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FYI: If a person can be too smart for his own good, as the aphorism goes, portfolio manager John Hussman may be feeling the agony of high intelligence right about now.
I think one reason my Roth has outdistanced my Traditional IRA over the past 5-6 years is that I leave it alone and seldom, if ever, "tinker" with it. I don't know if that strategy works under all market conditions, but it has worked since early '09.
One lesson from Hussman may be that the harder we work to get something "right", the more apt we are to get it wrong. I guess you could say this guy has "written the book" on screwing-up. So sad for all those investors who sent him their money over the years,
I use to read his weekly letters (when the stock market was doing its crash and burn; 2008-2009). The interesting thing is that when the market was finally hitting bottom, Hussman turned bullish for a bit. He provided optimistic projections of how stock profits would soar based on expected future earnings. But then he turned bearish again and never waivered. I don't know why he's considered so smart. Anyone who completely misses the biggest buying opportunity of a lifetime shouldn't be given any recognition. [I know he has a phd, but I have 3 college degrees, and that doesn't make me a smart investor.]
I think one reason my Roth has outdistanced my Traditional IRA over the past 5-6 years is that I leave it alone and seldom, if ever, "tinker" with it. I don't know if that strategy works under all market conditions, but it has worked since early '09.
One lesson from Hussman may be that the harder we work to get something "right", the more apt we are to get it wrong. I guess you could say this guy has "written the book" on screwing-up. So sad for all those investors who sent him their money over the years,
There was the article not that long ago that said that Fidelity found that some of the customers who performed best were the accounts that had not been touched for so long they were deemed forgotten.
Given his painful results over the past few years, John Hussman is an easy target to condemn. Indeed his investment outlook and outcomes have been errant and dismal, respectively. He now looks like the Wall Street gunner who can’t shoot straight. Just another financial hero who falls from grace.
I have never invested a dime with him, but I do enjoy his reports on occasion. As a minimum, he always develops a respectable argument to support his conclusions and recommendations. Unfortunately, predicting the future is hazardous business, and has been most costly for his clients.
Hussman is further evidence that forecasters can not really forecast. Phil Tetlock has studied thousands of so-called expert forecasters and has firmly established their record as no better than a fair coin toss. Here is a Link to a rather long discussion with Tetlock that explores how to improve any forecasting talents:
Hussman is far too nuanced for my investment tastes. I prefer much more simplified approaches, much like in the practices of the Warren Buffett and Charlie Munger team. Here are a few Buffett quotes that seem to conflict with the way John Hussman conducts his business:
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” I suspect Buffett failed to recognize that a guy with a 130 IQ is pretty smart. That’s 2 standard deviations above the average person.
“If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.” Long term holding periods is a key to successful investing as illustrated by the Fidelity references cited in the earlier commentary.
“The Stock Market is designed to transfer money from the Active to the Patient.” Frequent trading is erosive to end wealth has been demonstrated time and time again.
“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.” Hussman’s style seems to be the 7-foot barrier with great rewards when successfully cleared, but many pratfalls more often than not.
And finally, “By periodically investing in an index fund, the know-nothing investors can actually outperform most investment professionals.” Even the know something investor can profit from this bit of wisdom.
Buffett has penned scores of other applicable quotes that caution against the policies, the procedures, and the practices deployed by John Hussman. I prefer the Occam’s Razor general strategy (take the route with the fewest simple assumptions) endorsed by Buffett and Munger.
There is still about $550 million in his Total Return fund. That's down from $2.7 billion in 2011. But it is hard to believe any shareholder would still be in the fund. Similar for the so-called Growth fund, which has actually a 10-year NEGATIVE return, but still has more than $900 million in it (down from $6.2 billion in 2010). Folks have crabbed (rightly so) about MFLDX this year, but at least that fund's long-term record is respectable. Hussman's funds are simply terrible in almost every way imaginable. Can you imagine the marketing tool..."We will only charge you 1% to give you an average return of -2% over 10 years."
