Bob Brinker's Model Portfolio III

WARNING!  Bob Brinker's "Balanced" Model Portfolio Three is NOT balanced!

• A balanced portfolio has half in stocks and half in fixed income that typically goes up when stocks go down
• Brinker's Model Portfolio 3 is over 2/3rds in stocks!
• Brinker's Model Portfolio 3 contains "risky" fixed income funds that have a positive correlation to the stock market.  That is the "junk bonds" will typically lose value during a recession when stock prices also fall.

Brinker may show percentages that are 50% in equities and 50% in fixed income and often speaks of how this is to reduce risk during bear markets.  I caution readers that the percentages Brinker recommends are not what he has in these portfolios.  For example, this (repeated below) would lead you to think his "balanced" Model Portfolio III is half in stocks and half in fixed income, but if you look at the dollars he lists each month, he has the portfolio over two thirds in equities, not half!

Here is Bob Brinker's Model Portfolio III, which is a 50% equities/50% fixed income portfolio, "best suited to investors nearing or already enjoying a retirement lifestyle". As of March 4, 2014 Marketimer newsletter:

Akre Focus Fund (AKREX): 5%

Vanguard Dividend Growth (VDIGX): 5%

Vanguard FTSE All-World ex US Index (VFWIX): 5%

Vanguard International Growth (VWIGX): 5%

Vanguard Total Stock Market (VTSMX): 30%

Osterweis Strategic Income Fund (OSTIX): 10%

DoubleLine Low Duration Bond (DLSNX): 20%

Fidelity Floating Rate High Income (FFRHX): 20%

Stock fund vs Bond Funds

Brinker doesn't rebalance his portfolios to 50% stocks.  As a result, when the markets are going up, he can report higher returns than competitors who rebalance.

Here is the composition of Model Portfolio 3 just before the biggest bear market since the great depression:

click images to see full size

Another result that he doesn't talk about is these portfolios give up far more to the downside from their peaks during bear markets.

One of my readers sent me this a few days ago showing the totals for the portfolios and the percentages Brinker shows.  I added a column at the right that calculates the ACTUAL portfolio allocation to each fund. 

That is the portfolios with two thirds in stocks have far more risk than "typical" balanced portfolios like the ones I recommend in my newsletters. See

•  "Kirk's Two Investment Letters - Which is Best for You?"
  ALL the funds in my core portfolios are at Vanguard but I give ETF substitutions for those who want to use Fidelity, Schwab, etc.... I rebalance about once a year so the costs are tiny and you can avoid those by using the free to trade funds at those fund families, also listed in the newsletter as alternatives.

Another factor is taxes from switching funds, which Brinker does often and I almost never do except for eliminating total bond fund until rates normalize to reduce risk.

Bob Brinker's Facebook Advice

Bob Brinker was not a big fan of Facebook. 

Joe from Springfield summarized Bob Brinker's July 2012 comments after the Facebook IPO when the stock was below its IPO price. 

Pete, Yesterday when I heard about the good earnings report from Facebook I remembered Brinker commenting on the IPO back on July 12, 2012. Here is what he said:

FACEBOOK IPO FIASCO...Brinker comments: In all of my years in the canyons of Wall Street, I've never seen a bigger debacle than the Facebook initial public offering....Here's a stock that came public a few weeks ago amidst more hype than I've ever seen before.....When I think back to the high profile IPOs of the past, the Apple....even to the Google....I've never seen a bigger fiasco than Facebook. The stock cracked $24 on Friday...It lost over a third of its price in a very short period of time. So in addition to raising the price, the underwriter clowns decide they are going to increase the size of the number of shares they are selling.....Facebook opened at $42 on its way to $24....Facebook has lost $34 billion dollars in market value since its IPO two months ago.....On Friday, when the market was doing very well, Facebook lost another 12%..... 

......The CEO, Mark Zuckerberg, he's a wealthy individual, but Friday, he lost $1.6 billion in stock value....He still has $12 billion in stock....I have no recommendation on this stock. I avoided like the plague on the IPO.....The P/E ratio on Facebook is double the price-earnings ratio on Google....Is that amazing or what? It's more expensive than Yahoo! which has a new CEO.....How much money are they making? They are not making any money. They are losing money. Facebook reported a net loss of $157 million for the quarter they reported on the end of the week.....In the fourth quarter of this year, there will be a release of a huge shares that will become available to the marketplace.

I doubt he will mention the turnaround of this company next Sunday on Moneytalk. Kudos to Zuckerberg.    [Originally posted here.]

I too was worried about the shares coming to market after the lockup.  I circled them in this chart I created in 2012 to get an idea when it would be safe to perhaps buy the company. 

Facebook since its May 18, 2012 IPO @ $38 

Yesterday Facebook reported earnings of $1.44 billion for the first half of 2014.

MENLO PARK, Calif., July 23, 2014 /PRNewswire/ -- Facebook, Inc. (NASDAQ:FB) today reported financial results for the quarter ended June 30, 2014. 

"We had a good second quarter," said Mark Zuckerberg, Facebook founder and CEO. "Our community has continued to grow, and we see a lot of opportunity ahead as we connect the rest of the world."

... 

Income from operations - For the second quarter of 2014, GAAP income from operations was $1.39 billion, up 147% compared to $562 million in the second quarter of 2013. Excluding share-based compensation and related payroll tax expenses, non-GAAP income from operations for the second quarter of 2014 was $1.71 billion, up 116% compared to $794 million for the second quarter of 2013

GAAP is short for "generally accepted accounting principles."

Stock investing is a bet on the future, not the past.  Two years ago, those who bought Facebook shares in anticipation of future earnings are wearing what Bob Brinker calls "watermelon smiles" today.

I thought about buying FB in 2012 to the point I started to track its price on my chart list.    I decided to buy Hewlett Packard (HPQ) instead.  On October 4, 2012 I added HPQ to my newsletter Explore Portfolio at $14.50 and later wrote a free article recommending HPQ on Seeking Alpha when it was still fairly low:

Summary (1/10/13):  I worked at Hewlett-Packard for twenty years as an engineer/scientist in the R&D department starting as a summer intern in 1978. I have not purchased shares since working there and I sold most of them long ago at much higher prices. Now I think it is time to start buying again as there remains much value in the company, even if the mismanagement continues.

I am happy with more than a double for my HPQ plus the dividends it pays but Facebook would have done even better. This chart shows FB is up 200%, the S&P500 is up 34% and HPQ is up 132% (more than a double) since I picked HPQ over the S&P500 (More SPY) and Facebook.  Who knew?

More FB charts & Current Price Quote 

The three portfolios in Kirk Lindstrom's Investment Letter are again at record all time highs.  

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