Many people follow investment and risk management strategies similar to those advocated by Bob Brinker. I do not. However, to enlighten myself I ordered a complimentary copy of his MARKETTIMER newsletter from his Web site and received the one dated 1/8/00. Here is my analysis of it. 1. WHAT IS A SATISFACTORY YIELD BY HIS STANDARDS?The following statement provides a clue as to what Bob Brinker views asan INCREDIBLE yield in our current era's record-setting market:"During the five-year period ending on 12/31/99, a simple $1,000 investmentin the Wilshire 5000 grew to $3,258 for an INCREDIBLE FIVE YEAR ANNUALCOMPOUND RATE OF 26.8%."As contrast, over the past four years my investment strategy has producedannual yields that range between 57.6% and 92.9%. This explains whyI view 26.8% as a mediocre return.2. BRINKER'S FOCUS AND RECOMMENDED LIST OF NO-LOAD FUNDS.In this eight-page newsletter there is only brief mention of sevenindividual issues. Three of them actually are forms of index funds such asQQQ, DIA and SPY, plus a trust fund GAB. Two of the remaining three thatone might recognize as true individual stocks are Vodafone/Airtouch (VOD)and Microsoft (MSFT) -- the latter being what I view as my poorestperforming major holding with its133% yield over the past 16 months.So what is it that Bob Brinker focuses upon other than low-yielding andsuper-safe vehicles such as bonds and treasuries for the aged and/or faintof heart?The answer of course is NO-LOAD MUTUAL FUNDS. In fact, three ofthe eight pages of this newsletter are consumed by a widely spaced list of20 no-load funds he presently recommends. Removing the best three as wellas the worst three performers as anomalies, the average annual yield was20.2% in 1998 and 26.2% in 1999. The median was 23.3% in 1998and 23.8% in 1999.A fund Mr. Brinker often suggests on his radio program is the VanguardIndex Total Stock Market Portfolio which was close to the medianperformances -- 23.3% in 1998 and 23.8% in 1999.So again one can see that Bob Brinker and his strategies seem quitesatisfied with annual yields which come in at plus or minus a few points ofa 20% annual yield. If that is a level of return which pleases an investorand allows him or her to sleep well at night, then go for it. I wouldventure the guess that this is better performance than the majorityof investors achieve.3. HIS THREE MARKETIMER NO-LOAD MUTUAL FUND MODEL PORTFOLIOS.One full page is devoted to detailing these portfolios. Each contains 7 to8 funds plus the present recommended percent of total market value to havein each one. As I did in a previous treatise, let's again check out two ofthem, beginning with the one with the highest yield.PORTFOLIO I. Per the newsletter, this one is designed for investors withaggressive growth investment objectives. Such investors seek maximumreturns and are willing and able to accept high levels of risk andvolatility -- and wherein current income is not a factor.It goes on to say that $20,000 invested on 1/1/88 would have increased to$136,620 on 12/31/99 -- a percent increase of 583% over those 12 years.This sound interesting -- until one pulls out their calculator and discoversit is the equivalent of achieving an average annual yield of only 17.4%!PORTFOLIO II. This less aggressive one (which translates to an even loweryield) is touted as being designed for investors with long-term growthobjectives who seek to enhance the value of capital over time and assume areasonable level of diversified market risk -- and wherein current income isnot an important factor.PORTFOLIO III. This docile one is defined as "balanced" to achieve currentinvestment income along with capital preservation and modest growth. It isallocated evenly between equities and fixed-income and is touted as bestsuited to investors nearing or already enjoying a retirement lifestyle.Noting the beginning date of 3/1/90 (rather than 1/1/88 used in portfolioI), it indicates that $20,000 invested on 3/1/90 would have increased to$55,348 on 12/31/99 -- a 177% increase over those 9 3/4 years. That isequivalent to an average annual yield of only 11.0%!After studying these portfolios, it remains my opinion that they have somuch "CONVENTIONAL SAFETY" built into them that their yields sufferimmensely -- and unnecessarily! They employ all of the "put your portfolioin a straight jacket" standards and adages such as broad diversification,using mutual funds to achieve it (which as a whole do just so-so), assetallocation (which forces selling and then re-selecting and re-buyingwhenever advised that the winds may be changing), and on and on.Are there simpler and more profitable alternatives featuring reasonablesafety? I believe the strategy I employ and have described in othermessages qualifies as one. In just FOUR years it would have growna $20,000 investment to $177,326 -- and this translates to anaverage annual yield of 72.6%!A longer term real-life example is the IRA I began in the last months of1992. If someone shadowed that venture, in just 7 years their initial$10,000 investment would have grown to $195,020 -- which translates toachieving an average annual yield of 52.9%.In Brinkers "aggressive" Portfolio I, it took 12 YEARS to grow $20,000 into$136,620. In my IRA real-life example above, it would have taken aninvestor only 7 YEARS to grow that same $20,000 amount into $390,040!4. MARKET TIMING ADVICE.There are at least three things I do admire about Bob Brinker. First, he isclearly aware of and constantly warns his callers that there are many sharksout there including brokers and financial advisors who are far moreinterested in lining their pockets than yours.Second, he is a "no-load" mutual funds advocate, and he makes it clear thatwarning lights should begin flashing in one's mind whenever anyone tries tosell you on "load" funds -- or annuities or insurance other than term.Furthermore, he talks about and