Subject: Jan 21, 2006 Bob Brinker Fan Club Update

From: Editor

Date: Sat, 21 Jan 2006 09:28:24 -0800



January 21, 2006 Bob Brinker Fan Club Update

Please forward this to your friends who might be interested in getting in on this mailing list.   They can sign up to get on the mailing list at the Bob Brinker Fan Club.

Moneytalk Ensemble Cast

Bob Brinker has only done Moneytalk one weekend in the past four weeks. Will he be on this weekend?  My guess is yes. 

Come join our discussion here where we guess what Bob will talk about.  Who knows, perhaps Bob will read your suggestion  and address it in his show this weekend.

 

Please support the Fan Club by purchasing your Tax software, Replay Radio and investment books from our links below. 

 

Bob Brinker on How Often To Rebalance

On the January 7th weekend, Bob Brinker was asked how often to rebalance.  Bob said he thinks annual rebalancing of a portfolio is adequate and he can't make a case for doing it four times a year as some suggest.  Bob said he recommends doing your annual rebalancing at the beginning of each year.

Rebalancing once a year is probably good advice for most who don't know how to use computers to track their asset allocation. For some of us, there is a considerable advantage gained from rebalancing more often than once a year.

There is quite a bit of academic work suggesting you can get better returns if you rebalance more often than once a year.    William Bernstein wrote a paper titled "THE REBALANCING BONUS:Theory and Practice.  Here is the abstract:

 

The actual return of a rebalanced portfolio usually exceeds the expected return calculated from the weighted sum of the component expected returns. A formula for estimating this excess return is derived and tested. It is demonstrated that assets with high volatility and low correlation with the remainder of the portfolio provide considerable excess return, or "rebalancing bonus."

 

I wrote a much easier to understand article titled "Using Asset Allocation to make money in a Flat Market" where I show how you can get 0.5% extra return in a flat year simply by rebalancing a simple portfolio after the market moves 10% in any direction.

Some of us have shown you can use "dynamic rebalancing" where you let the market tell you when to rebalance rather than the calender.  That is, put your portfolio into a computer and check it daily.  When the market causes some components to go up and others down above a threshold, sell some of what has gone up to buy what has gone down.

I use this method to get my great returns in my newsletter.  I have a few very volatile stocks mixed in with some good core stocks.  Last year (2005) my energy stock, GGR, went up over 1,000% as it went from under $1 to over $14.  I sold some of the shares on the way up (as high as $13.43) and used some of the cash from selling to purchase more of my shares that were down.  Some of the shares I bought that were down (FNSR for example at $1.01) went on to more than double by today.   GGR has also corrected this year so I've started to use profit taking dollars to buy some shares back.  The method works very, very well but it is not for the average, faint of heart, radio listener.

In my newsletter, I recommend subscribers build a CORE portfolio using seven Vanguard Index funds.  VFINX is the S&P500 and VGSIX is a REIT fund.  The other names are different index funds, including international funds, that take advantage of what William Bernstein calls "high volatility and low correlation" to get enhanced results from rebalancing.

Don't get me wrong, there is nothing wrong with annual rebalancing.  If you do it with a well diversified portfolio, such as I recommend in my newsletter for your CORE funds, then you can get great returns.  Here is a performance table for the CORE portfolio I recommend my subscribers use.  I show gains by year for the Conservative and Aggressive portfolios with annual rebalancing.  Note that both my conservative and aggressive portfolios beat the S&P500 by a large margin with no market timing!

Growth of $100,000 over time starting January 1, 1999 (note 1)




100% in

100% in

100% in

100% in

100% in

100% in

100% in

Con-
servative Core Portfolio

Aggres-
sive Core Portfolio

Kirk's News-
letter Portfolio

Index Fund #1

VFINX S&P500

Index Fund #3

Index Fund #4

Index Fund #5

Index Fund #6

VGSIX

 

 

 

 

 

 

 

 

 

 

