Market Cycle Analysis In our research of John Hussman’s performance, we observed that he underperformed the market if we look at the latest 3-year annualized return, 5-year annualized return and even 10-year annualized return. Yet this might not be the case if we look at his performance over a complete economic cycle.
We believe that the performance over fixed time periods, like the latest 3-year, 5-year and 10-year, might be misleading since a single bad year performance would ruin all. Therefore, we believe the best way to measure funds’ performance is to check the performance number over complete market cycles.
According to the annual returns of S&P 500 from 1999 to 2012, we think market peaks appeared at 1999, 2007 and 2012, while market troughs appear at 2002 and 2008. Based on this, we research all the funds’ performance from peak to peak (1999 to 2007, 2007 to 2012, and 1999 to 2012) years and trough to trough years (2002 to 2008).
The results are as follows (we ignore the funds which lack at least two years of data in a complete economic cycle):
Data source:
http://performance.morningstar.com/fund/
http://finance.yahoo.com/
http://www.gurufocus.com/
For the fund type, h means hedge fund, m means mutual fund, f means fund and i means investment company. The yellow marked line is the S&P 500, and the green marked line and the above are the top 20 gurus for each complete economic cycle. From the above four tables, we can see Daniel Loeb, Mawer New Canada Fund (Canadian Guru), Robert Bruce, Jean-Marie Eveillard, Chuck Royce, Ken Heebner, John Paulson, Bruce Berkowitz, Chuck Akre and Prem Watsa did a pretty good job for at least three complete economic cycles. Almost all the funds outperformed the market during 1999 to 2007, 1999 to 2012 and 2007 to 2012, yet due to the financial crisis, only 55% of the gurus outperformed the market. From 2007 to 2012, Prem Watsa, David Rolfe, Daniel Loeb, Donald Yacktman, as well as Warren Buffett did the best in beating the market. We need to mention that Canadian gurus, including Mawer New Canada Fund, Mawer Canadian Equity Fund, Signature Select Canadian Fund, CI Can-Am Small Cap Fund and Leith Wheeler Canadian Equity, performed well during these time periods.
Five-Year Rolling Analysis
In order for us to better assess the performance of those funds, now we use five-year rolling basis to analyze our funds. This methodology is commonly used with time series data to smooth out short-term fluctuations and highlight longer-term trends. In Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial)’s annual report of 2012, Warren Buffett mentioned this methodology. We first calculate the five-year rolling annualized returns for each fund from their inception date to today, then compare them with five-year rolling annualized returns of the S&P 500, and finally we calculate the percentage of years when each fund outperformed the market. We ignore those funds which had less than eight five-year rolling returns from 1980 or their inception date, whichever comes first, to 2012.
The results are as follows:
Data source:
http://performance.morningstar.com/fund/
http://finance.yahoo.com/
http://www.gurufocus.com/
From above table 5, we can observe Warren Buffett, Daniel Loeb, Westport Asset Management, Diamond Hill Capital and CI Can-Am Small Cap Fund (Canadian Guru) outperformed the market for all the years since 1980 or their inception date using a five-year rolling basis. Besides, almost all the top 20 Gurus of table 5 show up on the top 20 Gurus of the peak-to-peak and trough-to-trough tables we mentioned above.
Conclusion
In general, the Gurus we track did well in complete market cycles. They do not outperform the market all the time. They may even underperform the market over three-year and five-year periods. But over complete market cycles, most of them outperformed the market.
In the five-year rolling periods, 21 out of 65 Gurus can outperform S&P 500 over 80% of the time. Fifty of them can outperform S&P 500 over 60% of the time. And 56 of them can outperform the S&P 500 over 50% of the time. These facts again prove that the Gurus we track did well since 1980 or their inception date, whichever comes first.
The above two methods of analyzing funds’ performance are good if you are a long-term investor. They might not be a suitable way if you want to invest in a shorter time period.
We believe that the performance over fixed time periods, like the latest 3-year, 5-year and 10-year, might be misleading since a single bad year performance would ruin all. Therefore, we believe the best way to measure funds’ performance is to check the performance number over complete market cycles.
