Understanding Markets and Long-Term Investing. December 31, 2011

Understanding Markets and Long-Term Investing December 31, 2011

The story behind these charts The beauty of newspapers, from a publisher s perspective, is that they re addictive. A story doesn t unfold all in one go, like a novel. It fills in, bit by bit, over days. So, you have to keep buying the next day s newspaper. The story of markets and individual investments, as presented in various media, is like that. Every day, we get a few disjointed pieces of information. But, for some reason, they rarely add up to a practical investment principle, like diversification. More often, they simply stir up emotions. The charts in the following pages are, by contrast, the accumulation of years and years of data. They tell a long-term story of market behaviour good and bad. They lay the groundwork for an understanding of risks and rewards. They set the stage for rational discussions of asset mix and individual investments. We assembled these charts because we re not interested in selling papers. We re interested in growing wealth for long-term investors. 2

Predicting the winner is difficult Canadian Bonds DEX Universe Bond Index Emerging Markets MSCI Emerging Mkts Index(CAD) Foreign Equities MSCI EAFE Index (CAD) Canadian Lrg Cap S&P/TSX Composite TR Index Global Bonds Citigroup World Gvt Bond Index (CAD) US Small Cap Russell 2000 Index (CAD) Small Cap BMO NB SMCap Blend Wgt'd Index Global Equities MSCI World Index (CAD) US Large Cap S&P 500 Index (CAD) Source: Mackenzie Financial & Morningstar, as at December 31,2011 3

40 years and 40x your investment S&P/TSX Composite Index (1971 2011) e of $1 g scale) $100 $10 +288% +44% +253% -20% -25% +109% +203% +16% -38% -21% -27% +168% -43% +59% $41.45 December 31, 2011 4,045% cumulative return (9.7% annualized) = 40x your original investment Valu (log +41% -39% $1-35% $0 Dec-71 Dec-81 Dec-91 Dec-01 Dec-11 Sources: Datstream & Mackenzie Financial Based on the S&P/TSX Composite TRI including reinvested dividends between Dec. 31, 1971 and Dec. 31, 2011 4

2011: Saw Tooth market cuts deep, but... S&P/TSX Composite Index -8.7 % Total return 2011 Closes at 13,443 Dec 31 Closes at 11,955 Dec 31 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 S&P/TSX S&P 500 Euro Area Japan Emerg. Mkts World Global Market Indices 1-Yr returns to December 31*: -8.7% +2.1% -8.8% -18.6% -12.5% -5.0% Source: Datastream, MSCI indices unless otherwise noted, as at December 31, 2011* Total returns, local currency. EM 5

2011 at-a-glance: Key Events S&P/TSX Composite Index Fed and BOC rates remain at/near historical lows 13,443 0% - 0.25% (through 2011) 1.00% (through h 2011) European debt crisis spreading (other PIIGS hungry and in need*) Global Growth Moderates (but not slow) Middle East Tension Mounts Crude hits $114/bbl (Apr 29-11) $31/bbl (Dec 22-08) Crisis in Japan Earthquake Tsunami Nuclear Disaster Gold shines $1,898/oz. (Sep 5-11) $712/oz. (Nov 12-08) S&P lowers U.S. credit rating (Aug 8-11) Loonie soars/dips Wall of worry on risk / off risk $1.06 USD (Jul 26-11) 98.3 USD (Dec 31-11) European sovereign debt crisis deepens Prolonged challenges but corporate resilience Slower global growth -8.7 % Total return 2011 11,955 Supply chain disruptions carry-forward January February March April May June July August September October November December * PIIGS: acronym for Portugal, Ireland, Italy, Greece & Spain related to national debt level. Source: Datastream, as at December 31, 2011 6

