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Friday, September 07, 2007

Effect of Bob Brinker's QQQQ advice on his Reported Model Portfolio Returns

This article examines the effect of Bob Brinker's QQQQ Advice on his model portfolios.

In Jan 2000 Brinker moved 60% of his equity portfolios to cash. In August 2000 he moved another 5% to cash for a total of 65% in cash reserves. He told subscribers to wait for instructions on how to use these cash reserves. If he had stayed there, this move would have looked brilliant. But, the story is only beginning.

On October 16, 2000, Brinker’s subscribers got a special bulletin vial USPS mail advising the they could"Act Immediately" and buy QQQ in anticipation of a 2 to 4 months "counter trend rally" for a 20% or more gain. Confused callers to the Marketimer office were told "Bob is comfortable with QQQ at $86" by office staff. You can read the rest of what happened at Bob Brinker's QQQQ Advice but basically the QQQ(Q) fell from a high of $87 to just under $20 and Bob held all the way down. This was not reflected in his model portfolios where he kept the 65% cash reserves in cash, thus having it both ways.

In the October 2000 bulletin, Brinker recommended 30 to 50% of cash reserves be put into QQQ(Q) for his aggressive (Model Portfolio #1) subscribers. The average price for the week after the bulletin was sent was about $82.

  • P1 money market allocation on 9/30/2000: $95,359
  • Adjusted P1 money market allocation after QQQ buy: $47,969.50
  • Added P1 QQQ allocation: $47,969.50

In the March 2003 bulletin, Brinker made no mention of the prior advice for QQQQ but he recommended subscribers return to a fully invested position per the model portfolios.

Reported P1 money market allocation on 2/28/2003 : $102,716

Since the money market balance includes the accumulated interest, removing half of the ending balance from the March 2003 total automatically takes into account the loss in interest. This reduces the money market balance by $51,358.

QQQ closed at about $24 on the day the second bulletin was issued, and again on the next day. Since Brinker's new P1 recommendations were all mutual funds, the closing price is the one he had to use in calculating his reported results.

March 2003 PRICES for QQQQ

The $47,969.50 in QQQ was reduced to $47,969.50 x 24/82 = $14,039.85.

The reported balance for P1 on 2/28/2003 was $126,712. We need to subtract the half of the money market fund that was used to buy QQQ and replace it with what was left of the QQQ holding.

  • $102,716 - $51,358 + $14,039.85 = $89,393.85 "adjusted" P1 balance.

Calculate the reduction in Model Portfolio #1 reported results due to QQQ:

  • [($126,712 - $89,383.85) / $126,712] x100% = 29.5%

Thus, anyone who followed Brinker's advice with 50% of cash reserves that was also in his "model portfolio for aggressive investors" saw their totals reduced 29.5% from what Brinker reports in his advertising.

  • Brinker's P1 on 01/01/88 $20,000 Brinker's P1 on 07/27/07 $206,144
  • Brinker's Reported APR 12.7 %
  • QQQQ Effect is 29.0 % or $59,782
  • Subtract QQQQ Effect $146,362
  • QQQQ Adjusted APR 10.7 %
  • Wilshire 5000 APR 12.0 %
    (Wilshire 5000 APR over the period 1/1/88 to 7/27/07 was calculated by Padraig Cremin of Wilshire Associates Inc and "Ivan Smile". )

What do you think? Did I make a mistake on any of these calculations?

Conclusion: I calculate the QQQQ advice caused Brinker's reported total to drop by 29% and his APR to drop 2.0% a year such that his best performing portfolio #1 under performs the buy and holders of the Wilshire 5000 by 1.3% per year since the inception of P1.

Please post your questions below.


  1. smile_1 wrote:

    regarding accuracy:

    Kirk the APY% for your #s ck out as far as I am concerned.

    I took a different route to confirm your calculated P1 end result of 10.7% APY adjusted for the Q bulletin and came pretty close to the number you calculated.

    I got 10.81% however when I adjusted the Q shrs purchased to 583 using hi low avg price and substituted I got an APY of 10.86% which is still pretty close to your number of 10.7%

    So I would say your calculations accurately reflect the adjustment for Brinker's Q cover-up.

    Throw in dividends for the period and it is clear the S&P outperformed Brinker when the Q trade is included.

    Here is the method I used:

    + P1 mm unadjusted for Brinker's Q cover-up grew at 3.126951% APY from 9/30/00 of 95359 to 102,716 on 2/28/03

    so the real mm value at 2/28/03 is half of the 102,716 or 51,358

    47,679.50 (95359/2) was used to buy Qs

    1) if the p1 balance @ 2/28/03 was $126,712 and P1 @ 7/27/07 was 206,144 then the return for this period was 11.664576% APY

    2) 75,354 (126712-51358) is the 2/28/03 value of P1 without Qs therefore in order to match the APY from step 1 above of 11.664576% the end value @ 7/27/07 without the Qs would have to be 122,591.188

    3) from here all you do is add the value of the Qs back by using the number of Q shares purchased (I think you used 558 shrs of Q x the Q close price of 47.99 @ 7/27/07 = 26,778.42 ; if I calculated your number of shares incorrectly simply substitute the correct # and recalculate).

    My alternate calculation of 10.86% APY used a different figure for the Q shares purchased. What I did was took a hi low average for the week of Brinker's 10/16/00 bulletin and got 81.779/shr which purchased 583 (47679.5/81.779) shares of Q which had a value at 7/27/07 of 27978.17 and simply substituted this figure in step 4 to get the alternate APY of 10.86%

    4) add 122,591.188 from step 2 to the Q value of 26778.42 from step 3 to get the value of P1 @ 7/27/07 and you get 149,369.61

    or using my alternate Q shrs purchased you get 122,591.188 + 27,978.17 = 150,569.36

    5) thus Brinker's P1 APY from 1/1/88 of 20,000 to 7/27/07 149,369.61 adjusted for Q trade = 10.81%

    which matches pretty close to what you got at 10.7%

    as stated above using my hi low average shr purchase of Qs the alternate APY I got was 10.86%

    APY of 20k @ 1/1/88 to 149,369.61 @ 7/27/07 = 10.814426%

    APY of 20k @ 1/1/88 to 150,569.36 @ 7/27/07 = 10.859710%

  2. The significance of this article is profound. Both the S&P and the Wilshire 5000 outperformed during this 19+ year period.

    Bob Brinker always said the best money manager is the one who looks back at you as you gaze into a mirror or something to that affect.

    Due diligence and sound practices win the day.

    Discuss this article here by adding a comment or discuss it more in depth at the Bob Brinker Discussion Forum at facebook.

    To request an invitation to facebook simply click on the link in the upper right corner.

    "Request Invitation to facebook discussion group"

  3. Mr Smile. Please check my math.

    I calculated

    $10,000 compounding at 10.7% between 1/1/88 and 7/27/07 grows to $73,181

    $10,000 compounding at 12.0% between 1/1/88 and 7/27/07 grows to $91,848

    ($91,848-$73,181)/$73,181x100% = 25.5%

  4. Mr. Lindstrom.

    Your math checks out 5 by 5.


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