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I have owned HSGFX for many years, and have suffered like the other holders (about 5% of my portfolio). Based on John Hussman's education, he is very smart - you don't get into Stanford grad school without extremely high scores. This most likely translates into a high IQ >135. I have a degree in chemical engineering and an MBA (finance), and I read (and understand) his weekly newsletter. I think it's well written and very insightful. I think he is absolutely correct in his analysis of the markets. However, like others I think his investment model is flawed and overly complicated. My investment model enables me to participate in the upside gains and I maintain a trailing "stop limit" buy order on ETF SPXU (3x S&P negative) as insurance against the market tanking. The general investing public is buying and selling without any regard for value. Eventually there has to be a day of reckoning, but why not take the ride up. His biggest mistake was not getting into the market after the big 2008 crash. I know about his stress testing... That proved to me his business instincts are not great - if common sense disagrees with your financial model, please go with the common sense. Please realize that all of these models have ton of assumptions...
Buffet: "Success in investing doesn't correlate with I.Q. once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."
”Beware of geeks bearing formulas.”
It takes a really smart guy to really mess up an investment portfolio - read When Genius Failed. Some of the smartest guys in finance bankrupted their fund, and needed to be rescued by the fed. The trades were so complicated no one could figure them out. A fund manager with average intelligence and good business instincts would likely never have this problem.
Reply to @mercied: An excellent write up. I think you have it pegged pretty well. I like your quotes a lot. A couple more come to mind: "The fault Dear Brutus is not in our stars but in ourselves ..." and "Too smart by half". You reference his failure to buy at the depths of '08-'09. That is what finally convinced me to pull out - though I had earlier misgivings. To me "put-call" options constitute a bit of a "black-box" - though I get the general idea of limiting downside, hedging risk, etc. Interestingly enough, GATEX has had very good success over the years with a very similar strategy. Even Price's exceptional PRWCX has dabbled in covered call writing, selling call options on stocks they own to enhance income. At the end of 2012, 17% of their equity holdings were so encumbered. Go figure.
Reply to @hank: Writing covered calls in a portfolio isn't necessarily a bad thing since if your shares do get called away that meant they went up in value and you received a premium in selling them. All you missed out on was further upside. If not, you keep the premium and do it all over again.
Selling puts, as it seems Hussman has done in his latest report to hedge 100% of his entire portfolio by buying SPX puts @ $1600, has no value whatsoever unless the index drops. And with the current delta on those options there isn't much value being generated unless the index drop dramatically.
Comments
Buffet:
"Success in investing doesn't correlate with I.Q. once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."
”Beware of geeks bearing formulas.”
It takes a really smart guy to really mess up an investment portfolio - read When Genius Failed. Some of the smartest guys in finance bankrupted their fund, and needed to be rescued by the fed. The trades were so complicated no one could figure them out. A fund manager with average intelligence and good business instincts would likely never have this problem.
Selling puts, as it seems Hussman has done in his latest report to hedge 100% of his entire portfolio by buying SPX puts @ $1600, has no value whatsoever unless the index drops. And with the current delta on those options there isn't much value being generated unless the index drop dramatically.