$40,000.0
3-Year Risk $20,000.0
12 Month Sales (Millions)
12 Month Sales (Millions)
Risk (Std Dev) and Return
Risk (Std Dev) and Return
40.00%
60.00% $30,000.0 30.00% $15,000.0
20.00%
40.00%
$20,000.0 3-Year Return $10,000.0
3-Year Risk 10.00%
20.00%
0.00%
$10,000.0
6/1/2006
9/1/2006
3/1/2007
6/1/2007
6/1/2008
9/1/2008
3/1/2009
9/1/2009
3/1/2010
6/1/2010
9/1/2007
3/1/2008
6/1/2009
12/1/2006
12/1/2007
12/1/2008
12/1/2009
$5,000.0
0.00%
-10.00%
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
-20.00% $- -20.00% $-
3 yr Return 3 yr Std Dev Trailing 12 mth Sales (M) 3 yr Return 3 yr Std Dev Trailing 12 mth Sales (M)
Source: Yahoo Finance, Sigma Advantage Investments. Charts are provided for illustrative purposes. Past performance
is not a guarantee of future results.
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20. The Efficient Frontier
• A major component of
Modern Portfolio
Theory (MPT).
• Shows the relationship
of risk and returns of
portfolios that
maximize return for
a given level of risk.
• Composed of a range
of mixes from 100%
stocks to 100% bonds.
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21. The Efficient Frontier 1960 - 2010
Inversion!
Source: Rydex | SGI, Ibbotson Associates
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22. The Efficient Frontier &
The Capital Market Line
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23. The Efficient Frontier &
The Capital Market Line
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24. The Efficient Frontier &
The Capital Market Line
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25. Portfolio Design
 With the Capital Market Line (CML) and the Efficient
Frontier, you can “design” a portfolio for any given
risk level.
 To further increase risk and “potentially” obtain
greater returns, you can leverage by borrowing money
to invest in the optimal risky portfolio.
 Problem with leverage approach…
 you can only borrow at rates higher than the risk free
rate!
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26. Next Session
Mutual Fund Analysis, Selection & Portfolio Design
 How to determine the “best” investment.
 Risk Adjusted Return
 Fundamental versus Technical Analysis
 Available Resources
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