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Saturday, October 04, 2008

Bear Market Statistics - Bob Brinker Fully Invested for 30% Bear Market

Market Timer Bob Brinker Fully Invested for 30% Bear Market. John C. Bogle, Vanguard founder and patron saint for those of us who use asset allocation rather than market timing, wrote in Common Sense on Mutual Funds, pg 20:
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, Jack to his friends, Bogle has been a guest on Moneytalk several times.

This graph shows the market decline in percent since it peaked nearly a year ago. For those who don't like graphs or want more information, I list the full set of data below.

Click chart courtesy of stockcharts.com for full size image

2007-2008 Bear Market Statistics 10/04/08

S&P500 Chart
Last Market High 10/11/07 at 1,576.09
Last Market low 10/03/08 at 1,097.85
Current S&P500 Price 1,099.23
Decline in Points = 476.86
Decline in percent = 30.3%
Max Decline = 30.3%
=>This means the decline from intraday high to intraday low is 30.3% and we are currently 30.3% off the peak.

=>The decline in the S&P500 from the closing high to the closing low was 29.8%

DJIA Charts
Last Market High 10/11/07 at 14,279.96
Last Market Low 10/03/08 at 10,310.25
Current DJIA Price 10,325.38
Decline in Points = 3,954.58
Decline in percent = 27.7%
Max Decline = 27.8%
=>This means the decline from high to low has been 27.8% and we are currently 27.7% off the peak.

=>The decline in the DOW off the closing high to the closing low was 27.1%

NASDAQ Charts
Last Market High 10/31/07 at 2,861.51
Last Market Low 10/03/08 at 1,947.19
Current NASDAQ Price 1,947.39
Decline in Points = 914.12
Decline in percent = 31.9%
Max Decline = 32.0%
=>This means the decline from intraday high to intraday low is 32.0% and we are currently 31.9% off the peak.

=>The decline in the NASDAQ off the closing high to the closing low was 31.9%

With asset allocation, say 50% in equities and 50% in fixed income for someone 70 years old, when the market is making new highs, you sell equities to "take profits" to get back to 50% in equities. Then when the markets eventually have a bear market, you use those profit taking dollars to repurchase equities at bargain basement prices. For a detailed explanation, see my article "Using Asset Allocation to make money in a Flat Market."

Asset Allocation Advice: I like the rule-of-thumb "120 less your age in equities." For example, if you are 40 years old and don't plan to retire for 20 or more years (unless you get lucky with some of my "explore portfolio" stock picks) then you would have 80% in equities and 20% in fixed income. If you are well into critical mass, then put even less into equities and get inflation protection from TIPS since you don't need the extra "expected" return at the much higher risk.

If you want to know what I have been buying in this period of weakness with my profit taking dollars from selling when the market was higher, Subscribe to Kirk's Investment Newsletter TODAY and get the October 2008 Issue for FREE!

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