June 2008 Peak December 2011 S&P/TSX Composite Index (May 30, 2008 December 31, 2011) -50 % peak-to-bottom Peak at 15,073 Jun 18-08 +58 % bottom at 7,567 Mar 9-09 bottom to Dec-11 Wall of worry on risk / off risk Closes at 11,955 Dec 31-11 European sovereign debt crisis deepens Prolonged challenges but corporate resilience Slower global growth Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Worst case scenario did not happen Less bad is good Markets lead sustained recovery Debt / slowdown concerns (improvements solidifies but many economies (primarily in developed economies) surfacing) & consumers remain challenged fixing the broken no easy task Source: Datastream as at December 31, 2011; Price index returns, local currency. Visual Source: The Wall Street Journal 7

Closer look at TSX... Returns on TSX for 2011 (and 2010) S&P/TSX Index Health Care Telecom Services Consumer Staples Utilities Industrials Financials Energy Consumer Discretionary Materials Information Technology January 1 to December 31, 2011-8.7% -2.9% -9.9% -15.5% -21.2% 2% -52.5% 6.8% 6.5% 42% 4.2% 24.9% 50.4% 2010 17.6% 57.0% 22.4% 10.3% 18.4% 16.9% 10.5% 13.3% 25.3% 36.5% -11.6% -80% -60% -40% -20% 0% 20% 40% 60% Source: Datastream, as of December 31, 2011 8

Currency the hidden difference Comparing 2011 returns in local currency to CDN$-based Canada U.S. Euro Area Japan Emerg. Mkts World Stock markets Local currency returns CDN$-based returns -8.7% 87% +2.1% -8.8% 88% -18.6% -12.5% -5.0% 50% -8.7% +4.6% -8.3% -12.1% -16.2% -2.7% EM Note: Above expressed in total returns (Canada: S&P/TSX; U.S.: S&P500; Euro: MSCI Europe; Japan: MSCI Japan; World: MSCI World) Source: Datastream, as at December 31, 2011 9

The next move may not be clear S&P/TSX Composite Index Closes at 11,955 Dec 31? Closes at 8,988 Dec 31 Closes at 7,567 Mar 9 Jan-09 Jun-09 Jan-10 Jun-10 Jan-11 Jun-11 Dec-11 Source: Datastream as at December 31, 2011; Visual Source: Barron s, July 13, 2009 10

Looking back at what may lie ahead The 1975-76 market recovery may provide insights Dow Jones Industrial Average since WWII (to December 31, 2011) 100000 10000 1973-74 Bear / 1975-76 Bull / 1976-83 Rollercoaster (Oct 2, 1972 Jan 3, 1983) 1,200 1,100 1,000 900 800 700 600 500 O-72 O-73 O-74 O-75 O-76 O-77 O-78 O-79 O-80 O-81 O-82 1000 1973-76 Vietnam War / oil crisis end of gold standard 100 1946 1952 1958 1964 1970 1976 1982 1988 1994 2000 2006 2011 Source of concept: MarketWatch 11

Market cycles: Investing & emotions don t mix S&P/TSX Composite Index (December 31, 1994 to December 31, 2011) Not to worry, I am a long-term investor! Optimism Dec 31-11 11,955 I am buying MORE! Euphoria This is great! The price is going up! Confidence Denial Relief Panic Sell NOW! Optimism Dec 31-94 4,214 Capitulation Sell NOW! 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Mutual Fund Sales (net sales $ billion) $35.4 $17.7 $21.8 $28.9 $2.5 ($1.4) $14.3 $22.6 $20.8 $34.9 $0.1 $1.5 $12.0 $21.1 Sources: Datastream (index) and IFIC (mutual fund net sales) as at December 31, 2011 12

Always remember... it s only a cycle Market cycle relative to economic cycle... but each has differences Stock Market Cycle Economic Cycle Top Peak Late Bull Early Bear Early Bull Mid Recovery Mid Recession Bottom Trough Late Bear For illustrative purposes only 13

