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How Should We Look at John Hussman's Performance Numbers?

March 01, 2013 | About:
GuruFocus

GuruFocus

371 followers
Economist and fund manager Dr. John Hussman is drawing a lot of criticism these days for the poor performance of his funds. It seems to be fair and the reason is simple and straightforward: He is having some rough years and his performance numbers look bad. These are the annualized performance numbers of the Hussman Strategic Growth Fund as of Dec. 31, 2012:

Hussman S&P 500
3-Year annualized -5.78% 10.7%
5-Year annualized -4.18% 1.5%
10-Year annualized 1.52% 7.2%


These numbers look bad, on doubt. He underperformed the market by more than 5% over the past 10 years. However, if we look at the 10-year performance numbers for the same fund for the lost decade from 2000 to 2009, Hussman was a hero:

Hussman S&P500


3-year annualized
-0.3% -5.6%
5-year annualized 1.6% 0.4%
10-year annualized 7.7% -0.8%


For the first decade of the 2000s, Hussman Strategic Growth Fund outperformed the market by 8.5% a year. He successfully avoided deep loss in 2009. His fund lost 9% while the market lost 37%. To put this into a better perspective, a 9% loss needs just a gain of 10% to break even, but a 37% loss will need a gain of more than 58% to break even. Isn’t he a hero?

John Hussman certainly missed a lot of gains over the last three years. But he has been investing the same way over these years. The investing philosophy that made him a hero for the first decade of 2000s is exactly what makes him a bad investor for the last 10 years.

What is wrong?

Let’s see another example. Don Yacktman is regarded as one of the best fund managers of our time. These are his performance numbers as of Dec. 31, 2012:

Yacktman S&P 500
3-year annualized 10.40% 10.70%
5-year annualized 9.70% 1.50%
10-year annualized 10.60% 7.20%


Aren’t the performance numbers great? No wonder investors are pouring money into his funds. But how many people still remember that in the end of 1990s Don Yacktman was almost ousted from his own fund because he missed all the gains by not investing in technology stocks? His fund lost 90% of its assets under management due to redemptions. Who knew that it is the best time to get into his fund rather than exactly the opposite?

Just like John Hussman, the investing philosophy that made Don Yacktman a bad investor in the decade of 1990s is exactly the same philosophy that make Don Yacktman a hero today. The only difference is that things happened in opposite sequence for John Hussman and Don Yacktman.

The examples can go on and on. This is the annual performance of a great (really) investor’s performance for the years from 1960 to 1974. The investor lost 31% consecutively for two years during the market decline of 1973 and 1974:

This Investor Dow Jones
1970 -0.1% 8.7%
1971 20.6% 9.8%
1972 7.3% 18.2%
1973 -31.9% -13.1%
1974 -31.5% -23.1%


For the three-year period ended Dec. 31, 1974, the investor lost 20% a year in average while Dow Jones index lost 7.6% a year. For the five-year period, he lost almost 10% a year while the Down Jones index lost only 1.2% a year. Guess who this investor is?

It is the great Charlie Munger!

So what is wrong? Is it because 3-year, 5-year, or even 10-year periods are not long enough? Even if we look at 10-year periods, John Hussman did look good for the first 10 years of 2000s. How can he suddenly become a bad investor in three short years?

The answer, we believe, is that when you look at the performance of an investor, fixed time periods such as 3-year, 5-year, or even 10-year can mislead investors badly. Even one good (or bad) year can make the 10-year performance numbers look good (or bad). No investing style can outperform market all the time. As one of our users said very well, every investing style has its own bear market.

Therefore, the best way to check an investor’s performance is not looking at his returns over fixed time periods. Rather, it is to check the performance numbers over complete market cycles. We should look at his returns in good years and bad. We should look at the numbers from market peak to peak, and from trough to trough.

