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5 Root Causes of a Bear Market
May 31, 2007
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This article examines Bob Brinker's 5 root causes for a bear market. Please post your questions in our "Bob Brinker Free discussion forum" at Suite101.com.
First lets look at what Brinker listed as his "Five Root Causes" for a bear market back when he make his last call to reduce asset allocation to equities for an "unfavorable" market.
In Bob Brinker's January 2000 Marketimer he published his "Five Root Causes for a Bear Market."
I believe not enough of Bob Brinker's "5 Root Causes of a bear market" are present today so Brinker will remain bullish. Before I examine the causes in detail, lets look at them in an historical perspective.
The 5 root causes of a bear market, according to Bob Brinker, are:
Click for More ChartsAll five of his root causes were BEARISH in January 2000. On the radio program at the time, he said he was not bearish, but the odds favored a decline over the market going up more than 5%.
Brinker recommended reducing the equity allocation from 100% to 40% in his model portfolio numbers one and two. He also lowered his Model Portfolio III (which is a balanced portfolio) equity allocation from 50% to 20%.
Here are some newsletter quotes from early 2000:
January 8 2000 Marketimer: "The Marketimer stock market timing model has turned unfavorable....We recommend raising a 60% cash reserve at this time."(S&P500 = 1402.13; DJIA = 11122.65, QQQQ=86.25)
February 2000 Marketimer: "The Marketimer tactical equity asset allocation change in January has placed subscribers in a strong position as the market continues to deal with several unfavorable factors....."
April 2000 Marketimer: "The Marketimer stock market timing model remains cautious as the second quarter gets underway........"
April 2000 Marketimer: "Marketimer recommends the following investments as our best ideas for 1999 I.R.A. contributions, which can be made through April 17, and Year 2QQO contributions. Each investment should be selected based on your personal investment objectives and should be integrated as part of your overall asset allocation strategy managed from the top down.
Equity Funds: Aggressive:
Janus Olympus JAOLX (Did so bad they shut the fund in 2006!)
Strong Growth SGROX
Growth: TIAA/CREF Growth Equity Vanguard Total Stock Market .
Conservative: Fidelity Utilities: FIUIX
International: TlAA/CREF International Equity
Fixed Income: Ginnie Maes: Vanguard Ginnie Mae Fund
These selections represent funds which we believe are excellent investment vehicles for each investment objective category. We recommend I.R.A. accounts as vehicles for tax deferred investment and we suggest maximizing the I.R.A. accounts available to you. "
In August of 2000, when the market was a bit higher, Brinker recommended taking another 5% out of equities for a 65:35 Equities-to-Cash asset allocation.
Had Brinker remained at 65% cash reserves until returning to fully invested in March 2003, he would have looked brilliant. Unfortunately, in October 2000 Brinker recommended putting 20 to 50% of cash reserves back into the market via the NASDAQ100 (QQQQ Bulletin ) for a counter trend rally despite saying his model had not given a buy signal. The QQQQ trade was a disaster, but his long term model was correct to predict further weakness because 2001 and 2002 were both down years for the markets.
The markets bottomed in October 2002 and his model correctly gave him a bullish buy signal within 5% of the S&P500 bottom in early 2003. Since returning to 100% invested in March 2003, Bob Brinker has correctly remained fully invested with no QQQQ-like side trips to hurt his performance.
Now, let's look at the 5 Root Causes of a Bear Market as of May 31, 2007:
Discuss Bob Brinker and his timing model in our Bob Brinker FREE Discussion Forum and Visit the Bob Brinker Fan Club for information on how to get these updates emailed to you as soon as they are published.
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Since beating the market is hard for most to do, I recommend a "Core and Explore" approach to investing. Core means place 80 to 99% of your money into a CORE, buy-and-hold, no load, mutual fund portfolio and then EXPLORE with the remainder. To build your core portfolio, I suggest a diversified basket of index funds. For the remainder, I recommend the explore portfolio in my newsletter.
DISCLAIMER: Answers & my words are general in nature, are not meant as specific investment advice, and do not necessarily represent the opinion of anyone but Kirk. Individuals should consult with their own advisors for specific investment advice.
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Last Updated 05/31/07