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Wednesday, June 26, 2013

Bob Brinker - Market Prediction, Diversification and Inflation

Moneytalk with Bob Brinker Commentary for June 16, 2013 Radio Show

The following commentary is from my "Retirement Advisor" writing partner,  David Korn.

Caller: This caller inherited some stock that accounts for 25% of his portfolio. How should he handle that? 
Bob said he would own something like the total stock market index through Vanguard or Fidelity in a low cost index fund. That is a sideways move in the stock market. 
Kirk Comment:  I like this advice.  Depending on how much money the caller has, I would recommend further diversification with some (20% for young people, 50% for retired people) in fixed income so you have money to "rebalance" and buy low when the market has the inevitable correction.  I felt so sad for many Brinker followers who were 100% in equities at the top before the last bear market.  The rode it all the way down and some actually sold out according to some sad emails I get. 
I also like to split the total stock market index fund into its components plus add international diversification once you have enough in your portfolio to get over the minimums. Then when you have enough in this diverse portfolio to have the six index funds I currently recommend in my "Core Portfolios" then you are ready to add explore stocks.  Of course some like to add explore stocks (what Brinker calls "individual issues") sooner, which is fine, but that comes at a price of higher portfolio volatility.  That is fine with me as long as it doesn't scare you out of the portfolios when the markets are down.  One reason my method works is we have targets to buy low at so we welcome market declines.
The caller asked if he should sell the stock now, raise the cash, and then wait for a stock market correction to go into the index fund? 
Bob said he doesn¹t know what the market will do and that is a sideways move and since he recommends being invested right now you do it on the same day. 
Kirk Comment:  I don't think I ever heard Brinker say this before!  Did someone slip a "truth serum" into his iced tea?

EC( David Korn): Bob continues to recommend a fully invested position insofar as the stock market is concerned, a recommendation he has held since May 2003. 

Kirk Comment:  Actually Brinker has recommended being "fully invested" since March 2003.
Brinker Comment: The Consumer Price Index comes out Tuesday and we have inflation down near record lows. Why is inflation so low? Because the economy is growing slowly and there is so much excess labor out there. When you combine those two things, it is a recipe for low inflation. 
EC: I read a thought provoking article entitled, ³The Truth About Inflation: Prices Don¹t Deceive, the CPI Does² that I found at this url:
Bob had on Anita Raghavan, author of the book, "The Billionaire¹s Apprentice: The Rise of the Indian-American Elite and The Fall of the Galleon Hedge Fund." The interview wasn't worth summarizing at all 

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Some of the above commentary is courtesy of my writing partner, David Korn
David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.  Copyright David Korn, L.L.C. 2013
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