Bull & Bear Facts* Average gain in bull market: +121% Bull & Bear Markets Average length of bull market: 46 months Average loss in bear market: -28% Average length of bear market: 9 months S&P/TSX Composite Index to December 2011 * Based on data since 1956. See page 2 for more details. og scale) % Change (lo 320 240 160 288% 81 months 253% 61 months 140% 120% 203% 90 months 168% 2.2 68 months 100% 109% 80% 85% 24 months 81% 82% 59% 48 months 43 months 63% 40 months 34 months 1.7 60% 44% 80 32 months 25 40% months 16% 6 20% months 1.2 0% 0-20% -17% -15% 0.7-40% -26% 6 months 8 months -20% -21% -30-25% -25% 10 months -28% 6 months 17 months 13 months -35% 4 months 4 months -60% 11 months -39% -38% 12 months 13 months -43% -80% 9 months 0.2 56 60 65 70 75 80 85 90 95 00 05 11 Source: Mackenzie Financial (Datastream: month-end data points as at December 31, 2011; total return, local currency) 14

Bull & Bear Markets: S&P/TSX The Risks and Rewards of Investing: This chart represents the bull and bear markets in the S&P/TSX Index since 1956. All bars above the line are bull markets; all bars below are bear markets. For the purposes of this illustration, a bull (bear) market is defined as a positive (negative) move greater than 15% that lasts at least 3 months. The first bar represents a bear market which, at its lowest point, dropped to -26% and lasted 17 months. This was followed by a bull market rising 85% and lasting 48 months. Since 1956 there have been 12 bull markets and 12 bear markets. As can be seen from the chart, bull markets typically last longer and provide a more significant percentage change. Bear markets during this period have averaged -28% and lasted only 9 months. Bull markets during this period have averaged 121% and lasted 46 months. This is the reward for accepting the risk of bear markets. Investor Behaviour: According to the chart, markets spend more time in positive territory (bull) than negative (bear). Bull markets are, on average, longer and more intense, providing a more significant percentage change. On average bear markets are more brief, and yet engender fear. It is during these periods that there are significant investment bargains to be found. Investor discipline during bear markets is critical. 15

Bull & Bear Facts* Average gain in bull market: +142% Bull & Bear Markets Average length of bull market: 46 months Average loss in bear market: -27% Average length of bear market: 14 months S&P 500 Composite Index to December 2011 * Based on data since 1956. See page 2 for more details. 520 526% 118 months 160% 280% 280 61 months (log scale) % Change 110% 60% 80 10% 0 104% 48 months 90% 43 months 52% 26 months 76% 30 months 86% 27 months 87% 33 months 72% 30 months 108% 61 months 82% 34 months -40% -40-90% -15% 17 months -22% 6 months -16% 8 months -29% 19 months -43% 21 months -15% 14 months -17% 20 months -15% 5 months -30% 3 months -45% 25 months -51% 16 months 56 60 65 70 75 80 85 90 95 00 05 11 Source: Mackenzie Financial (Datastream: month-end data points as at December 31, 2011; total return, local currency) 16

Bull & Bear Markets: S&P 500 The Risks and Rewards of Investing: This chart represents the bull and bear markets in the S&P 500 Composite Total Return since 1956. All bars above the line are bull markets; all bars below are bear markets. For the purposes of this illustration, a bull (bear) market is defined as a positive (negative) move greater than 15% that lasts at least 3 months. The first bar represents a bear market which, at its lowest point, dropped to -15% and lasted 17 months. This was followed by a bull market rising 104% and lasting 48 months. Since 1956 there have been 11 bull markets and 11 bear markets. As can be seen from the chart, bull markets typically last longer and provide a more significant percentage change. Bear markets during this period have averaged -27% and lasted only 14 months. Bull markets during this period have averaged 142% and lasted 46 months. This is the reward for accepting the risk of bear markets. Investor Behaviour: According to the chart, markets spend more time in positive territory (bull) than negative (bear). Bull markets are, on average, longer and more intense, providing a more significant percentage change. On average bear markets are more brief, and yet engender fear. It is during these periods that there are significant investment bargains to be found. Investor discipline during bear markets is critical. 17