Hussman's funds have been effectively market neutral for a while, with (I believe, I haven't looked lately), near/all of the holdings hedged. The options strategy seems overly complex and I'm wondering - if Hussman's stockpicking is actually doing well if you take away the hedging, is the hedging overly costly/a poor method? Hussman should break out his non-hedged performance (well, what it would have been.)
Basically, Hussman - from what I've read - underestimated QE and ZIRP. As I've noted in other threads, he wasn't betting on something that would provide an asymmetric return if shareholders waited long enough (the poor returns that those who bet against subprime had until they were finally right), he was simply bearish.
I'd love to ask Hussman a few questions, not to go after the performance of the last few years, but to try and gain an understanding of the strategy, as I don't quite see how his views line up with a fund that has a considerable weighting in stocks and is fully hedged. Would a few staples and healthcare stocks with little-or-no hedging have been a cheaper and more effective strategy that also expresses his views? I think so, but maybe he'll prove me wrong somehow.
The fund's website has no email address or else I'd ask him a few questions.
Hussman tries to time equities in and out, long and short (technicallyhe doesn't "short" stocks - but he achieves similar effect through puts). 10+ years losing $$.
MFLDX stepped right when they should've stepped left. Overweighted commodities at the wrong time in an attempt to hedge equity risk. Can happen to anyone. But that's what these types of funds are supposed to do - hedge equity risk.
I dislike the go anywhere funds largely because I don't think the advantages justify the high fees. Also, they are subject to unusually heavy inflows and outflows due to the fickle nature of many investors. MFLDX might be wise to do more to encourage longer term investing. Some ideas: raising minimums, imposing front-loads, adding or extending redemption fees or otherwise cracking down on hot money. Wouldn't have prevented this year's swoon - but would have lessened the impact (and perhaps the negative publicity).
But, please don't put this fund in the same other-worldly camp as HSGFX. How many other funds would even have retained the same "manager" for a full decade with so dire a performance record?
"As orthodox policy continues to migrate toward the once unimaginable goal of inducing sustained inflation and weakening currencies, more of the world’s central bankers are being drawn into the melee. Monetary ease has become the cure-all for structural and political infirmities that are best addressed by real reform.
The appeal of using the magic monetary elixir is clear. There are no hard political decisions to take, and,thus far,the effects look perfectly benign if one ignores the relentless asset inflation that allowed unthinkable portions of the trillions made available by monetary authorities to accumulate in a small proportion of society. Otherwise,the U.S. economy appears to be the poster child for quantitative ease, combining a reasonably strong expansion with negligible interest rates and benign readings in official measures of inflation."
"We have spent the past year waging a losing battle in markets, based on the notion that the consequences of unlimited monetary largess would begin to appear. Our belief was that symptoms of economic overstimulation would prompt a movement away from defensive asset classes and equity groups toward those that would benefit from growing demand, utilization, and pricing power.
Unfortunately, although there has been a substantial body of evidence suggesting that economic activity (particularly within labor markets) has strengthened considerably, this has not provoked the market response that we envisioned.
Instead, through the first three quarters, the results in markets have suggested the opposite macroeconomic environment in which activity was diminishing and defensive investment policies were appropriate. Developed world banking systems have been force-fed reserves like geese for foie gras. In spite of this, the responses in traditional economic activity have been modest, particularly on a global scale. "
" Also, we have significantly reduced our exposure to the reflation theme by trimming our materials’ positions.
The aspect of our portfolio that has been most damaging in terms of our participating in a rising domestic market has been the nearly complete absence of defensive- and yield-oriented sectors among our long holdings.
These have, for the most part, constituted the leadership of the main indices in the U.S.
Our current holdings continue to emphasize cyclicality and global top-line expansion, with less of an exposure to very late-cycle companies in materials and inflation-sensitive sectors. Our net equity position remains around 50%, and the short side of the book has greater emphasis on index-level instruments in both the U.S. and Europe." --- I have to say, whatever one thinks about MFLDX and the alternatives space (some degree of dislike, from many on the board), I always find the letters interesting.
Also, re MFLDX, the shorts against various fixed income probably not helping.
But, are they planning to make changes to get back on track?
