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Saturday, November 3, 2007

Bob Brinker's Market Timing

Bob Brinker is currently very bullish on the stock market. As he has said on Moneytalk and in Marketimer, he rates the S&P 500 Index “attractive for purchase on any weakness that occurs in the area of mid-1400’s.” Above that level, he recommends a “dollar-cost-average approach.”
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So what does Bob Brinker expect the market to do in the remainder of this year and into next year?
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In the August 2007 Marketimer, Brinker mentioned the likely
possibility of the S&P trading in the “1600’s by next
year.”
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In the September 2007 Marketimer, Bob
Brinker said that he expected “….the S&P 500 Index to
register a series of new historic highs into next year."
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Bob Brinker is also on record stating that there is zero risk of a cyclical bear market (20% decline of the S&P 500 Index) in 2007, and “……in the months ahead.”
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Bob Brinker no longer talks about secular bear trends, “long-in-the-tooth” cyclical bull markets, or cyclical bull market “outliers,” like he did just a few months ago.
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When Bob Brinker made the March 2003 buy signal, he claimed the market had entered a cyclical bull market WITHIN a secular bear megatrend and:
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He initially predicted the cyclical bull market would last 1-2 years — and the market charged higher.
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He changed the cyclical bull time-frame to 1-3 years — and the market charged ahead.
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He said the cyclical bull was “long-in-the-tooth” —and the market charged ahead.
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He said cyclical bull market was an “outlier” — and the market charged ahead.

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In the February 2006 Marketimer, Brinker makes the following statement about "outliers" and his market recommendations:
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"We do believe that the current cyclical bull market has the potential to be an outlier within the context of the four cyclical bull markets that occurred during the 1966-1982 secular bear megatrend. During that period, the four cyclical bull markets registered gains ranging from 32% to 76%, and lasted from 12 months to 38 months."
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All this time, from 2000 to 2007, Bob Brinker said that the secular bear megatrend which began in March 2000 would end ONLY after the S&P breached the 2000 closing high of 1527.
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When first the Dow and then the S&P broke the 2000 closing highs in (about) July, 2007 by a small amount but looked like they would continue to be bullish, Bob Brinker, on page two of the June 2007 issue of Marketimer declared that the secular bear megatrend had ended a year earlier in June 2006.
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Bob Brinker has never mentioned the subject since then—either in Marketimer or on Moneytalk.

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Do these rather shocking mistakes made by a man whose claim to fame is understanding and analyzing the stock market mean anything in the long-term?
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In light of the fact that his model portfolios have been 100% invested since March 2003, there are those who think not and still trust Brinker's ability to time the market.
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I suppose each person needs to judge for themselves. But in order to reach an educated conclusion, listeners and readers need to know that Bob Brinker made a disastrous (to many and damaging to some) trade in October 2000, which was not accounted for in his official model portfolio performance record.
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Neither Bob Brinker nor Hulbert’s Financial Digest acknowledge this trade that used model portfolio cash reserves in Brinker's advertised newsletter performance. And the deception goes full circle because Bob Brinker uses Hulbert's Financial Digest performance ranking to advertise his newsletter model portfolio performance record.

_____Honeybee
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11 comments:

smile_1 said...

Good write-up Honey.

Does Hulbert list Brinker's performance with an asterisk. If not, he should if his reviews are completely objective.

If Barry Bonds is given asterisks in people's minds so to should Brinker accept one. One is accused of taking performance enhancing drugs they other is enhancing performance by omitting part of his record - I see no difference if both are guilty except Bonds has not been proven guilty of deception whereas Brinker has.

Kirk did an excellent assessment of the effect of the QQQQ trade on Brinker's performance showing he under-performed the Wilshire 5000 for the period in question.

http://bobbrinkerfanclub.blogspot.com/2007/09/affect-of-bob-brinkers-qqqq-advice-on.html

The impact of the QQQQ advice takes Brinker from APR 12.7% to an adjusted APR of 10.7% which compared to the Wilshire 5000 which had an APR of 12.0% during the same period.

Throw in the cost of his newsletter and it is clear to all but the sheep who follow Brinker blindly that we have id'd a fraud being perpetrated on the saps who know no better or are just to lazy to do what Brink use to say, and maybe still says, and become your own financial advisor. The amount of information on the net is incredible at this point so there is really no excuse except for intellectual and physical laziness.

Kirk said...

Thanks for the kind words smile_1.

Here is a clickable link

The impact of the QQQQ advice on Brinker's Reported Results

I like Brinker's great advice to avoid funds with high fees, which usually leads to index funds... and I like his timing model as a way to encourage people to "take profits to rebalance" to their target asset allocations after the markets have had big gains just as I like the model, especially the sentiment parts I cover in my newsletter, for telling us when to add equities to our portfolio when the markets are down and we can get back to our target asset allocation. Academics call it the "rebalancing premium" which gives you higher returns than simple buy and hold. See Using Asset Allocation to make money in a Flat Market for more info on how this "rebalancing premium" works.

Honeybee said...

Hi Smile_1,

Thank you for your encouraging words. I always appreciate knowing that nice guys like you find value in reading what I post here.

Yes, Mark Hulbert does use a footnote on Brinker's performance reviews.

However, Bob Brinker does not mention that footnote when he cites HFD model portfolio performance ranking in his own advertising.

That looks to me like a very clever and rather amazing deception--which adds another layer of deception to Brinker's cover-up of the QQQQ-trades.

Here is a copy of Mark Hulbert's Bob Brinker footnote:

• "PLEASE NOTE: In late 2000, Brinker forecasted a several-month bear market rally and recommended an investment in the NASDAQ 100-Index--a trade that turned out quite unprofitably. However, because Brinker, at the time of making this forecast, chose not to make this trade part of his model portfolios, his HFD record has not suffered as a result."


