Tango5 & ETF Investing Method by Don Wilson May 20, 2008 www.donsfunds.com

1. Tango5 & ETF Investing MethodbyDon WilsonMay 20, 2008www.donsfunds.com

2. My Background • Not a Wall Street professional. • Mechanical Engineer – technical guy • Small business owner last 30yrs • Cashed Out of business in 1987 • Started investing with Fundamental Analysis • Now mechanical trader using Technical Analysis • Since 1997 been investing the Tango5 way

3. Origin of Tango5Semi Automated Mutual Fund Trading • To teach my adult children how to invest • Expanded to family & some close friends • Expanded to Web Site & several 100 users • All the users I know of are profitable • Tango5 has been running “real time” for five years • Uses FastTrack and Amibroker Softwareand “freeware” Trade and Tradefr

4. Next Came TangoETF Subscription Service

5. Market Timing • I have experience building “Market Timing Models” since 1994 • Why use? Keeps you out of “Deep” Trouble • Timing is for “Risk Control” not for Performance • Tango5 is not a “Black Box”, totally open • TangoETF is proprietary and not open • Tango MRI (market timing) is all you need • MRI “Managed Risk Investing”

6. My Concern – Risk of Deep Bear Markets

7. To win at investing……………. ……………..You must be a good loser! Method………. vs.…………. Execution

8. Investing’s Two Major Forces • 1. Method - solution - Tango5 & TangoETF • 2. Execution - solution – Discipline (Tango) • 3. Financial Markets are totally “Irrational”Refer to “Mean Markets & Lizard Brains” by Terry Burnham and “Predicting the Markets of Tomorrow” by James P O’Shaughnessyand “The (MIS) Behavior of Markets by Benoit Mandelbrot & Richard L Hudson

9. “ Tango Will Show You” • What the level of risk is in the market today – any day. Should I be “In or Out” • Top 1% of 3000 + No Load Mutual Funds or ETF’s - any day • Make “money” year in and year out • But! You gain what the market will give you • But Only if you follow the rules.

10. Market Cycles --- “Are they Real”Think of Investing in Cycles S&P500 Transports Utilities

11. Also Think of Cycles in Equity Curves TangoETF Moderate Tango5 S&P500

12. Secular Bull & Bear Marketssince 1802 ---------- Range 8 to 20 years There is a definite pattern here! What causes these cycles? FEAR and GREED, yes but that is to simple. Michael Alexander, Andy Kessler, and Ed Esterling’s research shows that “Innovation Waves” especially since the “Industrial Revolution” have the effect of of creating long cycles in financial markets.

13. Another Illustration of the Cycling of Valuation Corresponding to Secular Bull and Bear Markets for the last 100 years

14. Is the Four Year Cycle Always Four Years?“NO” Lets Take a Closer Look

15. The Average of the Last 60 Years is 4.02 years.But the Range is from 2.68 yrs to 5.31 yrs

16. Intermediate Term Cycle --- Weeks to Months Indicated by OTC New High/Low Summation NASDQ(OTC) Composite NASDQ 52 week High/Low Oscillator

17. My Concern – Risk of Deep Bear Markets

18. The Future Is ETF’s • Low Cost • Expanding Asset Classes • Commodities • Currencies • More Specific Single Country • Others

19. Growth in 2007 - ETF assets grew 35% in 2007—from $445B to$602B - Number of ETFs increased by 374 to total of 679 - Volume more than doubled—$56B in consolidated average dollar volume turnover* *Source: NYSE/Arca

20. Q: Who are the traders of ETFs? Individuals are a small piece of the action 3 Types of Institutional Players dominate since the SPDRs launch in 1995 1. Pension funds 2. Hedge funds—up to 50% of daily volume 3. Wall Street trading desks

21. Q: What is the effect of ETF trading by institutions & hedge funds on small investors? • Small investors should not be hurt at all • Creation process of ETFs protects small investors from trading costs • Trading firm, securities brokerage or specialist, assembles baskets of stocks (index, industry, country) • Trading firm then exchanges baskets with a custodian • Custodian in return issues ETF shares • Trading firm can either hold or sell to investors • ETFs can be resold many times on an exchange without the underlying stocks being touched

