September12, 2010, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

September 12, 2010....Bob Brinker hosted Moneytalk this week.

Hi to all my readers. I'm very sorry to say that due to a personal situation that developed Saturday that I'm still dealing with, I will be posting part one of my summary tonight and hope to add part two tomorrow.

I transcribed most of this call that took place late in the first hour and Bob Brinker's long responses because it was the high point of the program in my opinion. I will add my editorial commentaries about it later, and more information about the rest of the program:


Caller Jimmy from Concord, CA said: "It's quite easy to see the direction in the market during the 80s and the 90s, but this decade has been flat if anything, so I've decided to take the passive - slash- index approach. And could the passive approach be kind of dangerous because of volatility?"

Bob Brinker replied: "Let me give you an example of a passive approach. A core example of a passive approach would, let's say in a balanced portfolio, would be to have half of your money in a total stock market index or the S&P 500, and the other half in something like a Ginnie Mae Fund or rolling 5-year Treasuries or something like that. That would be a typical passive approach to investing....

.....Now there are two ways to take a passive approach investing. One is to simply be a buy and hold investor, which means you just take your position and you hold it forever and that's it. And the only other thing you might do is re-balance it if it got out of kilter......Be a buy and holder is passive because you're not going to make any changes.....

...... The other way is the way that I recommend in my investment letter for those who wish to do it this way, and some do, is to take what I termed and active-passive approach. An active-passive approach combines a simplified portfolio where you might own index fund like the total stock market index or something like that in the stock portfolio. And maybe also have some international in there. We have some international in our active-passive portfolio as well....

......And then you overlay that with stock market timing. Now we're not talking about short-term swings -- trading in and out, anything of that sort. The tax implications of that are brutal in today's tax environment. But if you're talking about long-term market-timing where you're going to try to identify opportunities to side-step major declines as we did from January 2000 to March of 2003, our model portfolio side-stepped that dotcom going down. They were mostly in cash. Now you're not going to get them all right. In2008, which certainly was challenging as I've said many times on this broadcast as anything I've seen.....

.....But you can still overlay that for people that have money available to invest. For example, this very year, we made a observation at the beginning of July that the market had reached the area of its 2010 mid-term bottom. And that was down in the low 1000s. We upgraded the market to buy or attractive for purchase, as we call it on the first of July and the market had closed at 1030 the night before. It closed in the 1020s three more days -- on the 1st, the 2nd and the 6th after the holiday, before it moved higher. And now it is up in the 1100 area and it's done very well since we upgraded at that point......

.......And for those that had money available, we also put an upgrade in in the first quarter of 2009 when we identified at that point -- although it was a rocky market for awhile in there, it did very well after it go through its very difficult period there in the first quarter. We had a buy signal out there in the low to mid-800s in the S&P, and again, now its up in the 1100 area. But that was one that would be used by someone who had available money. We were fully invested at that point. We had a fully invested point back in 2003 -- March 11th at the 800 level of the S&P 500. And again, the S&P right now is around 1100, so that's doing fine. But it's certainly had a roller coaster ride in there. ......

.....So that's the other opportunity if you can see a way to identify -- you're not going to make them all the time, but we certainly made a big one back there in 2000 to 2003. And if you can identify some, you're not going to make them all, but some of those opportunities, then you can take an active-passive approach with a portfolio like that."

Caller Jimmy asked: "Are you resigned to the fact that right now the markets quite difficult to see the advance like it was during the 80s and 90s. I mean, day to day, it's up and down. It's a roller coaster compared to then, correct?"

Brinker replied: "Well, I'm not sure that's true and let me tell you why. We had a great year in 2009. I've already pointed out 2008 was a tough year.....The calendar year 2009 was a terrific year for the market. And our model portfolios in the investment letter, they were posting gigantic gains in 2009. They were in the general area of 30% gains for model portfolio I, model portfolio II, which are the all-stock portfolios. And even the active-passive had a terrific year -- that was 2009. I'm answering your question -- 2010 -- right now we have a tiny positive total rate of return year to date-- that's where we are. With the S&P right now trading at 1109 and with the cash dividends that the S&P has generated, we have a small, very small positive return year to date. This is coming off a year where we made in the area of 30%. Even the S&P was up in the high 20s last year. I think frankly, it's been fairly typical......"

.......The fact of the matter is, we are in a very slow growth economy. We are in an economy that is dealing with high unemployment -- 9.6 it is now......We have an under-employment rate in the 16s percentile --very high -- that includes people who can't find full time jobs, but work part-time, and the discouraged workers are in that number. ....So you can call that a headwind....

.....We also have the headwind of housing. The housing market is very difficult and has to get through this inventory situation, which is overlayed with foreclosures and short sales. So it's time that will deal with the housing issue. So it's a slow-growth economy, and that's all reality. And I think that those who have been ignoring that are really off-base....This is America's money program. I'm Bob Brinker."

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