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Monday, January 21, 2008

Markets Plunge. Bob Brinker Says "Remain Fully Invested"

Despite the market's decline from record highs, Bob Brinker recommended in a special bulletin last night that his subscribers remain fully invested and dollar cost average new money into the markets. His model portfolios one and two are 100% in stock market equities so they have benefited greatly from the bull market that began in October 2002. Now that the market is down considerably, they too are down. Model Portfolio Three is a "balanced" portfolio with half in equities and half in fixed income so it goes up less in bull markets and down less in bear markets.

Since Brinker did not rebalance his "balanced portfolio" as it went up, it is suffering more in this decline than many in retirement want to see. This is a why I recommend rebalancing once a year since I believe NOBODY CAN TIME THE MARKETS, including Bob Brinker.

Based on the sell-off in the S&P500 Futures Market, the S&P500 is currently in "bear market status"
  • (1597-1261)/1597 = 21.04% A bear

The fear that the US is headed towards a recession over its subprime meltdown mess caused the stock markets in Asia to plummet today. The US Stock markets are closed today to celebrate Dr. Martin Luther King's birthday, but the S&P futures market was open and it continued to plunge to enter into official bear market territory, down 21% from the peak, earlier today.

Charts at a Glance - Daily
Charts at a Glance - 5 days
Charts at a Glance - 1 yr

India's Mumbai index set a record with a 7.4% plunge.

The markets in Singapore, Hong Kong and mainland China all saw 5% or more declines on the day.

Hang in there. If this decline is too painful for you, then wait for market strength to lower your exposure to equities. If we are not in a true bear market rather than a selling panic, then we should get a rally to new highs where you should THEN use the opportunity to lower your allocation to equities and give up the false belief in Santa Clause and Market Timing.

Most people who under perform the markets do so by trying to time them, failing at the attempt, then selling in a panic which is what makes markets bottom.

This only goes to show why experts say "nobody can time the markets" so the best way to hadle market volatility is with a diversified portfolio of equities and fixed income such as I recommend in "Kirk's Investment Newsletter" where I advise a "core and explore" approach to investing.

My most aggressive model portfolio is 80% in equities at max so there is always money to buy declines. My "explore portfolio" is 70% in very volatile equities to make up for the 30% in fixed income. I use this portfolio to buy and sell as the markets or my individual stocks go up and down, using mostly asset allocation. Keeping to a fixed, target asset allocation and regular rebalancing (at least once a year) means I take profits when the markets are up and put them back into equities when the markets are down.

I believe Brinker did not rebalance his "balanced" 50:50 portfolio so it started 2008 with much more than 50% in equities, something I do not recommend for retired people. I think they should ALWAYS rebalance once a year to maintain their 50:50 target so declines like we are in now are not so painful.

6 comments:

  1. I just retired and have very little in the stock market at this time, maybe 5% of my total capital. The run of the markets was too good to be true and I moved the money October.
    Personally, I think Brinker is more interested in marketing, helping his family with the empire and other various interests.
    The sad part is all of us baby boomers who are ( were) close to retirement. They are getting slaughtered .

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  2. I think Bob Brinker's model would have called for a bear market in the October-December range if he had used dividend yield as a valuation metric instead of the P/E ratio. Brinker's not alone - most people are still ignoring the fact that half of corporate earnings have been going up in smoke in the form of share buybacks for the last several years. In effect, stocks are as overvalued now as they were back in 2000.

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  3. When did Brinker say not to rebalance your portfolio? Doesn't he suggest that you rebalance in January.

    ReplyDelete
  4. Niebla wrote:

    When did Brinker say not to rebalance your portfolio? Doesn't he suggest that you rebalance in January.

    Look at the January 2008 Marketimer portfolio #3. Add up the mutual funds that are in equities and they total 64% of the total. If Brinker rebalanced these, then he would rebalance back to 50:50 or perhaps 55:45 as many who rebalance say it is OK to get a little bit off target to take advantage of "what is working."

    Allowing a "balanced portfolio" to get to 64% is much more aggressive than even Brinker "officially" recommends for retired people. Yet, that recommendation when the market was near all time highs is there in black and white in the January 2008 Marketimer.

    Someone should call the show and ask him if he "really" recommends people in retirement start with a 50:50 balanced portfolio, then why does he suggest new subscribers who want to follow his P3 put 64% into equities at a time the market was at all time highs?

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  5. Brinker is probably short the market

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  6. Hi,

    I respectfully disagree that we are in a bear market. The S&P500 cash(the real market)closed at 1565.15 on October 9, 2007. The S&P 500's lowest close since that time is 1310.50 on Jan. 22, 2008. This 16.27% decline is NOT representative of a BEAR Market by historical standards. The aspect of time is also important in relation to a Bear Market and approximately 3 months of declines without the price action of the cash closing market does NOT constitute a Bear Market. Of course the MEDIA could create one by scaring the you know whats out of people, in effect scaring them into selling at the worst possible time...NOW.

    So far, Brinker is correct in being 100% long for Equity or Aggressive investors. Time will tell whether he has made an incorrect call or not. Prudent investors should be taking some profits at market high points and building up some cash say in later June – July, 2007 or October, 2007, so that they have dry powder to DCA in during times like these.

    I agree with the comments about rebalancing highly balanced portfolios 50/50 ... good comments there.

    Good Work Kirk…. Jim

    ReplyDelete

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