I submit Hussman's latest commentary as example of what can happen when you "out-think" yourself. Happens to all of us, but, fortunately, we're not managing other people's money. Appears from this he's been trying to modify his "proprietary" investment approach - but with little success. HSGFX is down 11.5% YTD and negative for 1, 3, & 5 years as well. (disclosure - I sold a small hold in this thing last March.) In contrast, income-oriented HSTRX has posted positive returns since inception & is up about one percent YTD. My limited experience with this one is it tends to move with its relatively small precious metals exposure, and since those markets have back-tracked, has lost some of its luster. (BTW - my suspicion is he's experienced significant outflows from HSGFX. If so, that would exacerbate losses for those left behind.)
http://www.hussman.net/wmc/wmc120820.htm
Comments
If FundAlarm was still around I'm sure HSGFX would be labled a 3-alarm disaster.
If he thinks things aren't good, a moderate allocation to consumer staples, health care and some other odds/ends, light hedging and heavy in cash.
According to the letter, Strategic Growth remains fully hedged. M* has HSGFX as a long-short fund; if recent history is any indication, it seems much more market-neutral.
I agree with a lot of what Hussman has said that I've read, but I think it gets to the point where if something isn't working change the playbook - and I'm surprised his playbook didn't reflect what may happen when the easiest monetary policy in the country's history occurs. At this point, however, Hussman changing his playbook would be a rather good contrary indicator.
Basically, I think JH is yet more living proof that skills and smarts in macroeconomics (his training and forte) and investing rarely come in the same human package.
http://www.smartmoney.com/quote/HSGFX/?story=risk
Grfft!!
(S&P lost 37% - Most growth funds like TRBCX lost 40% or more)
http://finance.yahoo.com/q/pm?s=HSGFX -
To elaborate a bit - '08 appeared favorable, but did not translate into superior returns for his investors over the longer run. Scott has made some astute points in the past about Hussman being something of a slave to his own macro-economic convictions. So, while many equity and balanced funds rebounded from '08, HSGFX languished ...
(perhaps a lesson in there somewhere for all of us)
Have to say I'm really wondering about our wonderful new market tops also. Ready to correct or respond to the next new financial disaster?
Exactly. I mean, I agree with a lot of what I've read of Hussman in theory, but his indicators did not seem to take into account the easiest monetary policy in the history of the country. I mean, if it was 6 months to a year, then he switched the playbook, okay - everyone has an off year, but he's still sticking to the same script.
He's talking in the new letter about how he made sure the hedging methods can withstand "depression era" data, but that doesn't take into account Central Banks that are eager to prevent even a recession from happening. Hussman: " I don’t share the confidence and enthusiasm of investors about the ability of central banks to make recessions, debt crises, and major market losses a thing of the past."
That's quite possibly true in the mid-to-longer term, but at least in the short-term, one may want to protect themselves in some form from inflation and particularly the desire to inflate asset prices (as well as a central banker whose doctrine included this: "The U.S. government is not going to print money and distribute it willy-nilly ..."although there are policies that approximate this behavior.")
Finally, a couple of other issues. One, you have a market that is incredibly fickle. Hussman was highly regarded, but a string of bad years has probably caused a lot of AUM to leave, and it's difficult to convince investors again. See Heebner and CGM Focus.
People have to have confidence in management in order to stick around through thick and thin. I'd guess many retail investors are not aware who manages their funds. I will admit to having that degree of long-term confidence in probably only a handful of managers.
Two, Hussman talks about going through this sort of thing before where he's wrong until he's right. He's not a hedge fund making a bet against subprime mortgage bonds, he's a mutual fund. If you're not going to be flexible and at least adapt somewhat to conditions, people are going to leave - they don't care. And unlike the funds that bet on subprime bonds, Hussman's hedging isn't going to lead to some magnificent return if he is proven right. This isn't some sort of asymmetric bet with a huge payoff if he's eventually correct.
Again, I respect Hussman - he's well-researched and intelligent. I just don't understand the approach, which seems overly complicated if he's that negative on the market. Forester Value, on the other hand, seems to be able to dial risk up and down with fairly consistent, good results (including a positive return in 2008) and a straightforward strategy.