hocus2004 wrote:One, even if what we are saying is just common sense, the problem with common sense is that it's not too common anymore. Endless voicing of the "Stocks for the Long Run" paradigm has left lots of investors repeating 12 nonsensical stock dogmas (it's a random walk both in the short term and in the long term, the market is efficient, even long-term timing is impossible, the risk in stocks goes away if you plan to hold them for the long term, price doesn't matter, and so on) before breakfast. Today, stating the obvious is controversial. Today, common sense observations are shocking.
Mark Hulbert has reached the same kind of conclusion regarding investment newsletters.
In the July 2004 issue of the Hulbert Financial Digest, he points out that only three out of the fourteen newsletters that he has been following since he started in mid-1980 have done better than buy-and-hold of the Wilshire 5000 index over those twenty four years. Adjusted for risk, the number of winners increases to four. Adjusting for survivorship bias, the percentage of winners drops in half.
If we stop at that point, the record for newsletters is dismal.
But Hulbert does not stop there. He points out that a strong bull has dominated the market since mid-1980. He states:
The problem comes when trying to ascertain what these dismal long-term results mean for investing from this point going forward. The typical conclusion that many draw from the HFD's performance data is that one should never try to time the market or attempt to pick stocks that will outperform the averages.
But this conclusion follows only if the stock market will provide anything close to the returns over the next decade as it has over the last two.
Mark Hulbert then presents newsletter results for the past five years, during which the Dow Jones/Wilshire 5000 Total Return Index has fallen at an annual rate of -1.1% (annualized). The statistics are tossed upside down, not only for the 24-year survivors, but also for newsletters in general. Out of 101 newsletters that Mark Hulbert has followed on the last five years, 84 have beaten a buy-and-hold strategy.
From this Hulbert suggest that it is fair to predict that newsletters will do great if the market's performance during the next decade is bearish and similar to that of the past five years. If the market is bullish and performs similar to that of the past twenty-four years, newsletters will do poorly.
His personal opinion is that the market is likely to underperform in the next decade because of valuations and demographics.
He points out that it is only necessary for the stock market's downside risk to have increased in order to make newsletters attractive.
Have fun.
John R.