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Hussman writes well. But someone is taking issue with his unwillingness of reversing his calls when faced with overwhelming evidence that does not collaborate his call.
Full Market Cycle...I'm willing to give him benefit of doubt for now. Besides I have BOTH HSGFX and HSTRX and together I'm not losing money. So I have the wherewithal to hold on.
In today's times, in matter of a couple of months, "idiots" can turn to "geniuses".
Reply to @Investor: Agreed. I think it was Marc Farber(?) who said, everyone is right at least once in their lifetime. I went with Hussman as an "alternative investment". Still not regretting it, while not blaming anyone from thinking his is cuckoo.
Reply to @Old_Joe: That's because of your name Stop calling yourself old joe. You'll feel young and then before you actually feel old, you will have been right at least once.
There are some pretty good statistical reasons not to believe Hussman's forecasts. Hussman's models suffer from a problem called 'overfitting.' This means that in an attempt to gain precision in his forecasts, he has put too many pieces of information into his model. As his a result, his model is very good at predicting historical data but doesn't do as well with next data (i.e. the future).
Overfitting is actually a really difficult problem to get around, and typically the way to deal with it is to test the model on new data. For example, if he could make a recession model for the US and test it on historical data of Europe. It doesn't appear from his commentary that he does this and there could be some practical reasons why he's not, but it looks like he is making this mistake. There are some other problems with the way his models work (he uses correlated measures as predictors and talks about as if they were independent) but this is the big one and it severely lessens the value of his predictions.
In short, Hussman is probably wrong and will likely continue to be wrong.
Hussman still shorting into an environment of easy monetary policy, it looks like. It would appear that Hussman is now using index put options (if I remember correctly, he used to short futures?) I haven't owned any of his funds, but I've found his pieces interesting and well-researched when I've looked at them here-and-there over time, although he appeared (in what I've read) to focus on his view (and whether you agree with it or not, he certainly makes his case in great detail) of fundamentals and not on liquidity trying to find a home. A piece several months ago noted he was going to change his tactics/playbook, but I'm not sure he's done so and it's been a while since I've read his works.
Minor/off-topic; looking at Hussman Strategic Growth on M*, they note the country of origin of Ebay as Chile. lol.
Yeah, he definitely has something interesting things to say. He does some pretty interesting valuation forecasts and is a good critic of, I would say, the ongoing narrative. He's very critical, and I think rightly so, of using a lot of economic data in forecasts among other things.
Well researched as they may be, his models aren't likely to be able to predict a recession better than something like the LEI, which dampens the utility of the model. He might be able to get a slight improvement over it, but nothing huge and certainly nothing that justifies the confidence he exerts. Its very difficult to predict the future and while Hussman uses a lot of math to justify his claims, that can do little to diminish the uncertainty. All you can really say is that, it in the past when conditions X, Y and Z were observed, we saw a recession. But then you need to demonstrate why X, Y and Z were causally related to the onset of the recession and why a different set of conditions could not have caused a recession. His research is really unlikely to work.
Now, there are a set of markets in which Hussman can do very well. This probably isn't one of them (thought I don't know). I would imagine for Hussman to do well you would need to see large divergences in the prices of equities, given his past performance.
Reply to @NickF: Hussman's predictive abilities (or not) aside, I suppose my fundamental concern as a shareholder would be the lack of flexibility.
Even if Hussman's detailed take on the fundamentals now or couple of years ago are correct (they haven't changed, it would seem), if it's not playing out, I'd think there would be a point where he would possibly have either lightened up the hedging or went more to cash, more conservative, some combination. I guess the other thing I've never quite gotten is Hussman's viewpoint versus holdings - the fund holds some fairly aggressive/momentum names at times. Get rid of/lighten the hedges and dial-down the portfolio risk, move moderately to cash.
Additionally, I think I said this several months ago. I agree with a lot of what I've read from Hussman, but with monetary policy being what it is, I would think that at some point he would have changed tactics. Going to more Colgate-eqsue names, raising cash, lightening or reducing hedges would have allowed him to participate to some degree with a very conservative portfolio that more accurately would reflect his outlook rather than this tactic of having names like Panera and Amazon on one hand and hedges on the other.
Reply to @scott: I agree. If he is pessimistic he could dial down the risk of the portfolio. Hedges do cost money to implement. He might have done better while maintaining pretty similar risk level.