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Anonymous said...

"Rebalancing Premium" is a myth according to Bogle..

Bogle on Rebalancing

July 15th, 2007 · 2 Comments
A reader asked John Bogle if he should rebalance his portfolio to the original asset allocation when adding new money or divide the new money according to the original asset allocation even if his portfolio might be out of whack. Mr. Bogle offered a surprising answer:

Rebalancing is a personal choice, not a choice that statistics can validate. There’s certainly nothing the matter with doing it (although I don’t do it myself), but also no reason to slavishly worry about small changes in the equity ratio. Maybe, for example, if your 50% equity position grew to, say, 55% or 60%.

In our portfolios that are mostly invested in ETFs, I simply add new money to a lagging asset class to bring the portfolio roughly back to the target and normally do not bother about deviations of up to 5%. In portfolios where no new money is being added, Mr. Bogle says it pays to be real lazy and not rebalance at all:

Interestingly, failing to rebalance never cost more than about 50 basis points, but when that failure added return, the gains were often in the 200-300 basis point range; i.e., doing nothing has lost small but it has won big.

Appreciative Reader said...

I did not see that footnote in Mark Hulbert's latest Monthly newsletter.

Kirk said...

Anonymous said... "Rebalancing Premium" is a myth according to Bogle..

First you say the “rebalancing premium is a myth according to Bogle” then you post a quote where he says it is fine if your allocation to equities is up 5 or 10%, the amount I used in my example for when to do it.

What Bogle neglects to mention is rebalancing is a way to lower risk. If a 50:50 retirement portfolio goes up to 55% equities due to great performance of equities relative to fixed income, then taking profits to get back to 50:50 means you lock in a higher base amount to take your 3.5 to 4.0% a year out for a “safe withdrawal rate.” Basically, you just gave yourself a raise, especially if you never buy back equities. Still, academic studies show there is a “rebalance premium” and I’ll try and dig some up in the days ahead.

See What is the Safe Withdrawal Rate in Retirement? for two excellent articles on that subject.

Honeybee said...

Hi appreciative reader,

I do not currently subscribe to HFD. Are you saying that Hulbert has now stopped adding the footnote about Brinker's QQQQ-trade?

Kirk said...

"I do not currently subscribe to HFD. Are you saying that Hulbert has now stopped adding the footnote about Brinker's QQQQ-trade?"

As long as I can remember, Mark Hulbert ONLY gives that footnote in his twice per year "Long Term Performance Ratings" that he puts out in addition to his regular monthly newsletter. Footnote #9 is in this publication.

In Mark's monthly newsletter, which has much less space and where he gives his monthly updates on the rankings, he make no mention of Brinker's "asterisk performance" due to the QQQ disaster. If people only read those, then they will never know about the QQQQ debacle.

Thoughts of a genius mind said...

Thanks Honey for your comments

I just use Bob Brinker as one of many pundits, and I hear what he has to say, but I don't pay as much attention as I used to.

I put some money in his QQQ call, but even then I considered it risky. Remember Ultratech, another fiasco. I did heed his call about pulling my money out before the dot-com crash, but that is what my boss would have called (a TGO), a terrific grasp of the obvious. The average lay person who looked at the market with just a cursory outlook would have known the stock market was overvalued.

I also subscribed to his newsletter, and it was not worth it.

Back then, I did mostly mutual funds, now I do mostly Individual stocks using Morningstar, and I do much better.

I purchased a bunch of banks after the subprime debacle, good banks such as B of A, Washington Mutual, and the Bank of Ireland. These banks keep going down especially since they all recorded a flurry of losses, and increases in loss reserves.

But, once this subprime debacle gets to a manageable level (hopefully in 8 mos to a year), these banks should come out stronger.

If Hillary is elected though, I think the entire market will be in trouble

Mark Dias

Thoughts of a genius mind said...

I thought I would post this link from the Economist on the credit crunch. Quite enlightening
http://www.economist.com/finance/displaystory.cfm?story_id=10064677

I thought I would add a side note as an Accounting manager. When crisis' occur like this (ie: the subprime debacle), Companies will tend to overreserve. The reason - they understand that investors are expecting losses, so they would rather take the hit all at once.

In the same vein, in good times, companies will tend to underreserve in order to show more profit.

And when the auditors audit, reserves can be a complicated issue, and it is very easy to show auditors why you have sufficient reserves when in fact you may or may not.

As an accounting manager of a 150 million dollar company, we did this all the time.

Honeybee said...

Hi thoughtsofagenius,

I know that you are absolutely right about companies wanting to get all the bad news out there all at one time. A family member is involved in financial accounting department of a major Silicon Valley corporation.

I agree with everything you said about Bob Brinker and his newsletter.

You asked: "Remember Ultratech, another fiasco."
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I don't actually remember it because it mostly happened before I became "connected." 8^)
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However, I am fully aware of the history of Bob Brinker and UTEK. He touted it on the radio, in his newsletter, on NBR and on the internet. While doing that, he did not reveal that he had an inside interest in the company through his BJ Group.

Paul Kangas asked Bob Brinker about this on his last appearance on NBR:
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KANGAS: "Bob, it's come to my attention that employees at Ultratech have the option to invest their 401 (k) funds with a management firm in which you are a principal."

BRINKER: "Exactly."

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For at least two years, Brinker enthusiastically touted UTEK and discouraged short-sellers on a message board under the anonymous alias, "Donlane." That alias was later change to "mistertopes." Many thought that happened in order to make it more difficult to find the posts via a search.