These are the annual returns of S&P 500 from 1999 to 2012. It is safe to say that the years of 1999 and 2007 are market peaks, while the years of 2002 and 2008 are market troughs. The market is making new highs as of this writing; it is safe to say that the market is closer to peaks than troughs as of Dec. 31, 2012. See below:

YearS&P 500 Gain (%) Peaks Trough
1999 21 X
2000 -9.1
2001 -11.9
2002 -22.1 X
2003 28.7
2004 12
2005 4.91
2006 15.79
2007 5.61 X
2008 -37 X
2009 26.46
2010 15.06
2011 2.05
2012 15.6 X


Now let’s calculate the performance data of John Hussman for market peak to peak and trough to trough. Because Hussman’s fund did not exist for 1999, we use 2000 as the start of the peak.

YearsHussman S&P 500
Trough to Trough 2002 to 2008 6.0% -1.4%
Peak to Peak*: 2000 to 2012 4.7% 1.7%
Peak to Peak: 2007 to 2012 -2.6% 2.2%


Therefore, Hussman did well for the 2002 through 2008 market trough to trough. He also did well for the long term peak-to-peak years from 2000 to 2012. He did underperform from 2007 to 2012. But this might not be a complete cycle.

As usual, many fund investors focus on short-term performance or the lack of it. The best time to invest with a good investor is usually the time when he is having his own bear market.

We will apply this method of performance measurement to all the Gurus we track. We think it is a better way to compare performance.

What do you think?


Rating: 3.7/5 (24 votes)

Comments

Cornelius Chan
Cornelius Chan - 1 year ago
Way to put it into perspective.

Something I notice (that annoys me as well) is that critics like to put down Hussman's weekly commentaries without making any smart and/or interesting comments on his portfolio holdings. Did you know he is something like 10% in gold stocks? And we all know what has been happening to those lately...
tonyg34
Tonyg34 - 1 year ago
i thought husmann ran a market neutral fund? you shouldn't expect big gains from something like that
gurufocus
Gurufocus premium member - 1 year ago
Hussman's Fund might be market neutral now, and over the last few years. But it is because he thinks that the valuation is too high and the risk is too high.

Otherwise, he wouldn't hedge that much.
bpengelly
Bpengelly - 1 year ago
Great idea. Can't wait to see the results for the other fund managers. I would also like to see the Gain to Pain ratio used as described by Jack Schwager in Hedge Fund Market Wizards. I believe he uses the formula of the sum of all monthly returns (percentage) divided by the absolute value of the sum of monthly losses (percentage). So any positive overall return would result in a GPR of more than 0. Last time I checked, the S&P GPR was about .39.

I would very much like to know which fund managers have a better GPR than the market over their investing track record time span.

@C.W.R - Hussman runs a couple different funds. The Strategic Growth fund is the one being discussed. He does hold 10% of gold mining shares in his Total Return fund along with about 5% utilities and 85% treasury bonds with less than 3.5 years duration. The performance of the Total Return fund should be discussed in a different article as its benchmark is a bond index.
traderatwork
Traderatwork - 1 year ago
You are comparing with the young Munger (or the Phoenix before the Great Fire) but still an insult to Munger none the less.

Hussman is like Burton Malkiel (the random walk down wall street guy) - one trick pony.

I'm old enough (but not really old "old", >69) to think Hussman to the best word I can find - I'll said he is a broken clock - right twice a day.
sww
Sww - 1 year ago
@C.W.R.

Munger said: "Civilize people don't invest in gold."

You can buy gold and "make" some money but it's like Greenblatt said:

"An idiot run through a dynamite factory with a burning torch, he might survive, but he is still an idiot."

sdnarra
Sdnarra - 1 year ago
Young Munger? Gosh man, he was probably well into his 50s by then? Munger is probably 91 or 92 now. However point taken, great analytical and wise mind.
traderatwork
Traderatwork - 1 year ago
To the author of the article:

Q1: Why do you post Mr. Munger result and stop at 1974?

