Wednesday, January 9, 2008

Market and Bob Brinker Update

The market is down. The S&P500 closed yesterday at 1390.19, down 185.9 points or 11.8% since it peaked at 1576.09 in early October 2007.

Click chart to see full sized version courtesy of

The gains from the past year are gone.

People are scared. Just this weekend Bob Brinker said anyone who can't stand a 10% decline should not be in the market. I think he should have widened this to say "anyone who can't stand a 50% decline in the market and know how it will effect your portfolio over the long term should not be in the market until they do." The truth is markets go down and selling causes more selling until a final bottom is made when the last person can't take the pain any more sells. NOBODY can accurately say when or at what market level this will be. Those who stick to their asset allocation, add on the declines and take some profits after some nice gains or new market highs are usually able to do much better over the long term than those who think they can get in at the bottom and out at the top.

If you are worried about holding positions, remember Brinker gave a bulletin to buy any dips under 1380 back in March 2007 AFTER the market was under 1380 and closed at 1390. Later on in the year, he raised this "lump sum buy level" to "mid 1400's." Since then, the maket has offered many opportunities to buy in the mid 1400's and Brinker has reaffirmed that level as good for lump sum rather than dollar cost average many, many times.

On the radio this weekend Brinker said all the funds in his "Marketimer" newsletter are a BUY at last week's higher prices. Remember this includes the Total Stock Market Index and the NASDAQ100 ETF called QQQQ.

More Reading:

Don't be one to sell into the panic. If you are losing sleep over this decline, then consider lowering your asset allocation to equities the next time the market rallies. If you are like me and optimistic for the future, then consider buying some beaten down stocks in my newsletter or some more VTSMX, VTI or SPY if you don't like the added risk of individual stocks.


shadowclone said...

It is difficult to see that you've lost 11% of your stock value in a few short months. But, except the traders or pros, stocks should only be used for long term investment such as retirement. That's how we can reap the profits over the long run.

Therefore, I can see why Bob would insist that a 10% decline is something that an investor should be ready to swallow.

There are a lot of negative influence in the market place - the sub-prime fiasco and the related real estate downturn, the rise in unemployment rate, the increasing risks of inflation, the weakening consumer spending, etc.

But don't forget we are also in an election year. Washington and Congress have a lot of reasons to do something to save the economy. Both parties are fighting for our votes. The Feds will be cutting the discount and prime rates further, and Bush is pushing out initiatives to stimulate the economy.

If we get out of the market now, we don't know when to get back in. Market-timing can only be done by the pros such as Bob Brinker and a few others. For the rest of us, we could allocate our assets to the more defensive stocks such as medical stocks, consumer staples, etc. But getting out of the market is too late now, in my humble opinion. Control our emotions and stay the course.

Best of luck to all of us!

Honeybee said...

Hi Shadowclone,

Thank you for your thoughtful comments, which are full of wisdom and good advice.

I like it so much, I may use part or all of it in one of my front page articles.
The only one of your comments that I might personally question is that the "pros" can actually time the market.

There are highly respected financial gurus who say that it cannot be done--for example, John Bogle and Professor Burton Malkiel.

shadowclone said...

Thanks honeybee!

I will be honored to see my words on your front page.

Regarding market-timing, I assume you are a Bob Brinker fan and believe at least partially what he has been doing. It is fair to say that he has made at least a few good calls over his career in market-timing. So would you agree that market-timing is not entirely impossible?

Thanks for putting up this blog!

SailFree said...

I learned investing from playing blackjack. When the point count is favorable, increase the size of the bets. When it is unfavorable, pull back. As applied to the stock market, when all are shouting "sell!," that's the time to buy, and vice versa.

In other words, I agree that one should add more when the market is down and take some out when it's high. I would go farther than mere asset allocation, however. I was asset-allocating through the late 80s and did OK, but went 100% equities in 1994, 100% cash in 2000, and back to 100% equities in 2003. Then, as I hit retirement, I've returned to asset allocation, though drift deliberately to or away from equities as the market suggests. Right now, drifting back toward more weighting on equities.

princepro110 said...


You say you are drifting back to equities from asset allocation strategy? I assume you were in one of bb model portfolios and you were 100% in equities in 2003? We seem to have a disconnect sometime from 2003 to whenever you started "drifting back"? Did you switch portfolios after retirement?

As for myself, I am retired but take a little from bb and others to form my strategy. I am now and have been since summer......80% cash and 20 equities.