Here are some comments Bob Brinker made on a recent
Moneytalk broadcast. This is an excerpt from my newsletter. To learn more about me, click on my profile:
David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service. Copyright David Korn, L.L.C. 2007
OPENING MONOLOGUE -- BOB BRINKER IS BULLISH
Brinker Comment: Bob opened the weekend broadcast noting that the S&P 500 Index is very close to the 1450 level. This places the index 7% below the historic high of 1565 recorded just a few weeks ago. We have seen a number of corrections in recent years, very similar to what we are looking at right now in terms of magnitude.
In 2004, the bad news bears were telling us to run for the hills because the S&P 500 had declined 8.1% from its high. They were wrong.
In 2005, the S&P 500 had reached a new recovery high early in the year and then corrected 7.2%. The bad news bears said to get out while you can. They were wrong again.
In 2006, the S&P 500 had made another recovery high and then made a correction of 7.7%. The bad news bears reared their heads and they were wrong again.
In 2007, just this past summer, the S&P 500 went up into the mid-1500s in July, and then experienced a short-term correction of 9.4% on a closing basis. The bad news bears said if you didn't get out then, you were crazy. Guess what, they were wrong again.
EC: Good recap of the corrections by Bob. One of the primary things that has kept me invested throughout this bull market has been my study of past bull markets which I have shared with you. The corrections in those bull markets typically fell within the 4-7% range, with a few that were over the 10% level. On a closing basis, we still have not seen a 10%+ correction (although we did get in on an intra-day basis), so that is still on the table as a distinct possibility using history as a guide and nobody should ever forget that.
Brinker Comment: With every correction, comes the usual trepidation. The financial media pounds away that recession is coming and things look really bad. This creates a spectacle where investors run for the exits as they panic at the sight of a stock market correction. This is why Bob said he often reminds Moneytalk listeners of J.P. Morgan's famous quote, "stocks tend to fluctuate." Stocks don't move in a straight line and the stock market likes to confound the masses.
EC: Well put. "Stocks don't move in a straight line" is one of my two favorite financial bromides, the other is that "the market can turn on a dime."
Brinker Comment: Stock market investors accept volatility as part of the deal in owning equities. Some investors don't understand this principal and they are very susceptible to making bad decisions at the worst possible time. If you don't have the stomach for this volatility, then you need to address whether your asset allocation is in line with your risk tolerance.
EC: Several weeks back when the market was near a high, I pointed out that if you were inclined to take profits and sit on the sidelines, you could invest your money in a money market fund and earn around 5%. That is nothing to sneeze at. Now of course, the decision is much easier to make if we are talking about money in a tax-deferred account. If it is in a taxable account, it's a whole different story because to sell you would be required to pay Uncle Sam.
Brinker Comment: Selling out at the bottom of a correction can really put you behind the curve. For example, if you sold out at the bottom of the correction in 2004, then you would have got out of the market when the S&P 500 was trading at 1064. In 2005, if you sold out during that correction, you got out at 1138. Last year in the springtime, you got out at S&P 500 1224 if you sold at the correction bottom. With the S&P 500 now at 1453, all of those sellers in 2004, 2005 and 2006 were wrong.
EC: Bob was laying it on strong during his opening monologue, setting the stage for his concluding comments below which he made with conviction.
Brinker Comment: Bob pulled the microphone in a little closer, took a dramatic pause, and told everyone listening that for the people who are betting on a bear market, Bob said he is taking the opposite side of that wager. Bob said he thinks the bad news bears are wrong again.
EC: Wow. Bob is usually much more obtuse in his views, but today his forthrightness I think reflects just how strong his conviction is that the bull market is going to continue.
EC#2: There is also something else going in insofar as these remarks were made. In Bob's latest Marketimer newsletter (November 5th), he rated the market attractive for outright purchase if the S&P 500 returned to "the area of the S&P 500 Index mid-1400's." In the past, Bob has got some flack if a buy point level was not exactly met. With the S&P 500 now trading at 1453, I think Bob was using his opening monologue to make clear to everyone, that the market is now in the "mid-1400's" and therefore an outright buy for new money, versus a lump sum approach.
EC#3: Obviously, if you are following Bob's view, and had some cash on the sideline, now would be the time to buy in. As I noted earlier, however, I personally think there is still some room to go for this correction. If you want to put some money to work, but are nervous that the market is going lower, but are afraid you might miss the bottom, consider an accelerated dollar cost average approach where instead of putting the money to work over say a year's time frame, you pick a much shorter time frame, perhaps a month, or a couple weeks, or even shorter.
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. Copyright David Korn, L.L.C. 2007-2008. |