Q2: Why don't you post 1975 result?

This is from gurufocus.com

http://www.gurufocus.com/StockBuy.php?GuruName=Charlie+Munger

Charles T. Munger return on 1975 = 73.2%

What is your agenda for Dr. Hussman?

He is an imposter.
traderatwork
Traderatwork - 1 year ago
Charlie Munger’s Performance of his limited partnership:

YearMass. Inv. Trust (%)Investors Stock (%)Lehman (%)Tri-Cont. (%)Dow (%)Overall Partnership (%)Limited Partners (%)
Yearly Results
1962-9.8-13.4-14.4-12.2-7.630.120.1
19632016.523.820.320.671.147.8
196415.914.313.613.318.749.733.1
196510.29.81910.714.28.46
1966-7.7-9.9-2.6-6.9-15.712.48.3
19672022.82825.41956.237.5
196810.38.16.76.87.740.427
1969-4.8-7.9-1.90.1-11.628.321.3
19700.6-4.1-7.2-18.7-0.1-0.1
1971916.826.622.49.825.420.6
19721115.223.721.418.28.37.3
1973-12.5-17.6-14.3-21.3-13.1-31.9-31.9
1974-25.5-25.6-30.3-27.6-23.1-31.5-31.5
197532.933.330.835.444.473.273.2
Compound Results
1962-9.8-13.4-14.4-12.2-7.630.120.1
1962-38.20.965.611.5123.477.5
1962-425.415.320.419.632.4234.4136.3
1962-538.226.643.332.451.2262.5150.5
1962-627.514.139.523.227.5307.5171.3
1962-75340.178.554.551.8536.5273
1962-868.851.490.56563.5793.6373.7
1962-960.739.486.965.244.51046.5474.6
1962-7061.733.773.463.557.11045.4474
1962-7176.356.2119.5100.172.51336.3592.2
1962-7295.779.9171.5142.9103.91455.5642.7
1962-7371.248.2132.791.277.2959.3405.8
1962-7427.510.362.238.436.3625.6246.5
1962-7569.447112.287.496.81156.7500.1
Average Annual Compounded Rate3.82.85.54.6519.813.7
Cornelius Chan
Cornelius Chan - 1 year ago
Sww,

Munger's ad hominem attack on gold investors is not meant to be taken literally. His main point was to invest in productive businesses. Are not gold mining companies productive businesses?

From all I read, gold is mainly a monetary commodity. If there is a currency crisis as bad as there was a credit crisis, wouldn't it be good to have some gold? It is the gold standard. LOL!

Remember, different times call for different measures. Just like Sun Tzu says different terrain calls for different tactical strategies.

gurufocus
Gurufocus premium member - 1 year ago
Traderatwork To the author of the article:

"Q1: Why do you post Mr. Munger result and stop at 1974?"

Because we want to show you that 3-year, and 5-year numbers can be misleading. If you looked at Munger's 3-year, 5-year numbers in March 1975, it does not look good. But that does not mean Munger isn't a great investor.

"Q2: Why don't you post 1975 result?"

Munger had great number in 1975. That is because his investing style did not change from the bad years in 1973 and 1974. The investing style that made look bad for 1973 and 1974 is exactly the reason why he had great numbers in 1975.

The same applies to John Hussman. Maybe he will have great numbers for 2014, and 2015.

The key is whether the investing philosophy is sound. It is better measured with the results in full cycles. Just by looking at 3-year, 5-year numbers, we may be "fooled by randomness".

ansgarjohn
Ansgarjohn - 1 year ago
Great article. I think the key might be to track a number besides total market price of stocks held. Berkshire does this by tracking book value instead of their market price. Berkshire stock was up 17,5% last year which is more than the S&P including dividends 16,6%, but Berkshire says it was beaten by the market in 2012 because the book value "only" went up 14,4%.