provides a list of funds in his newsletterthat have a rather consistent track record. This is helpful, because mutualfunds that do exceptionally well in one particular year usually don't repeatthat performance. Nevertheless, that rare year often is used as a majorselling tool and it also inflates the fund's average annual return -- pointscleverly touted that can lead an unwary investor astray.Third, I believe he is unusually knowledgeable about market details and doesa commendable job of market analysis -- where it's been, where it's at, andwhere it appears to be going.However, as a BUY&HOLD advocate (and one who uses bail-out points as asafety net), I do question what he might be inclined to suggest an investorshould do in response to changes in the ever-changing temperament of themarket -- i.e. juggling asset allocation, moving into cash or back intoequities, etc. Let me cite a recent example which helps illustrate mypoint.In this 1/8/00 newsletter (and based upon his market timer model) he recommended that equity holders promptly sell to create a 60% cash reserve position in money market funds, and that they then hold this position pending reinvestment of that cash back into the stock market at a "later time" -- and these changes were effective immediately! As of his 2/20/00 radio program he still was sticking to his above cash position advice. Was he correct in his forecast? Yes -- in the sense that a rather large drop did occur immediately after Friday 1/21/00. Using my own figures to illustrate this drop, my YTD yield on 1/21/00 was 7.2%. It then dropped sharply on Monday 1/24 and ended that week at -4.1% as of Friday 1/28. So far his advice was on target. However, by one week later on Friday 2/4/00 my YTD yield already had recovered to 7.2%. It then steadily has continued to move higher -- and on 2/23/00 it stood at 13.1% which generates a new all time record high market value for this portfolio.So was this really a good call or not? It will be ONLY IF he makes the "get your cash back into the market" call correctly and quickly communicates it to his followers, and that they in turn do get back into the market. In other words, it is one thing to accurately make the call to get out, but the call to get back in needs to be of comparable market timing accuracy. On the other hand, my strategy did not require me to make these kinds of precise market timing calls. In addition to the proven fact that my strategy consistently achieves a far higher annual yield, my automatic bail-out points cover worst case scenarios. So I did exactly what my strategy called for -- stayed invested, did NOTHING! And as of 2/23/00 my portfolio remains fully invested and has a total market value which is a new eight-year high! Bob Brinker presently believes his indicators show that investors who follow his market timing approach still should be 60% or more in cash -- i.e. that the time to get back in has in fact not yet arrived. He very well may be correct. But again, for my strategy this is a moot issue because my system automatically will handle the occurrence of worst case scenarios.5. ACHIEVING ONE'S YIELD EXPECTATIONS.Now let's return to the question of what are reasonable expectations.I believe that anyone including Bob Brinker who suggests that a Total StockMarket fund is a good investment idea is like saying and believingthat the AVERAGE TIME of an entire high school gym class forrunning the mile is acceptable performance. Just like any high school gymclass, the "total market" consists of the excellent, the good, the average,the mediocre and the poor performers. Similar to a track coach choosing histeam from amongst that gym class, I don't see it as a major problem toseparate the wheat from the chaff and thereby come up with a winning andeven record-setting combination -- and without taking appreciable risks!Many investment advisors seem to view the market and stocks as they believethings "should be" according to rather complex formulas, projections,mathematical calculations and comparative analyses -- but it never is! Tocompensate for this fact, they and most investors retreat to immenselyunfocused and average-seeking strategies such as broad diversification,asset allocation, mutual funds, bonds, treasuries, etc. Anybody with half awit knows that spreading oneself across the board with a little of this anda dash of that will reduce risk and thereby provide a "safe mode" in whichto operate. However, doing so inevitably brings with it the downside ofensuring average yields. It sadly reminds me of our culture's propensity todevote ever-increasing attention to not messing up rather than to focusprimarily on achievement.Surely there must be a better way. My own parameters for a viablecounter-solution are that it be (1) relatively simple, (2) reasonably saferisk-wise, and that it (3) must allow an investor great freedom to focus onarenas of high yield potential that prevail in the market "as it is" inorder to achieve high yields. I believe that my system offers allof this.For less aggressive play-it-very-safe investors, the Bob Brinker strategy isa good and perhaps the best route for them to follow. Were I in that camp,I would spend $185/year to receive his MARKETIMER newsletter and relatedbulletin service in the event of an important change between these monthlynewsletters. Whatever system one follows, you must believe in it and thenkeep yourself well-educated and on top of it -- and this is how to do it inthis case.However, I am not in that ultra-conservative camp for several reasons, andwhich I have attempted to clearly explained in this message as well asothers. So for someone like me, the newsletter has little to no valuebecause going down that road does not satisfy my aspirations and thereforesubscribing to it would be a waste of my time and money.FLEETWOOD
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