I do not hold MFLDX.
" Our belief was that symptoms of economic overstimulation would prompt a movement away from defensive asset classes and equity groups toward those that would benefit from growing demand, utilization, and pricing power."
Also, we have significantly reduced our exposure to the reflation theme by trimming our materials’ positions."
"Our current holdings continue to emphasize cyclicality and global top-line expansion, with less of an exposure to very late-cycle companies in materials and inflation-sensitive sectors. Our net equity position remains around 50%, and the short side of the book has greater emphasis on index-level instruments in both the U.S. and Europe.""
Marketfield has talked about its desire to make changes if themes are not working, but mutual funds are not going to change overnight and unfortunately, this was one instance where the fund had a few different themes not working. They appear to be making changes to the portfolio and hopefully things improve going forward.
That is good to see and hear. There are other funds I won't name that seem to be stuck in the wrong. Admitting your mistake and making changes to correct it are becoming rarer these days so this is refreshing.
Interview with: Michael Shaoul, Chief Executive, Management Asset Management, Barron's, October 25, 2014 - by Reshma Kapadia
"This year, alas, Shaoul’s forecast for a stronger U.S. economy and greater inflationary pressure hasn’t played out. Consistent with his assumptions, the fund bought metals and mining stocks, and shares of industrial chemicals and machinery concerns, while shorting utilities and consumer-goods stocks earlier in the year. Neither move has worked well, and the fund was down 9% through Sept. 30, versus an average peer-group gain of 1.5% and a return of 8% in the same span for the Standard & Poor’s 500. .....
Shaoul: "We pared back some of our commodity-related and industrial related and industrial holdings in mid-September." --
Sorry, am unable to link this. But, I remembered the interview from one of Ted's previous links. (Ted has now posted link to this interview further down if interested)
John wrote: " But, are they planning to make changes to get back on track?"
From the interview I cited above it seems these guys like to make contrarian bets - in the belief markets will eventually realize the wisdom of those positions and "catch up." He mentioned an early bet on Europe as one contrarian play that worked. Funds using a contrarian strategy need a stable core of long-term investors who aren't going to jerk their money out after one or two bad years. (And recent articles posted on this board cite a flood of money pouring out).
If money flees before those investments turn-around and start making money, it puts the fund in greater jeopardy. That's because isn't enough leverage left (in dollar terms) to make up for the loses from having sold assets at a steep discount. I don't know enough to say whether this fund will turn-around. If they can stabilize their asset base (perhaps by reducing the retail investor component) they have a good chance.
It's hard to get inside their heads. Are they running their operation more as a hedge fund, with a fairly stable asset base from a core of large investors? Or, are they primarily trying to pull-in greater and greater AUM from retail investors? There was a lot of speculation on the board earlier on that they should have closed the fund to new money. I understand that concern, but think it's somewhat mis-placed. Unless you can stop assets from running out the door after a bad year or two, it's very hard to run a "contrarian" fund like this.
Comments
I think one reason my Roth has outdistanced my Traditional IRA over the past 5-6 years is that I leave it alone and seldom, if ever, "tinker" with it. I don't know if that strategy works under all market conditions, but it has worked since early '09.
One lesson from Hussman may be that the harder we work to get something "right", the more apt we are to get it wrong. I guess you could say this guy has "written the book" on screwing-up. So sad for all those investors who sent him their money over the years,
http://www.businessinsider.com/forgetful-investors-performed-best-2014-9
O'Shaughnessy: "Fidelity had done a study as to which accounts had done the best at Fidelity. And what they found was..."
Ritholtz: "They were dead."
O'Shaughnessy: "...No, that's close though! They were the accounts of people who forgot they had an account at Fidelity."
Given his painful results over the past few years, John Hussman is an easy target to condemn. Indeed his investment outlook and outcomes have been errant and dismal, respectively. He now looks like the Wall Street gunner who can’t shoot straight. Just another financial hero who falls from grace.
I have never invested a dime with him, but I do enjoy his reports on occasion. As a minimum, he always develops a respectable argument to support his conclusions and recommendations. Unfortunately, predicting the future is hazardous business, and has been most costly for his clients.
