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Tuesday, July 08, 2008

Official Bear Market By Bob Brinker's Definition

Bob Brinker defines a bear market as a 20% decline in the S&P500 on a closing basis. (See the article "Bob Brinker's Bear Market Definition")

Yesterday the S&P500 closed down 20.0% from its all time closing high.

Click charts courtesy of Stockcharts.com to see full size images.
Correction Statistics for 07/07/08

S&P 500 Data using Closing Prices
Date of last high: 10/09/07
Last Market High: 1,565.15
Date of last low: 07/07/08
Correction Low: 1,252.29
Decline in Points: 312.86
Decline in %: 20.0%
If the market goes up from here, does anyone want to bet that Bob Brinker will say the S&P500 "only" went down 19.99%, not 20%?

Using the MarketWatch Mutual Fund Analyzer, Treasury Inflation Protected Securities, or TIPS, have been the top performer this past year going up more than the stock market has gone down!

Table of Vanguard Index Fund Performance

Ticker
Asset Class
YTD

1-YR

3-Yrs

5-Yrs

10-Yrs


VIPSXTIPS5.99%
17.34%
6.17%
6.43%
NA


VFINXS&P 500
-13.84%
-16.59%
3.33%
6.33%
2.40%

VTSMXTotal Stock
-13.31%
-16.56%
3.66%
7.29%
3.09%

VBMFXTotal Bond
1.05%
7.88%
4.12%
3.87%
5.38%

VFIIXGNMA1.11%
8.17%
4.53%
4.07%
5.50%
I love 20% off sales! Why should the stock market be any different than Macy's? Do you wait for pants to go up 20% above list price to buy or do you look for sales?

Just yesterday I added about $5,000 worth of SPY (Charts) to my explore portfolio at $125.25 a share using money raised from taking profits when the markets were higher.

I wish someone like Bob Brinker really could time the markets. Can you imagine how much more money you would have if you sold out of stocks a year ago on fear of stagflation (low economic growth and high inflation) and put the money into TIPS?

Instead of $100 in VTSMX (Total Stock Market Index Fund for Wilshire5000 Charts) turning into $83.44 you would have $100 in VIPSX (TIPS index Fund) growing to $117.34 for a difference of $33.90.

Those in the total stock market index fund, VTSMX, now need a 40.6% gain to catch up with someone who switched to TIPS a year ago!
(117.34-83.44)/83.44 x 100% = 40.6%
Of course, that sort of performance with near perfect market timing is why market timing appeals to so many. Sadly, Jack Bogle, founder of Vanguard and a regular guest on Moneytalk, wrote:
The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly fifty years in this business, I do not know of anybody who has done it successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently. Yet market timing appears to be increasingly embraced by mutual fund investors and the professional managers of fund portfolios alike.
[John C. Bogle in Common Sense on Mutual Funds: , pg 20]
For us mere mortals who can't read the future with a crystal ball, a well diversified basked of index funds for our core portfolios, such as the ones I recommend in "Kirk Lindstrom's Investment Newsletter" are the way to go.

Corvette driving into mailbox

To find out how I've profited greatly from these difficult market conditions, subscribe to "Kirk Lindstrom's Investment Newsletter" today!
  • Since 1/1/1999 through 6/31/08 my "explore" portfolio is up 175% while the S&P500 is only up 20% and Warren Buffett's Berkshire Hathaway is only up 71%
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