S&P/TSX Declines Greater Than 30% Period Peak Trough Months from Peak Price Return (from trough) Peak Date Trough Date Value Value Decline to Trough 3 months 1 year 10 years Sep 2 1929 Jun 1 1932 332.61 64.20-80.7% 33 45.8% 79.2% 37.9% Jul 3 1956 Dec 3 1957 617.67 432.11-30.0% 17 5.8% 26.8% 108.1% Oct 1 1973 Sep 3 1974 1329.28 832.98-37.3% 11 1.4% 17.2% 186.5% Nov 28 1980 Jul 8 1982 2402.23 1346.35-44.0% 19 26.2% 84.1% 153.7% Aug 13 1987 Oct 28 1987 4112.86 2837.79-31.0% 3 7.9% 20.0% 137.4% Apr 22 1998 Oct 5 1998 7822.25 5336.15-31.8% 6 24.8% 31.0% 102.5% Sep 1 2000 Oct 9 2002 11388.8080 5695.33-50.0% 0% 25 18.9% 33.5% N/A Jun 18 2008 Mar 9 2009 15073.13 7566.94-49.8% 9 39.4% 57.5% N/A Average: -43.5% 16 18.7% 41.7% 121.0% Ex- Period 1 (Great Depression): -37.4% 13 14.2% 35.4% 137.6% Annualized Price Return (excludes dividends) Average: Ex- Period 1 (Great Depression): 8.0% 9.0% 18

Bear market decisions Value of $10,000 invested in the S&P 500 (US$) January 31, 1973: 3 months Later $9,285 6 months Later $9,465 9 months Later $9,545 12 months Later $8,587 1 year, 8 months later (Sept/74 Market Low) $5,816 At what point do you think most investors would have given up and thrown in the towel? $5,816 removed from the market & re-invested in an interest bearing CD at 10.5%: 6 months later $6,121 12 months later $6,426 2 years later $7,101 5 years later $9,581 10 years later $16,145 (after re-investment Sept/79 for 5 yrs at Source: Datastream prevailing rate of 11%) 19

Bear market decisions What if you had kept your $5,816 invested in the S&P 500 (US$) instead of going into cash on Sept 30, 1974? 10 years later $24,671 5 years later $12,596 2 years later $10,468 12 months later $ 8,033 6 months later $ 7,820 Food for thought. Source: Datastream 20

Bear market decisions What if you invested an additional $10,000 in the S&P 500 (US$) instead of going into cash on Sept 30, 1974? 10 years later $67,091 5 years later $34,254 2 years later $28,465 12 months later $21,846 6 months later $21,266 Food for thought. Source: Datastream 21

Bear market decisions Value of $10,000 invested in the S&P 500 (US$) August 31, 2000: 3 months later $8,688 6 months later $8,216 9 months later $8,349 12 months later $7,561 2 years, 1 month later (Sept/02 Market Low) $5,527 At what point do you think most investors would have given up and thrown in the towel? $5,527 removed from the market & re-invested in a 5-year GIC at 3.28%: 12 months later $5,708 2 years later $5,895 3 years later $6,087 5 years later $6,493 Source: Datastream 22

Bear market decisions What if you had kept your $5,527 invested in the S&P 500 (US$) instead of going into cash on Sept 30, 2002? 5 years later $11,334 3 years later $ 8,787 2 years later $ 7,829 12 months later $ 6,875 6 months later $ 5,804 Food for thought. Source: Datastream 23

Bear market decisions What if you invested an additional $10,000 in the S&P 500 (US$) instead of going into cash on Sept 30, 2002? 5 years later $31,842 3 years later $24,685 2 years later $21,992 12 months later $19,315 6 months later $16,306 Food for thought. Source: Datastream 24

Bear market decisions Value of $10,000 invested in the S&P 500 (US$) January 31, 2007: 3 months later $10,353 6 months later $10,210 9 months later $10,922 12 months later $9,769 2 years, 2 months later (Mar/09 Market Low) $5,826 At what point do you think most investors would have given up and thrown in the towel? $5,826 removed from the market & re-invested in a 5-year GIC at 1.96%: 3 months later $5,852 6 months later $5,881 9 months later $5,910 1 year later $5,937 2 years, 9 months later $6,146 Source: Datastream 25