For my own portfolio I track the total Graham Number value of everything put together. Even in a year when the market prices go down, the (Graham number) VALUE should be increasing. The important thing is to stick to 1 metric.
gurufocus
Gurufocus premium member - 1 year ago
Traderatwork asked "What is your agenda for Dr. Hussman?"

We have never talked with Dr. Hussman or anyone else in his firm, although we would like to interview him. None of us at GuruFocus invests in his fund either.

As a matter of fact, we approached Dr. Hussman for an interview, he never responded to our inquiry.

AlbertaSunwapta
AlbertaSunwapta - 1 year ago
Hussman may no longer qualify as a guru by some arbitrary number of years measure but I value his ability to spot downside risk and present a solid case based on a number of factors.

Here in Canada, the ability to identify black ice and consequently drive slower means you will likely fall behind others speeding along, but it also means you make it to your destination. It doesn't mean you will necessarily beat all the speeders but that's not the point.

i'm amazed how the above is lost on so many investors only a few short years after a major generally unpredicted market collapse. The bailouts definitely changed market perceptions of both too big to fail and too small to fail, raising the expectation that 'normal' involves the government absolving investors of any need to protect their downside. The government will bail you out if you are a bond or equity investor.. Just not if you are a underwater homeowner. :-)
vgm
Vgm - 1 year ago
Whenever there's a debate about an important topic in investing, I always look to Buffett for guidance. In terms of measuring performance, he talks in the latest Annual (which conveniently issued only today) of Berkshire's performance over all 43 possible 5-year periods:

"To date, we've never had a five-year period of underperformance, having managed 43 times to surpass the S&P over such a stretch." The table on p103 shows the data.

Furthermore, in the very recent Bloomberg interview transcript posted on GuruFocus, Bruce Berkowitz talks about using 5-year periods to assess Fairholme's performance:

"At the end of every month, we go back five years and measure five-year performance. We've beaten the S&P, significantly, 94 out of 97 times."

I wonder, therefore, if using 5-year performance data might be an alternative way to compare inter-Guru performance and to separate the wheat from the chaff.

I'm a bit skeptical of the method proposed by GuruFocus in the present article. Numbers can be made to say anything we want if we try hard enough. It reminds me of the quote attributable to Mark Twain that 'There are three kinds of lies: lies, damned lies and statistics.' And also of Munger's judgement that 'If you mix raisins with turds, you still have turds.'

Investors are seeking to build wealth over time and should not be placated with excuses for overall underperformance, no matter how good intermittent periodic performance has been.
Cornelius Chan
Cornelius Chan - 1 year ago
Bpengelly,

You wrote the following:

"The performance of the Total Return fund should be discussed in a different article as its benchmark is a bond index."

Wrong.

In fact, any of Hussman's portfolios in which he holds stocks may be discussed in this article.

AlbertaSunwapta
AlbertaSunwapta - 1 year ago
On picking some arbitrary number of years to measure performance... Hypothetically, would a fund manager who spent 10 years in the mid 1990s to early 2000s accumulating cheap oil and gold stocks and then making say a ten-fold return in the following five or so years be considered a dud?

Until those returns actually materialized many would repeatedly have called the manager a dud, an idiot etc. Some people, always thinking of selling, like the assurance of diversification and steady returns. I think those people are better suited to investing in short term bonds, GICs and bank term certificates.

However what was it that Buffett said about uneven returns?
vgm
Vgm - 1 year ago
"On picking some arbitrary number of years to measure performance..."

LOL! If Buffett uses it, it's not "arbitrary". Using rolling 5-year figures is hardly "arbitrary".

"Hypothetically, would a fund manager who spent 10 years in the 1990s accumulating cheap oil and gold stocks and then making say a ten-fold return in the following five or 10 years be considered a dud?"