Reply to @scott: There are other fund managers who are more flexible and manage their funds through the up and down cycles. One I particular like is Steve Romick of FPA Crescent.
In regards to his "unwillingness of reversing his calls", if he turns out right, investors will be glad he didn't and his conviction will be admirable... I, for one, am in his corner.
Reply to @_AP_: It's not that I don't agree with a lot of what he says (although I tend to think that he focused on X rather than the effect of Y (easy monetary policy), but it becomes a question of at what point does one change tactics? I don't think everything going on now is good or right or won't have consequences too, but I also see inflation and the need to invest with that possibility in mind.
If he does turn out to be right, the fund is not positioned in order to capitalize significantly on possible downside. I guess my issue looking at the fund is not quite buying into the tactics of having names like Amazon on one hand, and having a negative view and hedging on the other. If Hussman is negative, go to cash, increase more conservative holdings and the result could be a low-key, high-cash, conservative fund with much more minimal or no hedging. Obviously, this is all in hindsight, but it begs the question - in regards to this or any fund as to how long should a manager stick with a particular stance (whether they are fundamentally right or not) when it is clearly not working? I'd say the same thing about long-only managers, too - I said it about Fairholme more than a few times.
In my opinion, Hussman's ultra conservative style is better fitted for his Total Return fund HSTRX then an equity fund like HSGFX. I own and like HSTRX because to me it is a conservative "alternative" bond fund. So my expectations are for steady bond like returns. I'm not a fan of long/short style funds, but if I were, there may be better options. MFLDX is one that comes to mind. I think a switch from HSGFX to MFLDX would be an upgrade to ones portfolio - if you like the long/short style.
Another way to reduce correlation to equities is to go with funds that have the flexibility to use a variety of different investments. Investments that don't all go up or down at the same time. PGDPX, as noted in another thread, appears to be a wonderful diversifier that aims to reduce correlation to stock indexes. It uses different income streams like global real estate, MLP's, HY bonds, and value stocks. PRPFX is kind of similar in that it uses a different set of investment options that move independently in different market cycles. Over time, I believe these types of alternative funds have a better shot at good steady returns over market cycles then does a fund like HSGFX. Just my 2 cents of course.
Reply to @scott: What is Marketfield investment strategy? I see it is shorting foreign equity by 17%! Is this real that they are so bearish on foreign equity?
Reply to @scott: I don't actually think he shorts. He hedges. Now if market goes up, his hedge will effectively decline the portfolio NAV if he is fully hedged.
I have a problem with M* classifying HSGFX as a Long/Short Fund. I think he is "Periodically Market Neutral".
Reply to @Sven: They are (at least at last report) short a handful of foreign (primarily EM) etfs, as well as a few foreign banks. Worked well last year, not so much this year. There is a great interview with the fund manager where he goes into detail regarding a number of the fund's macro calls.
Reply to @MikeM: Thanks for suggestion. I added MFLDX to watch list & looked at it a bit - $2500 minimum if anyone interested. Open less than 5 years. Could have ridden the big-bang of '08 down by shorting and the sharp rebound up with some fortuitous longs. Commodities probably helping. Bit early to assess, but results are impressive. Looks like a "go anywhere" fund. They mention longs, shorts (about 25% current), commodities futures, various fixed income and derivatives. Hope I didn't leave anything out. Stuff that can get ya in alot of trouble pretty easy. As to HSGFX, I got less than 5% in it and am presently just as disappointed as the next guy. Two possibilities (probably more): (1) The guy's really screwin up big time or (2) market trends persist even longer than most of us can imagine. The second possibility doesn't take the bad taste from our mouth - or fully justify his loosin nearly 5% YTD in that fund. One "bright" note, BEARX appears to be down something like 18% annually over 3 years. Glad don't own it!
Reply to @scott: Sometimes it seems like a black box (-: Hussman says he never shorts because it's too risky. Uses put-options instead. If I understand correctly, that's an offer to buy or sell an equity at some future date for a predetermined price. Gets a similar result to shorting however. Owned some GATEX years back. Similar hedged approach using puts - but they don't try to guess the market the way Hussman does. Maintained a more static position. Think she ran on a more even keel.
