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John Hussman: The Market Is Being Driven By The 'Grand Superstition'
Reply to @VintageFreak: I dunno, 5 years is a pretty long time, especially in an age where people hold stocks for an average period of days instead of what used to be years. I'm not as anti-Hussman as some, I'm actually rather curious about his reasoning and I'd email him if he actually had an email posted on his website.
Reply to @scott: I don't think it's a matter of being anti-Hussman. Many of us have simply pointed out the painful truth that his flagship HSGFX hasn't made a penny over the last 10 years, a long period which encompasses most of the fund's history. (Click on the return performance stats from a variety of tracking sites.) Now, you could probably make a case for holding other assets that have endured similarly long periods of underperformance including: "Inverse S&P" funds, precious metals, oil, and more recently, cash and short-term T-Bills. But danged if I can make a good argument for owning this fund. The difference is that the other assets mentioned are stable and predictable. That is, they respond to market forces and conditions in understandable ways. As such, one or more may assume the role of "calculated hedge" within a total portfolio. I'll go a step further and suggest that if you don't have some things lagging or declining at any given time, you're probably not diversified enough.
To the contrary, unlike the other assets mentioned above, HSGFX is a complex fund using multiple investment and hedging strategies and highly subject to the whims, forecasts and dictates of a single individual. In other words, it's highly manager dependent. I've nothing against investing in good managers. BobC often stresses this point. But, if that's what one is seeking, than why not seek out proven managers with demonstrable track records? I'd also prefer that when possible they come from large established houses able to provide support through strong proprietary research and also having "deep benches" that could provide continuity of the fund's mandate and investment style should the current manager leave or become incapacitated.
To me, holding shares in HSGFX at this time must constitute a calculated gamble, with owners thinking, "It's been down so long it has to go up soon." OK - I get it. Big money can be made placing a wager on a team coming into the game with a 0-10 record. The payoff is huge. But let's not delude ourselves into thinking that a single year's gain of 10 or even 15% would constitute cause to celebrate. Compounding that out over the past decade you'd likely arrive at an annual rate of return below 1%. Before bragging rights ensue, multiple years of sizeable outperformance will be needed. FWIW
Reply to @VintageFreak: Because a fund that is a merger arbitrage fund, which should be expected to consistently hit LIGHT singles (a double is a very good year) has outperformed it (actually for both a 5 year and 10 year period, now that I look at M*.) I'm not going after Hussman's performance as much as I am fascinated by - given all of the statistics that Hussman quotes and all the research he's clearly done over time - that he did not anticipate the effects of the easiest monetary policy in history and continues to seem to deny its effect.
Reply to @hank: I couldn't agree more. I haven't done a study (is there one out there?) but I bet you could outperform almost all of these high-priced long-short funds with lower volatility by putting half your money in a high-beta, high-return fund (maybe a small value index fund), half in money market or a short-term bond index fund, and rebalancing yearly or maybe quarterly to maintain that 50/50 ratio.
Reply to @expatsp: Geoff Considine looked at such a portfolio. I believe it was composed of two year calls on EEM combined with AGG in a 10/90 mix. All the volatility is in the calls of course. Captured the vast majority of EEM's returns with a nice drawdown profile. He looked at doing it with the QQQQ's also. Same type of result. Zvi Bodie also argues for such a mix in his book, but using TIPs.
All this is from recollection so the specifics would need to be verified.
Reply to @VintageFreak: I own the fund as a long term diversifier in a small amount. I am very conversant with how it operates so am able to anticipate in what type of environment it will not perform well. From my perspective, his stock selection is very, very good and he would make a fine straight up portfolio manager. His hedging does not " work" in certain low quality and sector outperformance environments given his portfolio composition though. He's got to know that so if there is a criticism it is that he has never removed this bias in this horrendous five year stretch of performance. I have found it takes a lot of work to use the fund and so I am phasing it out after eight years of owning it.
Comments
To the contrary, unlike the other assets mentioned above, HSGFX is a complex fund using multiple investment and hedging strategies and highly subject to the whims, forecasts and dictates of a single individual. In other words, it's highly manager dependent. I've nothing against investing in good managers. BobC often stresses this point. But, if that's what one is seeking, than why not seek out proven managers with demonstrable track records? I'd also prefer that when possible they come from large established houses able to provide support through strong proprietary research and also having "deep benches" that could provide continuity of the fund's mandate and investment style should the current manager leave or become incapacitated.
To me, holding shares in HSGFX at this time must constitute a calculated gamble, with owners thinking, "It's been down so long it has to go up soon." OK - I get it. Big money can be made placing a wager on a team coming into the game with a 0-10 record. The payoff is huge. But let's not delude ourselves into thinking that a single year's gain of 10 or even 15% would constitute cause to celebrate. Compounding that out over the past decade you'd likely arrive at an annual rate of return below 1%. Before bragging rights ensue, multiple years of sizeable outperformance will be needed. FWIW
All this is from recollection so the specifics would need to be verified.
Love to read his weekly missives though.