It would very much depend on the overall outcome. A value investor should not be a one-trick pony, but be building wealth, significantly above inflation, for clients thru all investing climates, over the long term. Buffett has of course excelled in doing just that with incredible consistency (again p 103). Hussman has not - dramatically not, delivering negative returns after inflation, despite his 'weakly' letter.

But feel free to manipulate your numbers until you get what you want.
AlbertaSunwapta
AlbertaSunwapta - 1 year ago
Seems we're each mixing up our terms. I should have used value investor and you should have used fund manager. As a value investor, with time, I would love to see the one perfect and vastly undervalued one trick pony and be so lucky to be able to accumulated the entire ownership of that pony, then have have it perform its amazing trick. The perfect trick of course would be a substantial market beating return the day after I accumulated my last share of ownership.

A find manager facing a constant churn of unit holders though does need to perform very consistently to keep the average unit holder somewhat satisfied.

However Buffett has saidthis: “I'd rather have a lumpy 15% return than a smooth 12%.

"Why earnings matter

Sailesh Ramamurtie: Buffett may prefer lumpy returns, my sense is that the majority of investors would choose the smooth 12% return over the lumpy 15%. So, to me, the decision by most corporations and managers to smooth earnings is a reasonable response to the behavior of investors..."

http://books.google.ca/books?id=S4n7LEQ2Bd4C&pg=PA385&lpg=PA385&dq=%22investors+would+choose+the+smooth+12%25+return+over%22&source=bl&ots=gK06n7OG0d&sig=MrotFkSyOtwbaIfdRr6Knu5UTqY&hl=en&sa=X&ei=v7g2UaiTJsOBrgGdpoG4Dg&ved=0CC8Q6AEwAA#v=onepage&q=%22investors%20would%20choose%20the%20smooth%2012%25%20return%20over%22&f=false

Buffett has also said; "Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1."

It seems to me that Hussman has been doing his darnedest to live by those rules. In my mind we'll have to wait a bit longer to see if his longer-than-almost-anyone-but-Grantham's-time-horizon proves profitable.

BTW, in the early 1990s I put a good chunk of my savings into BRK and have added to my holdings whenever the crowd turned against Buffett and BRK as they are now turning against Hussman. (I've never owned nor can, any of Hussman's funds, but I do admire his willingness to take a contrarian perspectives. It was work and words by guys like Hussman, Watsa, Buffett, Grantham, etc. that allowed me to drop my stubborn buy and hold stance, to instead sell everything but BRK and a few other holdings and go into cash in 2008. And Buffett's Oct.08 words were in my mind as I was buying back into the market at its depths in 2009. These guys may not always be right, and their timing may be wrong but to totally ignore them can be costly.
bpengelly
Bpengelly - 1 year ago
@C.W.R,

Ok fine. Lets discuss the performance of Hussman's Total Return fund. You seem very critical of his holdings within this fund. The fund has always had a mix of treasuries, utilities, and gold mining shares. Are you upset with it's performance compared to a bond index? If you are going to isolate holdings from a specific fund, make sure you talk about the performance of that fund and don't confuse it with the lagging performance of the fund discussed in the article.
Cornelius Chan
Cornelius Chan - 1 year ago
Bpengelly,

Thank you for being bothered to fine tune the discussion. However, you have misunderstood me my friend: I am not critical of Hussman's holdings. I am thinking you are referring to my comments:

"Did you know he is something like 10% in gold stocks? And we all know what has been happening to those lately..."

Here I am pointing out that people criticize Hussman and his weekly articles without ever talking about his stock holdings. One of the reasons his performance is down is because he has been investing in gold stocks. Yes? Well, the gold stocks are now on sale and he is buying them aggressively. Whether or not I think this is the correct move (and I do think so) is not the point just now. I am trying to make the point that there are good reasons for Hussman's fund performance and why don't we talk about what his stocks are doing in order to understand this particular guru better, instead of just criticizing him in generalities.