Bear market decisions What if you had kept your $5,826 invested in the S&P 500 (US$) instead of going into cash on March 31, 2009? 2 years, 9 months later $ 9,729 12 months later $ 8,726 9 months later $ 8,280 6 months later $ 7,808 3 months later $ 6,754 Food for thought. Source: Datastream 26

Bear market decisions What if you invested an additional $10,000 in the S&P 500 (US$) instead of going into cash on March 31, 2009? 2 years, 9 months later $26,426 12 months later $23,702 9 months later $22,491 6 months later $21,210 3 months later $18,347 Food for thought. Source: Datastream 27

Staying invested improves returns Crisis Market Low 1 Year Later 2 Years Later The Korean War 13/07/1950 28.8% 8% 39.3% 3% Cuban Missile Crisis 23/10/1962 33.8% 57.3% JFK Assassination 23/11/1963 25.0% 33.0% 1969 to 70 Market Break 26/05/1970 43.6% 53.9% 1973 to 74 Market Break 06/12/1974 42.2% 66.5% 1979 to 80 Oil Crisis 27/03/1980 27.9% 5.9% 1987 Stock Market Crash 19/10/1987 22.9% 54.3% Desert Storm 11/10/1990 21.1% 30.2% Soviet coup d'état attempt 19/08/1991 11.1% 21.2% Asian Financial Crisis 02/04/1997 49.3% 76.2% Dot-com Bubble crash / Sept 11 / Enron 09/10/2002 33.7% 44.8% Invasion of Iraq 11/03/2003 38.2% 50.6% North Korean Missile Test 17/07/2006 25.5% 2.1% Subprime Mortgage Crisis i 09/03/2009 68.6% 6% 95.1% Average Appreciation 33.7% 45.0% Snapshots in time of significant negative international events from 1950 to Mar 2009, and the subsequent change in market value from the stock market low in that calendar year to one and tw o years hence. Source: Datastream. Benchmark: S&P 500 Composite, US$ return. 28

Real Return of a GIC 20% 1 Yr GIC Returns 15% 1 Yr GIC After 40% Marginal Tax 1 Yr GIC Real Return (After Inflation) l Returns (%) ( ) Tota 10% 5% 5 0% 0-5% Dec-81 Dec-86 Dec-91 Dec-96 Dec-01 Dec-06 Dec-11 Source: Datastream, as at December 31, 2011 29

Real Return of $10,000 000 $70,000 Ma arket Value $60,000 $50,000 $40,000 $30,000000 S&P/TSX Real Return: $39,304 MSCI World Real Return: $38,266 S&P 500 Real Return: $38,431 1 Yr GIC Real Return: $10,226 $20,000 $10,000 $0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Source: Datastream, as at December 31, 2011. Marginal Tax Rate = 40%. 30

20 years of the S&P/TSX You can t afford to miss the best weeks Value of $10,000 invested Dec.1991 to Dec. 2011 $40,000 $30,000 $33,956 $30,717 $22,418 $20,000 $16,589 $10,000 $0 63% 6.3% 5.8% 4.1% 2.6% Fully invested since Dec. 1991 Missed best week Missed best 5 weeks Missed best 10 weeks Sources: Datastream & Mackenzie Financial, S&P/TSX Price Index, From Dec. 31, 1991 to Dec. 31, 2011 31

20 years of the S&P/TSX Stock market gains are often swift and unpredictable. Investors who choose to stay out of the market, even for short periods, frequently miss out on great opportunities. This chart assumes an investor put $10,000 into the S&P/TSX 20 years ago (Dec. 31, 1991). Over this period the average annual return for the S&P/TSX was 6.3%. Look what happens if the same investor attempts to time the market. Being in the market for the entire 20-year period would have resulted in a portfolio value of $33,956. If the investor missed the top ten weeks the portfolio value drops to $16,589. Missing the best week: Assume an investor was worried that the market was overvalued and decided to take his or her money out of their investments and as a consequence missed the best week. Their return drops from 6.3% to 5.8%. Missing the best five weeks: Return drops to 4.1%. Missing the best 10 weeks: Return drops to 2.6%. Considering that there are 1,040 weeks in 20 years 10 weeks make up less than 1% of the available time missing those time periods reduces the investor s gain by more than $17,000. That s over half of the investor s total return! 32

