This important post seems to have been left in the dust.
From: davidk555 3 Recommendations Read Replies (1) of 23009
Its nice to see the postings gravitate back to the subject matter of the board. Allow me to contribute. Here is my summary and editorial comments from a call to Bob Brinker's Moneytalk show in which a caller asked Bob a question about the QQQQ shares. Enjoy! - David Korn
Excerpt from David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.
CALL TO MONEYTALK ON JULY 16, 2006 REGARDING QQQQ
Editorial Comment "EC": Before I address the call, some background is in order for some of my new subscribers who might not be familiar with this issue. As most of you know, Bob adopted a tactical asset allocation approach to his model portfolios based on the S&P 500's close on December 31, 1999. His January 2000 Marketimer newsletter reflected the fact that he was reducing his stock market exposure by 60% and relegating the sale of those equities to money market cash reserves. In August 2000, he further reduced his exposure by another 5%, bringing his asset allocation (assuming a fully invested position) to 65% cash reserves and 35% still in the stock market. That was the case for Model Portfolios I and II. For Model Portfolio III (which was a balanced portfolio of 50% stocks and 50% bonds), he reduced the stock side of that portfolio by the same amount.
In October 2000, Bob issued the now infamous bulletin that urged his subscribers to "Act Immediately" and purchase the Nasdaq 100 (QQQQ shares). The bulletin was actually undated, but it was sent out on October 16, 2000. Bob recommended that his Marketimer subscribers with aggressive objectives invest 30% to 50% of existing CASH RESERVES in the QQQQ shares and that subscribers with conservative investment objectives invest 20% to 30% of CASH RESERVES in the QQQQ shares. (Incidentally, Brinker used capital letters to emphasize that "CASH RESERVES" raised from the tactical asset allocation move should be used). A few days later, the people who had their money managed by the BJ Group (Bob Brinker's advisory service at the time), had their managed accounts invested in the QQQQ as well. The QQQQs were trading in the $80s during this time frame. Bob continued to recommend purchase of the QQQQs to his subscribers in his November 2000, December 2000 and January 2001 Marketimer newsletters. He continued to express the belief that the QQQQ would rally significantly, until he apparently abandoned that belief in his June 2001 Marketimer, when he said he would recommend holding the QQQQs until the next cyclical bull market. By that time, the QQQQs had already fallen from the $80s to around $46.
Now here is the rub. Bob always bragged (and continues to) about the performance of his Model Portfolios which did not include the QQQQ shares. Mark Hulbert, who tracks many newsletters (including Marketimer) chose not to include the QQQQ in the model portfolios because they weren't added in the November 2000 Marketimer newsletter. I have expressed my disagreement with Hulbert for this methodology and I fault Brinker for not ever mentioning the performance of the QQQQ when he brags about how well his "sell signal in January 2000" and "buy signal" in March 2003 worked out for his subscribers. The truth is, I know personally hundreds upon hundreds of people who followed Brinker's advice to the letter and were stuck holding those QQQQ shares throughout the entire bear market and continue holding them to this day. A complete history of the QQQQ recommendation by Bob Brinker was compiled by Kirk Lindstrom and is set forth at this url:
tinyurl.com
Now flash forward to March 2003. On March 11, 2003, Bob issued his buy signal to go fully invested. At that time, the QQQQs were trading around $24 per share. At that time, he made no mention of the previous QQQQ recommendation and simply said that he was going to add the Rydex OTC Fund (ticker: RYOCX) which tracks the Nasdaq-100 (QQQQ) to all three of his model portfolios. He put a 25% weighting in Portfolio I, a 15% weighting in Portfolio II and a 5% weighting in Portfolio III. Noteworthy, is the fact investors were to use existing "cash reserves" to adopt the new fully invested position in the equity portion of all investment portfolios. For subscribers who had followed the "Act Immediately" bulletin, depending upon what amount, they had reduced cash reserves available to invest again.
Ok, let's go forward with the call about the QQQQs, and then I will have a few comments to follow it up.