Then, when someone points out that Munger says investing in gold is uncivilized, I counter that gold is a monetary metal and we are approaching a time of currency crisis. The upshot of this is that gold miners are indeed productive businesses as Munger says are correct to invest in because they are digging up a product that is the gold standard of currencies! (*laughs)

batbeer2
Batbeer2 premium member - 1 year ago
>> The upshot of this is that gold miners are indeed productive businesses

Are they?


Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

- Buffett
gurufocus
Gurufocus premium member - 1 year ago
traderatwork
Traderatwork - 1 year ago
@AlbertaSuwapta

"...It was work and words by guys like Hussman, Watsa, Buffett, Grantham, etc. ..."

1, It's a (bery big) insult you put Hussman name with Buffett, Watsa... names together

2. It's Graham. Benjamin Graham not Grantham. Who's Grantham?

3. Listen to Hussman will be one of your worst investment of your time
vgm
Vgm - 1 year ago
1. "I should have used value investor and you should have used fund manager."

Alberta -- I'm always and only talking about value investing. As Munger put it 'All intelligent investing is value investing.'

2. Yes Buffett did say "I'd rather have a lumpy 15% return than a smooth 12%", but he didn't say he'd rather have a lumpy 2% than a decent return.

3. "It seems to me that Hussman has been doing his darnedest to live by those rules."

I don't fault Hussman for effort or good intentions, but that doesn't pay the bills. Money managers should be building wealth for clients over time and over inflation. If not, clients should buy an index and sleep easy - as Buffett, Munger and Bogle advise.
AlbertaSunwapta
AlbertaSunwapta - 1 year ago
^ yeah the 2% return is a problem if returns are guaranteed to be positive. However, subject to check, 2% in the Nikkei over the 20 years from 1989 to 2009 might have been 'otherwise' satisfactory to many Japanese fund holders. :-) My issue is the short-term time horizon many investors hold regarding expectations for both positive and market beating returns.

I'll admit I don't have any good answers for 'poor' performance except to reconsider one's own time horizon to ensure that you're blaming the right person. And maybe Hussman needs to market his funds as primarily capital preservation funds.
AlbertaSunwapta
AlbertaSunwapta - 1 year ago
^batbeer2. Gurufocus should start a thread on this for debating. What are productive and non productive assets and corporations.

KO sells a product that gets mixed with water and then peed into a toilet. Tobacco gets grown on the ground, rolled up and then the customers get buried in the ground. :-)
AlbertaSunwapta
AlbertaSunwapta - 1 year ago
^traderatwok, Watsa has had his pricing (and workout, reserve, runoff) difficulties too. I've had FFH, on and off, luckily, since the 1990s. Tish was another one. Loews shorted the 1990s tech boom to the tune of about a billion in losses (I know because I bought Loews to capitalize on the bursting of that bubble.) I guess Tish was an idiot too.

As for Gratham... I like your sense of humour. Anyway, a good summary Grantham's view of prospective returns here...

http://www.theglobeandmail.com/globe-investor/inside-the-market/grantham-exit-signs-to-watch-for/article8332720/

Also, I was skimming the Allegheny annual report at lunch today and Weston Hick' view is that the equity market is fully priced too.
Cornelius Chan
Cornelius Chan - 1 year ago
Batbeer2,

I know what you mean. Unlike oil companies that are productive businesses insofar as they pump up the building blocks of fuel, gold mining companies seem like they could be unproductive businesses because they dig up the building blocks of what?

Nevertheless, gold miners will always be productive businesses because they are paid for what they dig up. There is a market for gold just as there is one for oil. Both are dependent on the spot price of what they extract from the earth. Both industries have small and large caps. Both industries have dividend-payers and non-dividend-payers. Both industries have mickey mouse companies and blue chips.

The thing is this, had Buffett been young today, it is not too much of a stretch to see him aggressively buying the cheap shares of some blue chip gold miners... to make those mythical 50% gains he claims he would make if he were a small player. Of course, gold mining stocks have their own holding periods. Think Buffett's holding of PetroChina.