20 years of the S&P 500 You can t afford to miss the best weeks Value of $10,000 invested Dec.1991 to Dec. 2011 $30,000 $26,810 $23,801 $20,000 $16,786 $12,331 $10,000 $0 5.1% 4.4% 2.6% 1.1% Invested all weeks Missed best 1 Missed best 5 Missed best 10 week weeks weeks Sources: Datastream and Mackenzie Financial, S&P 500 Price Index (CAD$); From Dec. 31, 1991 to Dec. 31, 2011 33

20 Years of the S&P 500 Stock market gains are often swift and unpredictable. Investors who choose to stay out of the market, even for short periods, frequently miss out on great opportunities. This chart assumes an investor put $10,000 into the S&P 500 20 years ago (Dec. 31, 1991). Over this period the average annual return for the S&P 500 was 5.1% (CAD$). Look what happens if the same investor attempts to time the market. Being in the market for the entire 20-year period would have resulted in a portfolio value of $26,810. If the investor missed the top ten weeks the portfolio value drops to $12,331. Missing the best week: Assume an investor was worried that the market was overvalued and decided to take his or her money out of their investments and as a consequence missed the best week. Their return drops from 5.1% to 4.4%. Missing the best five weeks: Return drops to 2.6%. Missing the best 10 weeks: Return drops to 1.1%. Considering that there are 1,040 weeks in 20 years 10 weeks make up less than 1% of the available time missing those time periods reduces the investor s gain by more than $14,000. That s over half of the investor s total return! 34

Stay invested: patience is rewarded Rolling 5-year average annual compound returns (S&P 500 TR) Only seven negative periods (since 1954) 30% 25% 20% 15% Rolling 5-Year Average Annual Returns Value Date BEST 28.6% 1999 AVERAGE 11.0% MEDIAN 12.8% WORST -2.4% 1974 10% 5% 0% -5% 1954 1956 1958 1960 1962 1964 19666 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 19888 1990 1992 1994 1996 1998 20000 20022 2004 2006 2008 20100 20111 Cuban Missile Crisis Source: Datastream, as at December 31, 2011 Vietnam War Gold Hits Black Oil Embargo $850/oz Monday Berlin Wall Falls Asian Crisis Tech Bubble Global Financial European Crisis Sovereign Debt Crisis 35

Investor expectations Observations Since 1954, there has been only one 5-year period when investors simply broke even (1972-1977). Since 1954, there have been only seven 5-year periods when investors lost money The average 5-year rolling return has been 11.0% Implications Consider the first bar on the chart. If you had put money into the market at the beginning of 1949, your portfolio would have grown almost 24% annually by the end of 1954. Investment strategists and professionals constantly warn investors about important economic variables, such as interest rates, inflation, a depreciating currency, oil prices rising, and even presidential elections. It is often suggested that, before investing, investors wait for certainty to arise around a specific variable. However, there will always be uncertainty in the market. Conclusions If a long-term perspective was maintained, performance did not suffer during times of uncertainty or crisis. Waiting on the sidelines until there is no uncertainty could mean a missed investment opportunity. 36