Hussman is further evidence that forecasters can not really forecast. Phil Tetlock has studied thousands of so-called expert forecasters and has firmly established their record as no better than a fair coin toss. Here is a Link to a rather long discussion with Tetlock that explores how to improve any forecasting talents:
http://edge.org/conversation/how-to-win-at-forecasting
Hussman is far too nuanced for my investment tastes. I prefer much more simplified approaches, much like in the practices of the Warren Buffett and Charlie Munger team. Here are a few Buffett quotes that seem to conflict with the way John Hussman conducts his business:
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” I suspect Buffett failed to recognize that a guy with a 130 IQ is pretty smart. That’s 2 standard deviations above the average person.
“If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.” Long term holding periods is a key to successful investing as illustrated by the Fidelity references cited in the earlier commentary.
“The Stock Market is designed to transfer money from the Active to the Patient.” Frequent trading is erosive to end wealth has been demonstrated time and time again.
“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.” Hussman’s style seems to be the 7-foot barrier with great rewards when successfully cleared, but many pratfalls more often than not.
And finally, “By periodically investing in an index fund, the know-nothing investors can actually outperform most investment professionals.” Even the know something investor can profit from this bit of wisdom.
Buffett has penned scores of other applicable quotes that caution against the policies, the procedures, and the practices deployed by John Hussman. I prefer the Occam’s Razor general strategy (take the route with the fewest simple assumptions) endorsed by Buffett and Munger.
Have a terrific Holiday season, and Best Wishes.
Basically, Hussman - from what I've read - underestimated QE and ZIRP. As I've noted in other threads, he wasn't betting on something that would provide an asymmetric return if shareholders waited long enough (the poor returns that those who bet against subprime had until they were finally right), he was simply bearish.
I'd love to ask Hussman a few questions, not to go after the performance of the last few years, but to try and gain an understanding of the strategy, as I don't quite see how his views line up with a fund that has a considerable weighting in stocks and is fully hedged. Would a few staples and healthcare stocks with little-or-no hedging have been a cheaper and more effective strategy that also expresses his views? I think so, but maybe he'll prove me wrong somehow.
The fund's website has no email address or else I'd ask him a few questions.
Hussman tries to time equities in and out, long and short (technicallyhe doesn't "short" stocks - but he achieves similar effect through puts). 10+ years losing $$.
MFLDX stepped right when they should've stepped left. Overweighted commodities at the wrong time in an attempt to hedge equity risk. Can happen to anyone. But that's what these types of funds are supposed to do - hedge equity risk.
I dislike the go anywhere funds largely because I don't think the advantages justify the high fees. Also, they are subject to unusually heavy inflows and outflows due to the fickle nature of many investors. MFLDX might be wise to do more to encourage longer term investing. Some ideas: raising minimums, imposing front-loads, adding or extending redemption fees or otherwise cracking down on hot money. Wouldn't have prevented this year's swoon - but would have lessened the impact (and perhaps the negative publicity).
But, please don't put this fund in the same other-worldly camp as HSGFX. How many other funds would even have retained the same "manager" for a full decade with so dire a performance record?
"As orthodox policy continues to migrate toward the once unimaginable goal of inducing sustained inflation and weakening currencies,
more of the world’s central bankers are being drawn into the melee. Monetary ease has become the cure-all for structural and political
infirmities that are best addressed by real reform.
The appeal of using the magic monetary elixir is clear. There are no hard political decisions to take, and,thus far,the effects look perfectly
benign if one ignores the relentless asset inflation that allowed unthinkable portions of the trillions made available by monetary authorities
to accumulate in a small proportion of society. Otherwise,the U.S. economy appears to be the poster child for quantitative ease,
combining a reasonably strong expansion with negligible interest rates and benign readings in official measures of inflation."
"We have spent the past year waging a losing battle in markets, based on the notion that the consequences of unlimited monetary largess
would begin to appear. Our belief was that symptoms of economic overstimulation would prompt a movement away from defensive
asset classes and equity groups toward those that would benefit from growing demand, utilization, and pricing power.