22. Redemption • Similarly, when a trading firm opts to take ETF shares off the market, usually because demand for underlying securities has gotten greater than demand for ETF - It hands over ETF shares to the custodian • Receives underlying stocks in return • Those stocks are then sold

23. As a result of creation/redemption: • Cost of buying/selling hundreds of individual stocks to create/un-create ETFs - is borne by the trading firm - is not borne by the ETF • Strong volume in trading among investors throughout the day insures buyers/sellers get prices that closely reflect “net asset value,” the per-share price of all securities represented by the ETF

24. Q: How exactly does this creation/redemption mechanism work? • Institutional traders scour market for price discrepancy between ETF/underlying stocks • If ETF’s price gets higher than underlying stocks, arbitrageurs will do this: - Purchase individual stocks, while selling expensive ETF shares on an exchange - Pocket profit equivalent to the price difference

25. Creation/Redemption (Cont’d) • This “flurry” of sell orders tends to drive ETF price back in line with the underlying stocks - Then, traders deliver basket of newly purchased stocks (creation unit) to the custodian - Traders receive reduced ETF shares from custodian - The creation unit is transacted at NAV and traders bring their portfolio back full-circle - Thanks to this process, it has been rare for an ETF to spend a single day at more than 1% discount to its NAV

26. Q: Can any large investor create and redeem ETF shares? • Firm agrees to become “authorized participant” • Authorized participants trade in large lots—50,000 shares • 55 authorized participants, AMEX • Authorized participants act like brokers—profit from buying/selling at slight markups to customers • Ability to exchange ETFs for underlying stocks gives brokers/authorized participants confidence to trade ETFs in large volumes without fear of getting stuck • Big ETFs may have dozen authorized participants • SPDR, largest ETF, has 43

27. Volume, Spread & Price • Volume on ETF’s not same as Stocks • Volume  ETFVolume Liquidity  Underlying Stock Basket • Spread  ETFSpread Determined  Underlying Stock Basket • Price  ETFPrice Determined  Underlying Stock Basket • Only slightly altered by ETF Volume Demand • TangoETF, a few have Volume > 40,000/dayMost have Volume > 200,000/day

30. Best Place to Find ETF’s seekingalpha.com

33. TangoETF Subscription Service • Four Portfolio’s Available • Aggressive • Moderate • Conservative • Endurance • Others will be available in the future

34. TangoETF Subscription Service • Automated ETF Trading System • Each Portfolio holds three positions • Subscriber receives email each market night • Emails contains Position Holdings, Portfolio Daily Gain, Positions to Buy or Sell. And a Link to Portfolio Daily Update Page on the Web Site • Subscription $299.95 per year

35. Portfolio Daily Update Sample

36. TangoETF Subscription Service

37. TangoETF Subscription Service

39. TangoETF Subscription Service

42. TangoETF Backtest MDD 14% MDD 10% MDD 9% Backtest = Estimate of what might happen in future

43. TangoETF Aggressive Real Time

44. TangoETF Moderate Real Time

45. TangoETF Conservative Real Time

46. Endurance

47. TangoETF Summary • Good performance • Ease of use, not complex • No data downloads • No software required • All you need is a brokerage account • Cost very justifiable • Good cause, supporting web site and free public trading system

48. Wrap up - Risk When Investing • You can’t control the “Market Action” • You can control “RISK” • Tango strongly oriented towards controlling “RISK”:from Market Timingfrom Fund Risk Levelsfrom Fund Selectionfrom Buy – Sell Rules • It’s all about controlling “RISK” • Tango puts the odds on “YOUR SIDE”------- If you “follow the rules”

49. Reference Listing • www.donsfunds.com • “Mean Markets & Lizard Brains” by Terry Burnham • “Stock Cycles by Michael A. Alexander • “How We Got Here” by Andy Kessler • “Unexpected Returns – Understanding Secular Stock Market Cycles” by Ed Esterling • “The (MIS) Behavior of Markets by Benoit Mandelbrot & Richard L. Hudson • “Predicting the Markets of Tomorrow” by James P O’Shaughnessy