2011 2007 U.S. Stock Market Annual 2005 1994 1993 1992 Total Return: 187-Year History 1987 Positive Years: 132 (70%) Negative Years: 55 (30%) Sources: Universal Economics; Datastream; Index: S&P 500, Total Return, USD 1984 1978 1970 2010 1960 2006 1956 2004 1948 1988 1947 1986 1923 1979 1916 1972 1912 1971 2000 1911 1968 1990 1906 1965 1981 1902 1964 1977 1899 1959 1969 1896 1952 1962 1895 1949 2009 1953 1894 1944 2003 1946 1891 1926 1999 1940 1889 1921 1998 1939 1887 1919 1996 1934 1881 1918 1983 1932 1877 1905 1982 2001 1929 1875 1904 1976 1973 1914 1874 1898 1967 1966 1913 1872 1897 1963 1997 1957 1903 1871 1892 1961 1995 1941 1890 1870 1886 1951 1991 1920 1887 1869 1878 1943 1989 1917 1883 1868 1864 1942 1985 1910 1882 1867 1858 1925 1980 1893 1876 1866 1855 1924 1975 1884 1861 1865 1850 1922 1955 1873 1860 1859 1849 1915 1950 2002 1854 1853 1856 1848 1909 1945 1974 1841 1851 1844 1847 1901 1938 1958 1954 1930 1837 1845 1842 1838 1900 1936 1935 1933 1907 1831 1835 1840 1834 1880 1927 1928 1885 2008 1857 1828 1833 1836 1832 1852 1908 1863 1879 1931 1937 1839 1825 1827 1826 1829 1846 1830 1843 1862-50 to -40-40 to -30-30 to -20-20 to -10-10 to 0 0 to 10 10 to 20 20 to 30 30 to 40 40 to 50 50 to 60 Annual Return Range (%) 37

A tale of 5 recessions Recession # 1: 1973 to 1975 130 120 110 100 90 80 70 60 S&P 500 Index Recession started: Nov. 1973 ended: March 1975 End announced: N/A 50 (recession) 40 Nov-72 May-73 Nov-73 May-74 Nov-74 May-75 Nov-75 Oct. 1973 Arab oil embargo causes oil prices to quadruple Inflation rate soars from 6.2% in 1973 to 11% in 1974 Sources: Datastream (chart), NBER (recession dates) 38

A tale of 5 recessions Recession # 2: 1980 150 140 130 120 S&P 500 Index Recession started: Jan. 1980 ended: July 1980 End announced: July 1981 110 100 90 (recession) 80 Jan-79 Apr-79 Jul-79 Oct-79 Jan-80 Apr-80 Jul-80 Oct-80 Jan-81 Apr-81 Double-digit inflation since mid-1970s Oil imports reduced from Iran in 1979 US central bank aggressively raises interest rates Sources: Datastream (chart), NBER (recession dates) 39

A tale of 5 recessions Recession # 3: 1981 to 1982 S&P 500 Index 180 Recession started: July 1981 170 ended: Nov. 1982 160 End announced: July 1983 150 140 130 120 110 100 90 (recession) 80 Jul-80 Nov-80 Mar-81 Jul-81 Nov-81 Mar-82 Jul-82 Nov-82 Mar-83 Jul-83 Nov-83 Runaway inflation: $1 in 1975 has same buying power as $2 in 1985 US central bank raises rates from 11% %(1979) to 20% %(1981) Sources: Datastream (chart), NBER (recession dates), US Bureau of Labor Statistics (CPI) 40

A tale of 5 recessions Recession # 4: 1990 to 1991 S&P 500 Index 440 Recession started: July 1990 420 ended: March 1991 400 End announced: Dec. 1992 380 360 340 320 300 280 (recession) 260 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Real estate bubble of late 1980s bursts Savings & Loan Crisis: 1,000+ institutions bankrupt (1986-1995) Sources: Datastream (chart), NBER (recession dates), FDIC (savings & loan bankruptcies) 41

A tale of 5 recessions Recession # 5: 2007 to 2009 1800 1600 1400 1200 1000 800 600 400 S&P 500 Index Recession started: Dec. 2007 ended: June 2009 End announced: Sep. 2010 200 (recession) 0 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 US housing downturn, subprime mortgage meltdown, global financial crisis Recession lasted 18 months longest of any recession since World War II Sources: Datastream (chart), NBER (recession dates) 42

30 months after recession officially ended... where are we now? June 30,2009 Dec.31,2011: +37.7% 1800 1600 1400 1200 1000 800 Recession ends June 2009 600 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Source: Datastream, as at December 31, 2011 43