Unfortunately, although there has been a substantial body of evidence suggesting that economic activity (particularly within labor
markets) has strengthened considerably, this has not provoked the market response that we envisioned.
Instead, through the first three
quarters, the results in markets have suggested the opposite macroeconomic environment in which activity was diminishing and
defensive investment policies were appropriate.
Developed world banking systems have been force-fed reserves like geese for foie gras. In spite of this, the responses in traditional
economic activity have been modest, particularly on a global scale. "
" Also, we have significantly reduced our exposure to the reflation theme by trimming
our materials’ positions.
The aspect of our portfolio that has been most damaging in terms of our participating in a rising domestic market has been the nearly
complete absence of defensive- and yield-oriented sectors among our long holdings.
These have, for the most part, constituted the
leadership of the main indices in the U.S.
Our current holdings continue to emphasize cyclicality and global top-line expansion, with less of an exposure to very late-cycle
companies in materials and inflation-sensitive sectors. Our net equity position remains around 50%, and the short side of the book has
greater emphasis on index-level instruments in both the U.S. and Europe."
---
I have to say, whatever one thinks about MFLDX and the alternatives space (some degree of dislike, from many on the board), I always find the letters interesting.
Also, re MFLDX, the shorts against various fixed income probably not helping.
I do not hold MFLDX.
asset classes and equity groups toward those that would benefit from growing demand, utilization, and pricing power."
Also, we have significantly reduced our exposure to the reflation theme by trimming
our materials’ positions."
"Our current holdings continue to emphasize cyclicality and global top-line expansion, with less of an exposure to very late-cycle
companies in materials and inflation-sensitive sectors. Our net equity position remains around 50%, and the short side of the book has
greater emphasis on index-level instruments in both the U.S. and Europe.""
Marketfield has talked about its desire to make changes if themes are not working, but mutual funds are not going to change overnight and unfortunately, this was one instance where the fund had a few different themes not working. They appear to be making changes to the portfolio and hopefully things improve going forward.
I continue to own the fund.
"This year, alas, Shaoul’s forecast for a stronger U.S. economy and greater inflationary pressure hasn’t played out. Consistent with his assumptions, the fund bought metals and mining stocks, and shares of industrial chemicals and machinery concerns, while shorting utilities and consumer-goods stocks earlier in the year. Neither move has worked well, and the fund was down 9% through Sept. 30, versus an average peer-group gain of 1.5% and a return of 8% in the same span for the Standard & Poor’s 500. .....
Shaoul: "We pared back some of our commodity-related and industrial related and industrial holdings in mid-September."
--
Sorry, am unable to link this. But, I remembered the interview from one of Ted's previous links.
(Ted has now posted link to this interview further down if interested)
From the interview I cited above it seems these guys like to make contrarian bets - in the belief markets will eventually realize the wisdom of those positions and "catch up." He mentioned an early bet on Europe as one contrarian play that worked. Funds using a contrarian strategy need a stable core of long-term investors who aren't going to jerk their money out after one or two bad years. (And recent articles posted on this board cite a flood of money pouring out).
If money flees before those investments turn-around and start making money, it puts the fund in greater jeopardy. That's because isn't enough leverage left (in dollar terms) to make up for the loses from having sold assets at a steep discount. I don't know enough to say whether this fund will turn-around. If they can stabilize their asset base (perhaps by reducing the retail investor component) they have a good chance.
It's hard to get inside their heads. Are they running their operation more as a hedge fund, with a fairly stable asset base from a core of large investors? Or, are they primarily trying to pull-in greater and greater AUM from retail investors? There was a lot of speculation on the board earlier on that they should have closed the fund to new money. I understand that concern, but think it's somewhat mis-placed. Unless you can stop assets from running out the door after a bad year or two, it's very hard to run a "contrarian" fund like this.
Regards,
Ted
http://www.mutualfundobserver.com/discuss/discussion/16496/marketfield-s-shaoul-staying-ahead-of-the-crowd