Reply to @hank: Yeah, I thought Hussman was using futures at some point, but I guess it was probably options. I suppose a main benefit to consider in terms of using options to short is that your loss is limited to the option premium paid, but it becomes a whole situation of the manager having to pick level/s, how far out, etc. etc. (Will it be June 110 puts on the SPY or July 100 puts?) I'm not particularly sold on mutual funds making more extensive use of options, although GATEX has done reasonably well. Then there's all of the option income strategy CEF's (ETY), which appear to remain popular as long as they're churning out high single digit/low double digit % yields.
Comments
In today's times, in matter of a couple of months, "idiots" can turn to "geniuses".
Me, I'm still waiting...
Stop calling yourself old joe. You'll feel young and then before you actually feel old, you will have been right at least once.
Overfitting is actually a really difficult problem to get around, and typically the way to deal with it is to test the model on new data. For example, if he could make a recession model for the US and test it on historical data of Europe. It doesn't appear from his commentary that he does this and there could be some practical reasons why he's not, but it looks like he is making this mistake. There are some other problems with the way his models work (he uses correlated measures as predictors and talks about as if they were independent) but this is the big one and it severely lessens the value of his predictions.
In short, Hussman is probably wrong and will likely continue to be wrong.
Minor/off-topic; looking at Hussman Strategic Growth on M*, they note the country of origin of Ebay as Chile. lol.
Well researched as they may be, his models aren't likely to be able to predict a recession better than something like the LEI, which dampens the utility of the model. He might be able to get a slight improvement over it, but nothing huge and certainly nothing that justifies the confidence he exerts. Its very difficult to predict the future and while Hussman uses a lot of math to justify his claims, that can do little to diminish the uncertainty. All you can really say is that, it in the past when conditions X, Y and Z were observed, we saw a recession. But then you need to demonstrate why X, Y and Z were causally related to the onset of the recession and why a different set of conditions could not have caused a recession. His research is really unlikely to work.
Now, there are a set of markets in which Hussman can do very well. This probably isn't one of them (thought I don't know). I would imagine for Hussman to do well you would need to see large divergences in the prices of equities, given his past performance.
Even if Hussman's detailed take on the fundamentals now or couple of years ago are correct (they haven't changed, it would seem), if it's not playing out, I'd think there would be a point where he would possibly have either lightened up the hedging or went more to cash, more conservative, some combination. I guess the other thing I've never quite gotten is Hussman's viewpoint versus holdings - the fund holds some fairly aggressive/momentum names at times. Get rid of/lighten the hedges and dial-down the portfolio risk, move moderately to cash.
Additionally, I think I said this several months ago. I agree with a lot of what I've read from Hussman, but with monetary policy being what it is, I would think that at some point he would have changed tactics. Going to more Colgate-eqsue names, raising cash, lightening or reducing hedges would have allowed him to participate to some degree with a very conservative portfolio that more accurately would reflect his outlook rather than this tactic of having names like Panera and Amazon on one hand and hedges on the other.
If he does turn out to be right, the fund is not positioned in order to capitalize significantly on possible downside. I guess my issue looking at the fund is not quite buying into the tactics of having names like Amazon on one hand, and having a negative view and hedging on the other. If Hussman is negative, go to cash, increase more conservative holdings and the result could be a low-key, high-cash, conservative fund with much more minimal or no hedging. Obviously, this is all in hindsight, but it begs the question - in regards to this or any fund as to how long should a manager stick with a particular stance (whether they are fundamentally right or not) when it is clearly not working? I'd say the same thing about long-only managers, too - I said it about Fairholme more than a few times.
Another way to reduce correlation to equities is to go with funds that have the flexibility to use a variety of different investments. Investments that don't all go up or down at the same time. PGDPX, as noted in another thread, appears to be a wonderful diversifier that aims to reduce correlation to stock indexes. It uses different income streams like global real estate, MLP's, HY bonds, and value stocks. PRPFX is kind of similar in that it uses a different set of investment options that move independently in different market cycles. Over time, I believe these types of alternative funds have a better shot at good steady returns over market cycles then does a fund like HSGFX. Just my 2 cents of course.
I have a problem with M* classifying HSGFX as a Long/Short Fund. I think he is "Periodically Market Neutral".
http://www.marketfield.com/AdvisorPerspectives20111121MAM.pdf