01/01/99

$100,000

$100,000

$100,000

$100,000

$100,000

$100,000

$100,000

$100,000

$100,000

$100,000

12/31/99

$99,240

$121,070

$136,220

$116,620

$157,050

$161,570

$95,960

$110,127

$116,658

$216,950

12/31/00

$110,543

$110,101

$115,038

$107,080

$116,625

$117,041

$121,245

$112,010

$111,878

$192,096

12/31/01

$119,862

$96,867

$104,535

$85,343

$85,906

$113,671

$136,219

$111,395

$105,237

$194,575

12/31/02

$129,763

$75,411

$85,656

$70,024

$77,900

$105,225

$141,327

$107,229

$93,724

$153,324

12/31/03

$134,914

$96,903

$122,856

$97,123

$107,829

$165,887

$191,711

$124,258

$115,306

$270,979

12/31/04

$140,635

$107,310

$145,843

$117,383

$128,133

$209,217

$250,681

$134,477

$127,546

$259,555

12/31/05

$144,010

$112,429

$160,850

$128,253

$157,078

$276,270

$280,487

$140,909

$135,470

$293,818


For those who want to try and do even better, you can add an "explore" component to your strategy. You then do "dynamic rebalancing" with the "explore" funds you put in my newsletter portfolio where we rebalance whenever the market says to take profits or buy shares when they go on sale.  An aggressive investor might put 80% of his funds in my recommended Aggressive Core Portfolio and 20% in my newsletter portfolio.


David Korn's January 7-8, 2006 Newsletter Excerpts

STOCK MARKET ACTION
 
Brinker Comment:  The stock market has been celebrating the recent economic
data and this past week we saw once again, new cyclical bull market closing
highs for the benchmark indices.  The S&P 500 Index closed Friday at
1285.45, representing a gain of over 60% since Bob's buy signal on March 11,
2003.  When you add in the dividends, it gives you a gain of close to 65%.
 
EC:  Bob remains in the bullish camp as evidenced by his comments today,
last week, and his newsletter.  Let's enjoy these gains, because as we know,
the market doesn't move in a straight line.
 
HOW DO I INVEST NEW MONEY INTO THE STOCK MARKET?
 
Caller:  A couple of callers during the weekend wanted to adopt one of Bob's
model portfolios and asked Bob if they should lump sum into the equity side
of those portfolios.  Bob said if you are sitting with cash now, you have to
recognize that the stock market is up 60% since Bob issued his buy signal in
March 2003.  In addition, the stock market has reached record recovery highs
and is up significantly since the correction lows of October, 2005.  Bob
noted that he last recommended a buying opportunity if the S&P 500 closed
below 1180.  That opportunity presented itself in October of last year when
the S&P 500 closed six times between 1175 and 1179.  That gave investors an
opportunity to be buyers of the market at much better levels.  The S&P 500
is now trading at 1285 -- over 100 points higher.  Bob said if he had new
money to invest in the stock market right now, he would adopt a dollar cost
average approach.
 
EC:  No surprise here.  I suspect that Bob will continue to recommend a
dollar cost average approach until his sell signal, unless we get another
significant correction that Bob thinks would make sense to lump sum in new
money back into the market.  We have had several of those since the bull
market began, and it certainly is possible we will get another one.  You
never know what exogenous events, or what economic conditions could occur
which would spook investors into selling off their stocks.
ADOPTING A BALANCED PORTFOLIO
 
Caller:  This caller recently sold his business and reached critical mass.
He wants to adopt Model Portfolio III so that he can use the interest
generated from that portfolio to live off for the rest of his life.  Bob
said Model Portfolio III is a "Balanced" portfolio which has half in stocks
and half in fixed-income.  The beta coefficient of that portfolio is only
about half the market as a whole.  The portfolio is designed for those in or
approaching a retirement lifestyle.  It has nothing to do with age, only
with regard to your retirement.
 
The caller asked whether he should dollar cost average in, or go right in
when he gets the proceeds from the sale.  Bob said that it would certainly
make sense to adopt a dollar cost average approach into the equity side of
the portfolio as Bob doesn't recommend chasing after rallies to enter into
the market.  With regard to the bond side of the portfolio, Bob said he has
constructed the portfolio such that he would be comfortable entering that
part of the portfolio immediately.
YIELD CURVE QUESTIONS
 
Caller:  This caller has heard the media discussing the inverted yield
curve, and wanted Bob's thoughts.  Bob said he is concerned with the media's
distortion of the yield curve.  Specifically, the media has been comparing
the 2-year Treasury Note which is yielding 4.34% and the 10-year Note which
is yielding 4.3%.  However, that is not how the true yield curve is
measured.  The true way is to measure the interest rate on the three-month
Treasury Bill which is currently yielding 4.1% and compare it to the
long-term Treasury note (currently the 10-year Treasury note) which is
yielding 4.6%.  If we look at the current yield curve (using the 3-month vs.
the 10-year), there is a 50 basis point positive differential.  Thus, there
isn't even a flat yield curve, much less an inverted yield curve.
 

To subscribe to David's newsletter, send an email to David Korn at davidk555@earthlink.net and request details on how to get David's weekly Newsletter. Make sure you mention that you learned of his newsletter at the "Bob Brinker Fan Club" so you get his special rate for Fan Club members.