As you say buddy, just some thoughts...
BEL-AIR
BEL-AIR - 1 year ago
batbeer2 I guess gold has always been real money since mans early days...

And with the countries around the world printing money like no tomorrow gold is a place to store wealth protected from inflation and money printing.

Russia, India and China are huge buyers or gold and it is very possible they might use it to have a reserve currency by 2018, at least that is the talk..

And as far as the Chinese are concerned they would rather have bridges to no where, new empty cities and gold then useless paper dollars once the crunch comes.

I think that gold stocks represent a great buying opportunity that we have not seen since the march 2009 lows and it is getting better every week.

There is a time and place to own anything and for different reasons, I for one like many of the Gold stocks at this level and lower. Currently many of the gold companies are getting to be very attractive valuations with many with pe's of 6 to 8, at or below book value and cash flows yields of 20 to 35%, and with returns on equity on 15 to 28% if this is not a productive business I don't know what is.

The fed can't print gold into existence and that is it's appeal at this stage of the game.

Take care.

batbeer2
Batbeer2 premium member - 1 year ago
>> The fed can't print gold into existence and that is it's appeal at this stage of the game.

Well, the fed can't create real estate on Mars either. That doesn't make it more valuable.

If memory serves, there's a planet out there consisting mainly of diamonds. What's it worth to you?

I'll grant you people have been assigning value to gold for thousands of years. They probably will for hundreds of years to come. BUT the mere fact that people have been assigning value to gold for ages doesn't mean they forever will.
batbeer2
Batbeer2 premium member - 1 year ago
>> I think that gold stocks represent a great buying opportunity that we have not seen since the march 2009 lows and it is getting better every week.

It's possible the buying opportunity for gold stocks continues to get better for another decade or two.
Cornelius Chan
Cornelius Chan - 1 year ago
Batbeer2,

What is value investing? It is doing the work to buy low undervalue and sell high overvalue.

Right now the gold and silver miners are undervalued in relation to fundamentals. This you cannot deny.

May I suggest we stick to examining whether or not stocks are over or undervalued on this forum. Harping on the particular qualities of gold while ignoring completely the discussion of cheap shares is somewhat unproductive IMO.

Thank you for your cooperation.
AlbertaSunwapta
AlbertaSunwapta - 1 year ago
Some gold gets turned into jewelry, like wood and bricks into a house. The utility is to the owner who keeps it for a lifetime and then passes it on to their kids or uses it as some sort of dowry.

That gold and other gold also acts like a an insurance premium on a policy with no termination date. Dead money if not called upon. So gold does have utility but it produces little and yields no cash flows by itself.

Miners of any resource though are another matter. Gold miners are like currency printers. BTW I have Fortress Paper, and it owns a European banknote and security paper division... So if the euro fails, maybe, with luck they'll have been quietly busy printing up some new currencies. I'm not holding my breath on that lottery ticket. My little bit of gold though would likely have already seen gains. :-)

Anyone read Klarman's commentary in Insight? He, like Grantham and Hussman seem rather negative. Is Hussman so wrong to have been cautious and hedged?
batbeer2
Batbeer2 premium member - 1 year ago
>> May I suggest we stick to examining whether or not stocks are over or undervalued on this forum. Harping on the particular qualities of gold while ignoring completely the discussion of cheap shares is somewhat unproductive IMO.

You want to discuss the "fundamentals" of gold stocks without discussing the (de)merits of gold.....

OK.

I'm out.
batbeer2
Batbeer2 premium member - 1 year ago
>> Gold miners are like currency printers. BTW I have Fortress Paper, and it owns a European banknote and security paper division... So if the euro fails, maybe, with luck they'll have been quietly busy printing up some new currencies. I'm not holding my breath on that lottery ticket.

The euro doesn't have to fail for Fortress to grow.