Recession declared officially over The longest U.S. recession since WWII is officially over. NBER stated the recession started in December 2007 and ended in June 2009 NBER release September 20, 2010 Peak Business Cycle Trough Contraction (peak to trough) Duration (months) Expansion (previous trough to this peak) December, 2007 June, 2009 18 73 March, 2001 November, 2001 8 120 July, 1990 March, 1991 8 92 July, 1981 November, 1982 16 12 January, 1980 July, 1980 6 58 November, 1973 March, 1975 16 36 December, 1969 November, 1970 11 106 April, 1960 February, 1961 10 24 August, 1957 April, 1958 8 39 July, 1953 May, 1954 10 45 November, 1948 October, 1949 11 37 February, 1945 October, 1945 8 80 Source: National Bureau of Economic Research, September 20, 2010 44

Expansions vs. recessions in the US 140 120 100 Expansions Recessions Current Expansion Number of Months 80 60 40 20 0 902 1 907 1 910 1 913 1 918 1 920 1 923 1 926 1 929 937 1 1 945 1 948 1 953 1 957 1 960 1 969 1 973 1 980 1 981 1 990 1 2001 2007 011* 2 Recession start dates Average length Recession Expansion 1854 to 2009 (33 cycles) 16 months 42 months 1945 to 2009 (11 cycles) 11 months 59 months Recession is the number of months from peak to trough. Expansion is the number of months from the previous trough to latest peak, eg. 120 months: March1991 to March 2001 expansion. Sources: National Bureau of Economic Research; *Mackenzie Financial; as at December 31, 2011 45

? When is the right time to invest Five approaches. Two are easy, repeatable & proven Investing $2,000/yr in S&P/TSX over 20 years (total invested: $40,000) It s time in the market... not market timing $100,000 $75,000 $96,811 $95,557 $91,703 $84,929 Even terrible timing trumps not investing $56,034 $50,000 $25,000 $0 Perfect New Year s Dollar Cost Terrible Bought T-Bills Timer Investor Averager Timer not Stocks Sources: Mackenzie Financial, DataStream, S&P/TSX Composite Index, as at Dec. 31, 2011. Quick explanation of the five approaches: 1) Perfect Timer able to invest the $2,000 into the market every year at the lowest monthly close, 2) New Year s Investor invested the $2,000 in the market consistently at the beginning of each year, 3) Dollar Cost Averager divided the $2,000 into 12 equal amounts and invested at the beginning of each month, 4) Terrible Timer invested the $2,000 each year at the market s peak, and 5) Bought T-Bills left the $2,000 in cash (using DEX 91-day T-Bill index as a proxy) never investing in stocks. 46

We have seen near historic declines Gives hope for better markets in years to come 10-year rolling return of S&P 500 Index, Dec. 31, 1935 to Dec. 31, 2011 20% 16% 12% 8% 8 +3.13% (Aug 31, 1949) +10.08% (Sept 30, 1984)???% (Feb 28, 2019) 4% 4 0% 0-4% -8% -9.90% (Aug 31, 1939) -2.77% (Sept 30, 1974) -5.08% (Feb 28, 2009) -12% 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Sources: Ibbotson Associates, S&P500; USD, price return, as at December 31, 2011 47

Disclaimer The information contained in this document has been prepared by Mackenzie Financial Corporation ( Mackenzie ) using information from sources it believes to be reliable. However Mackenzie makes no representations or guarantees as to the accuracy of any such information. Any statements contained herein that are not based on historical fact are forward-looking statements. Any forward-looking statements represent the portfolio manager s best judgment as of the present date as to what may occur in the future. However, forward-looking statements are subject to many risks, uncertainties and assumptions, and are based on the portfolio manager s present opinions and views. For this reason, the actual outcome of the events or results predicted may differ materially from what is expressed. Furthermore, the portfolio manager s views, opinions or assumptions may subsequently change based on previously unknown information, or for other reasons. Mackenzie Financial Corporation and its affiliates assume no obligation to update any forward-looking information contained herein. The reader is cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements. 48