 

To Subscribe to Kirk's newsletter and get the special $150 annual rate, reply to this email with the words "Where do I send my check" placed in the Subject line.  Subscribe now and get the January 2006 issue for free!

 

 

Investment Chat

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DISCLAIMER: This material is neither sanctioned by, nor written under the auspices of ABC Radio Networks, Moneytalk or Bob Brinker. This material is not a substitute for listening to Moneytalk, it is only our interpretation and commentary of some of what is discussed on Moneytalk, along with additional educational information that we include, editorial comments about the market and helpful financial links. If you want to know what was said verbatim on Moneytalk, listen to the show live or subscribe to "Moneytalk on Demand" which allows you to listen to the show in case you missed it live. The web site, bobbrinker.com has all the links to the ABC Radio Network stations that broadcast the show live.

"Kirk's Newsletter Portfolio"

I recommend my newsletter portfolio as an ALTERNATIVE to the QQQQs that Bob Brinker recommends for his three model portfolios.  The data here shows followers of Bob Brinker would TURBO CHARGE their returns had they replaced his recommended QQQQ exchange traded fund with the securities in my newsletter portfolio.  Send for a FREE SAMPLE ISSUE today!

For 2005:
My Newsletter portfolio was Up 13.2% vs. DJIA down 0.6% vs. QQQQ up 1.2% vs. S&P500 up 4.8%

Think about how much your Brinker portfolio returns would improve if you replaced his QQQQ with my newsletter portfolio...

As of 12/31/05: 
"Kirk's Newsletter Portfolio" since 12/31/98 is UP 197%.  vs. S&P500 only up 12% vs. NASDAQ up 1%

 What should be quite clear is a “buy and forget” market strategy using the DOW, S&P500 or NASDAQ would have under performed holding money funds over the past seven years while my newsletter portfolio nearly tripled every dollar invested.

Total Return Data through 12/31/05
(Since date shown)

1 Year
(12/31/04)

3 Years
(12/31/02)

5 Years
(12/31/00)

7 Years
(12/31/98)

Annualized
Return 7 yrs

Kirk's Online Newsletter Portfolio

13.2%

91.6%

53.0%

193.9%

16.6%

Nasdaq  (^IXIC)

 1.4%

65.1%

(-10.7%)

  0.6%

 0.1%

QQQQ

 1.2%

65.8%

(-30.8%)

N/A

 0.1%

S&P500 

 4.8%

48.2%

  1.8%

 12.0%

 1.6%

Warren Buffett   (BRKA)

(-0.7%)

21.8%

 24.8%

 26.6%

 3.4%

Vanguard Prime Money Market Fund

3.0%

5.1%

11.3%

 24.2%

 3.1%


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Other Recommended Books:

  • Handbook of Inflation Indexed Bonds by John Brynjolfsson (Editor) & Frank J. Fabozzi (Editor)
    Handbook of Inflation Indexed Bonds provides complete coverage of inflation protection bonds beginning with their first     U.S. issuance in 1997. Five, in-depth sections detail: strategic asset allocation; mechanics, valuation, and risk monitoring; global environment; issuers; and investors.
  • The Lazy Person's Guide to Investing by Paul Farrell “A simple and easy to understand book that offers many well diversified, indexed portfolios and data to show how well they work.”
    ----- Kirk Lindstrom, editor Investing - Personal Finance at Suite101.com
    ----- Read More Critical Praise

  • The Four Pillars of Investing : Lessons for Building a Winning Portfolio by William J. Bernstein
    “A Triumph! It is my candidate for the best investment book of 2002.”
    ---- John Bogle, founder of the Vanguard Group.
  • The Bond Book: by Annette Thau
    Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and More!
  • Stock Trader's Almanac 2006: By Yale & Jeffrey HIrsch:  Published every year since 1967, Stock Trader's Almanac is a practical investment tool with a wealth of information organized in a calendar format.
    "I have every issue since 1976 in my bookcase. The Stock Trader's Almanac is an invaluable resource.”
    --MARTY ZWEIG, author, Martin Zweig’s Winning on Wall Street

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best regards
Kirk Lindstrom
Editor: Bob Brinker Fan Club
http://www.suite101.com/myhome.cfm/Brinker
Editor: "Investing & Personal Finance" @ Suite101.com
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For a free sample issue of Kirk's Investment Newsletter:   http://home.netcom.com/~kirklindstrom/Newsletter/WhatLetter2Buy.html

DISCLAIMER: The information contained in this newsletter is not intended to constitute financial advice and is not a recommendation or solicitation to buy, sell or hold any security. This newsletter is strictly informational and educational and is not to be construed as any kind of financial advice, investment advice or legal advice. Copyright Kirk Lindstrom 2006