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Wednesday, September 29, 2010

Bob Brinker Questions We Needed Answered

September 29, 2010 ...There were several unanswered questions that popped up from Bob Brinker's Moneytalk on Sunday - which I added to my summary of the program. As usual, great answers arrived via the comments section of the summary.

1. Bob Brinker said:
"His [Ted Turner] net worth went down to 1.8 billion dollars.....That's like having a hundred million dollars 18 times over.......That could have been avoided. All Ted had to do there was diversify. And he could have diversified by simply purchasing Put Options on his over-bloated Time-Warner position to protect him on the downside - as insurance. He could have purchased Put Options against his position, or against a sizable part of his position and those Put Options would have given him downside protection."

Honey asked:
"I have a question about Brinker's "buy Put Options" advice for Turner. I hate to sound naive, but would that be legal under the circumstances that Brinker described about Turner's connection to the company?

Kirk Lindstrom replied:

Blogger Kirk said...

Had Ted Turner, Bill Gates or anyone on the billionaire list "listened to Brinker" and diversified to 5% by selling their company shares every time they went up, then they would never have made it to the billionaire list, much less had the opportunity to see the drop Turner experienced.

Think about it. Should they diversify after they make their first million? Should they stay concentrated in their own stock until it is $10M or $10B?

This has ALWAYS bugged me about Brinker because after all these years he really doesn't seem to understand how great wealth is created.

Now if you are retired and don't want to go out and earn that wealth again, then you sell enough to be in good shape even if the stock crashes, but if a founder sells 95% of their stock, they have to disclose it and the stock will probably crater before they can cash in.

As for how they could purchase puts to protect their shares: That sounds absurd for someone like Ted Turner, Larry Ellison or Oracle or Bill Gates of Microsoft. Who would sell that many puts and have the cash to buy the shares should the economy crater? Also, they would have to disclose that position to the SEC which would be far worse for the stock than having a regular plan to sell 10% a year.

September 27, 2010 8:19 AM

2. Honey asked:
" Brinker always uses the word "hedge' when he speaks to callers about buying gold. Hedge against WHAT? He tells us there is no inflation, and he doesn't expect any. So why would he recommend gold as a HEDGE?"

Jim replied:

DeleteJim said...

I think there are two reasons Brinker uses gold as a hedge. The first is to guard against world events that could cause a panic. These events would include a war or another major terrorist attack. For example if Israel and Iran would get in a conflict there would be a sudden drop in the stock market and a sudden spike in gold. That would be an event that probably will not happen but cannot be ruled out.

Second I think Brinker uses hedges simply to guard against being wrong. He says not to worry about inflation but I think he knows deep down that nothing is certain. He made a hedge on stocks back in 2000. His timing model turned unfavorable, but he kept 35% in the market. That was to hedge against his model being wrong.

Personally I do some hedging against Bob Brinker. Whenever the market drops and Brinker comes out with a buy, I always hold back a little extra cash in case Brinker is wrong and the market drops further.

Finally, I am a fan of The Honeymooners and I think the exact quote that Ralph gave Alice is: "One of these days...Pow! right in the kisser.

September 27, 2010 9:52 PM

3. Bob Brinker spoke disparagingly about the buy-and-hold "pack": Jim responded:

Blogger Jim said...

Brinker states: "But IF you can get some right, you can finish way ahead of the pack because the pack is buying and holding forever."

Brinker is basically a buy and holder. Only one time was he ever 100% cash and that time he was wrong and missed a 20% rally. The only time he was "semi" right about a bear was 2000. There was very little cash reserves left to invest in 2003 because much of it was lost in the QQQQ trade earlier.

If Brinker was honest he would always say that his July 1 buy was only for subscribers who had new money. However by not saying that, he lets listeners believe that he was sitting on a lot of cash that he put to work on July 1. Very misleading.

September 27, 2010 9:20 AM

Jim is absolutely right that there has been only ONE TIME that Brinker went to 100% cash since the beginning of Moneytalk (26 years ago). That was shortly after the market crashed in October, 1987.

It was a costly mistake for Brinker's followers because the market began climbing right after he went to cash and made considerable gains by the time he was back to fully invested.

4. Bob Brinker said: "If the election were held today, it appears that the Senate would be something in the area of 52-48, with the same majority party it has today, but a much slimmer majority.....As Jackie Gleason's Ralph Kramden character would say, "What a Revolting Development."

There was a whole bunch of hilarious replies about the Jackie Gleason program. I think all my readers must watch a lot of late-night re-runs. 8) Here's the [link].

Friend Laura, traveling across Canada, sent these pictures (click to enlarge):

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