JULY 16, 2006 Caller: This caller asked Bob the following question: "As far as people who have held on to [the] Qs for about five years, is there a possibility of a sell signal for that at sometime?" Bob responded by saying that he made a substantial reduction to his exposure to the Nasdaq 100 in his April Marketimer newsletter when the closing price of the Qs on that date was around $42 a share. Bob added that the reason he did it at that time was because he thought from a timing standpoint it was a good opportunity to do it. Bob ended the call before the caller could ask any follow up.
EC: First off, Bob was referring to the fact that in April 2006, he reduced the weighting in the RYOCX to his model portfolios. He reduced the weighting in Portfolio I from 25% to 10%; in Portfolio II from 15% to 5% and in Portfolio III from 5% to zero. Bob's reasoning was that he wanted a more diversified approach given the run up in the stock market since his buy signal in March 2003. In their place, he added the total stock market index fund.
EC#2: In my humble interpreting opinion, Bob side-stepped the real issue and tried to spin his answer to make himself look good, rather than to address head on the caller's question about the QQQQ. The caller was clearly asking about the QQQQs back from "5 years ago" which refer to the ones that were purchased pursuant to the bulletin (or follow up Marketimers) which were NOT included in the Model Portfolios. Bob chose to respond to the caller in the context of saying what he did relative to the Model Portfolios, not to the short term QQQQ recommendation he made in 2000-2001. In fact, as far as I know, Bob has still not addressed what to do with those QQQQ shares.
EC#3: It is possible that Bob Brinker will try to say that his advice in the April 2006 Marketimer was also designed for the holder of the QQQQs from back in 2000-2001. If that is the case, I fault him for not being clear and for trying to have the best of both worlds. He should get the credit for including QQQQ in the Model Portfolios in March 2003 and reducing their weighting in April 2006 (which so far looks like a good call). But he continues to brag on his Model Portfolio performance which does not include the 20-50% QQQQ recommendation with CASH RESERVES that were not included in his portfolio.
EC#4: But what about those QQQQs from 2000-2001? Did Bob just assume that all of his subscribers who followed him simply added those to the Model Portfolios with their cash reserves? Or does he assume that they sold or added to their QQQQ positions in March 2003 to adopt the Model Portfolio's weighting of the QQQQ shares? Bob's last advice on those QQQQ shares was simply to hold for recover in the next cyclical bull market. In the April Marketimer newsletter, he referred to his Model Portfolios when addressing the reduction of the QQQQ weighting, not to the short-term counter-trend rally QQQQs that have been on hold since June 2001. In my opinion, those QQQQ shares are still an open trade as far as Bob Brinker's advice is concerned. The fact that neither he nor Mark Hulbert chose to include them in Bob's Model Portfolios was wrong in my opinion, but I accept that fact and Bob is free to brag all he wants on how those portfolios have performed. But he can't have it both ways in my view. Those QQQQ shares are still out there, and I will keep tracking their performance. If I had to guess, when Bob eventually issues his next "sell signal" or "tactical asset allocation move" or whatever he calls it, I think he will say that investors should sell all of their holdings in the Nasdaq-100 (QQQQ) and that will be the last you ever hear about the QQQQ again. The folks over on Suite101 have been discussing this latest call in detail at the following url:
tinyurl.com
EC#5: Leaving aside the entire issue of Brinker's response to the call, the fact that Bob took some money out of the Nasdaq and put it into the broader market is something worth exploring. Obviously, Bob felt that being invested in the stocks that make up the Nasdaq-100 wasn't worth the additional risk given the gains that this bull market has produced. The fact that he chose to replace them with the broader market isn't that dramatic a move, but it does reduce the beta of his portfolio somewhat. If he had raised cash reserves with the sale of the Nasdaq-100, that would have been a bolder statement. The QQQQs closed Friday at $35.70, so Bob's decision to reduce his weighting in his Model Portfolios when they were about $42 looks to be a good call so far.
DISCLAIMER: This e-mail is neither sanctioned by, nor written under the auspices of ABC Radio Networks, Moneytalk or Bob Brinker. This e-mail is not a substitute for listening to Moneytalk, it is only my interpretation and commentary of some of what is discussed on Moneytalk, along with additional educational information that I include, editorial comments about the market and helpful financial links. 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.
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