The union has agreed to tender the printing of the new bills (check out the new designs). Each country, untill recently, was free to print the bills themselves and/or tender the jobs. Some governments (guess who) have been printing euro bills at their state-owned facilities for a decade now. At the expense of the EU. Some other governments (like in Holland) tendered the work commercially. De la Rue won some of those bids. They've been printing euros for a long time.

Now that each member is forced to tender the printing of the euros, I expect a lot of volume to shift from the state owned printers to commercial printers (like de la Rue and probably Fortress).
AlbertaSunwapta
AlbertaSunwapta - 1 year ago
I don't like talking about gold either. It's so boring. However, it is in Hussman's portfolio. I'd guess it's here as a hedge (currency hedge maybe). Or in this case maybe it's simply an alternative to holding cash. Cash is unproductive to, but there are times when I'm comforted by holding it.

The thing is, Hussman foresees either trouble or volatility and definitely low prospective returns from recent market levels and is trying to protect his unit holders assets until safer bets can be made. Maybe it's a fixation on past events like so many investors suffered after the crisis, but I don't think so in Hussman's case since he pretty much predicted it.

I just don't see how a guy that earned very good market returns for years and then adopts a cautious stance under very unusual market conditions should be faulted for mediocre short term returns.


(On Fortress, great information and insights thank you. Maybe the security paper division has a better future than I thought despite digital cash on the horizon. A reversion to country currency(s)would require supreme secrecy along with commensurate compensation. Or maybe they'd just issue everyone new 'credit' cards - tiny ones. And then of course there is the potential from inflation.)
Cornelius Chan
Cornelius Chan - 1 year ago
I'm not really a gold guy either, but when I hear people harping on and on about the uselessness of gold and then confuse that with gold miners who are bringing a commodity to market profitably, I quite honestly shake my head in wonder.

"I just don't see how a guy that earned very good market returns for years and then adopts a cautious stance under very unusual market conditions should be faulted for mediocre short term returns."

Well put Sunwapta. I hadn't thought about it that way until now,
AlbertaSunwapta
AlbertaSunwapta - 1 year ago
Just over a year ago I was trying to defend Berkowitz too. He'd had a period of below market returns and people were turning on him. Market players that really don't see stocks as pieces of real world businesses, have such a short term time horizon driven by market pricing, that they abandon ship as soon as the waves get choppy, saying that the captain has lost his way.

Bill Miller is another one worthy of consideration. Have the gains from his 15 or so years of out-performance now been all erased and even if they have, were he able to run money as long as he desired, would his methodology over the long term lead to a final score well above, equal to or below the market? The problem is that guys like Miller often aren't allowed to have any years of below market performance... They aren't allowed to build a portfolio of under valued securities.
vladek
Vladek - 6 months ago

Long delay. No bad thing. Comment from me: Hussman performance still poor, and still intensely frustrated as the index fall he expected hasn't eventuated .. only it did, last July when the prospect of QE taper had the markets in a panic ... which had the Fed in a panic. Drug resupplied, addict calmed down, party resumed. This has been a very odd market, DRIVEN BY THE FED ... which is now obviously (to me) getting nervous about its massive balance sheet . Yellen 'has no target for the Dow'. I seriously hope not. That's not a metric she should be trying to fiddle with. Serious doubts emerging from new work on QE, calling into question it's usefulness - which all the clackers were assuming was the secret sauce that rescued the US. The still-current assumption that historically high profit share and historically low interest rates will continue are what "justifiy" current pricing, but that is crazy logic to me. My 'buy and hold' day are long gone. Ecclesiastes doesn't mention "a time to buy and a time to sell" so we have to work that out for ourselves. Right now, for me, is a screaming SELL time, and like poor old Hussman, I'm happy to look foolish on the way up (it may go higher of course), rather than the way own. Hot markets ALWAYS cool. i'd love to know what Buffett REALLY thinks about now - but he wouldn't be telling me.

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