Just how rough has 2008 been for investors? Writes Peter Brimelow on MarketWatch today:
The year has been a grim grind, for investors and for investment letters alike.
As of the end of August, just 19 letters of some 180 followed by the Hulbert Financial Digest had made money in 2008.
Even the ultraconservative Growth Stock Outlook, which has finished in the black every year for more than two decades, is slightly (0.8%) under water (but don’t count it out).
Recall, in June of 2007 the top performing newsletters were bullish according to Mark Hulbert:
There are no guarantees. But to bet on a new bear market right now, you have to bet against the timers with the best long-term records and with those whose records have been awful.
At the time we reached the opposite conclusion (I personally exchanged e-mails with Mark Hulbert and blogged about it here.):
We’ll go with the so-called “dumb money” as the valuation, economic and sentiment stars or extremely well aligned for a killer bear market.
The newsletter community, by its nature, tends to be non-conformist, bearish, and uses technical analysis to time markets. The current environment should suit their style over that of traditional money mangement, which has morphed into “buy the dip,” “buy-and-hold,” and “don’t fight the Fed.” Clearly, a weeding out process took place during the 25-year credit expansion and financial asset inflation of 1982-2007, even among the market’s skeptics who are now unprepared for the Great Unwind. Call it “survival of the unfittest,” as Nassim Taleb writes in Fooled By Randomness.
In a MarketWatch article, Mark Hulbert took the pulse of the nine top-performing market timers in his database:
The bottom line? None of these nine top timers is bearish. The average equity allocation among all nine is 86%.
To be sure, this 86% is slightly below the level from early August, when it stood at 90%. But the current reading is still quite high. And it is particularly bullish relative to the average forecast of the 10 stock market timing newsletters with the very worst risk-adjusted performances over the past decade. Their average recommended equity exposure right now is 40%.
In other words, the best market timers are, on average, have more than double the equity exposure of the 10 worst market timers.
In addition, the article contained a few sentiment gems:
“We expect significant additional stock market progress into next year as investors discount growing corporate earnings in an environment of low inflation and benign interest rates.” – Bob Brinker, MarketTimer
“Historically, the risk of a serious market decline is almost nonexistent when the sentiment, monetary, major trend and seasonal stars are aligned as synergistically as they are now. If history is any guide, stocks are much more likely to advance in the next 12 months than they are to fall. And if they do fall, the damage will be minimal.” – John Harris, Vantage Point
“There are no guarantees. But to bet on a new bear market right now, you have to bet against the timers with the best long-term records and with those whose records have been awful.” – Mark Hulbert, Hulbert Financial Digest
My comment: We’ll go with the so-called “dumb money” as the valuation, economic and sentiment stars or extremely well aligned for a killer bear market.