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Tuesday, March 24, 2009

Bob Brinker Market Advice to a 46 Year Old Caller

Last weekend a caller named Jim was able to ask Brinker about the stock market. (We've read many have called in to ask Bob about the stock market but their calls were not put on the radio.) First the market statistics.

IndexEnded WeekYTD %
DJIA7062.93-19.5
Nasdaq1377.84-12.6
S&P 500735.09-18.6
Russell 2000389.02-22.1
Jim asked:
“I’m 46. I saw that the market was going up in 2006 and it wasn’t correcting. So I moved everything into fixed funds, guaranteed stuff. Is it time for me to get back into the stock market with my allocation?”
First off, Jim should be giving Brinker market advice since he got out when the markets were much higher while Brinker issued buy signals all the way down from the top while fully invested.

Brinker missed the opportunity to congratulate Jim on exceptional market timing. Brinker's reply was:
“Well, Jim, I think the first thing you have to ask yourself is what is your tolerance for risk. I mean do you have the tolerance for the volatility that occurs in the stock market?"
Jim replied:
“I probably don’t personality-wise, but I’m thinking this is a buying opportunity.”
Brinker said:
“Well, I think what you should do is you should definitely, if you feel as though you have room in your risk tolerance to have a portion of your portfolio in the equity market, then I certainly would get started on that. And you can certainly put money to work in here...."
Brinker didn't tell the caller he gave "ALL IN" buy signals all the way down with the last one with the market at $850 for "low to mid 800s."

Odd to that at 1576 Brinker was fully invested and had a "gift horse buying opportunity" if the market fell to the "mid 1400s." Brinker has been fully invested since March 2003 when he gave the "all in" buy signal with the S&P500 at 808. With the market about half its peak at 735 and Brinker still fully invested in his newsletter portfolios, you would think he'd be "more encouraging" towards equities for long term investors who managed to miss most of the bear market decline.

Brinker continued:
".....I mean, the market is actually fairly close to its closing low right now. The closing low on the S&P is 676. We’re looking at a market right now trading in the 768 area."
What is 92 points between friends? Well:
92 / 676 x 100% = 13.6%!
If you got a 13.6% raise, would you call that "fairly close" to the same salary? That is why I think Brinker is such an entertainer...

Brinker continued:
"You’re looking at a market that has lost half of its value relative to where it was less than two years ago. So I mean in the broad context of accumulating an equity position, I certainly would not have a problem with that for you -- if you, again, if you feel you have the tolerance for risk to do so and that would be the key.”
Could Brinker be any more hedged with his advice? Perhaps Brinker should have take his advice from caller Jim who got out near the top and thought the markets were at a buying opportunity after a 50% hair cut.

Not everyone was fully invested at the top. Read Best Investment Newsletter. Not everyone was sitting in 100% equities at the bottom unable to buy at what Doug Kass called "a generational bottom."

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