According to the annual returns of S&P 500 from 1999 to 2012, we think market peaks appeared at 1999, 2007 and 2012, while market troughs appear at 2002 and 2008. Based on this, we research all the funds’ performance from peak to peak (1999 to 2007, 2007 to 2012, and 1999 to 2012) years and trough to trough years (2002 to 2008).
The results are as follows (we ignore the funds which lack at least two years of data in a complete economic cycle):
| Table 1: Peak to Peak_1999-2007 Annual Return | ||
| Guru Name | Return | Fund Type |
| David Tepper | 30.66% | h |
| Ken Heebner | 28.90% | m |
| Daniel Loeb | 21.30% | h |
| Arnold Schneider | 19.78% | m |
| Mawer New Canada Fund | 19.25% | f |
| Robert Bruce | 18.74% | m |
| John Buckingham | 17.68% | m |
| John Paulson | 17.31% | h |
| Bruce Berkowitz | 17.11% | m |
| Fairholme Fund | 17.11% | f |
| Jean-Marie Eveillard | 16.49% | m |
| Meridian Funds | 15.80% | m |
| Signature Select Canadian Fund | 15.59% | f |
| Murray Stahl | 15.29% | m |
| Arnold Van Den Berg | 14.54% | f |
| Mark Hillman | 14.43% | m |
| Chuck Royce | 13.92% | m |
| Chuck Akre | 13.28% | m |
| John Keeley | 13.22% | m |
| Leith Wheeler Canadian Equity | 13.03% | f |
| Westport Asset Management | 12.91% | m |
| CI Can-Am Small Cap Fund | 12.62% | f |
| Mawer Canadian Equity Fund | 12.51% | f |
| Richard Snow | 12.50% | m |
| Manning & Napier Advisors, Inc | 12.39% | h |
| Robert Rodriguez | 12.15% | f |
| Dodge & Cox | 12.12% | m |
| Edward Owens | 11.33% | f |
| Martin Whitman | 11.23% | f |
| Third Avenue Management | 11.23% | m |
| Ron Baron | 10.96% | m |
| Steven Romick | 10.90% | f |
| Ian Cumming | 10.77% | i |
| Robert Olstein | 10.60% | m |
| Chou RRSP Fund | 10.43% | f |
| John Hussman | 10.41% | m |
| Bill Frels | 10.14% | m |
| Mario Gabelli | 9.86% | m |
| Ronald Muhlenkamp | 9.62% | m |
| Tom Gayner | 9.59% | i |
| Mason Hawkins | 9.47% | m |
| Tom Russo | 9.44% | h |
| John Rogers | 9.41% | m |
| Donald Yacktman | 9.00% | m |
| PRIMECAP Management | 8.80% | m |
| Francis Chou | 8.69% | m |
| Warren Buffett | 8.39% | i |
| Jeff Auxier | 8.32% | m |
| Prem Watsa | 8.09% | i |
| HOTCHKIS & WILEY | 8.05% | m |
| Brian Rogers | 7.56% | f |
| Ken Fisher | 7.51% | m |
| Wallace Weitz | 7.50% | m |
| David Rolfe | 7.45% | m |
| NWQ Managers | 6.81% | m |
| Chris Davis | 6.73% | m |
| Charles Brandes | 6.50% | m |
| Jeremy Grantham | 6.29% | m |
| James Barrow | 6.05% | m |
| Ruane Cunniff | 5.88% | m |
| RS Investment Management | 5.65% | m |
| Bill Nygren | 5.33% | f |
| Tweedy Browne | 4.61% | m |
| S&P 500 | 3.78% |
| Table 2: Peak to Peak_2007-2012 Annual Return | ||
| Guru Name | Return | Fund Type |
| Prem Watsa | 19.73% | i |
| David Rolfe | 9.21% | m |
| Daniel Loeb | 8.84% | h |
| Donald Yacktman | 8.61% | m |
| Warren Buffett | 8.43% | i |
| Frank Sands | 8.28% | m |
| Mawer New Canada Fund | 7.98% | f |
| Zeke Ashton | 7.90% | h |
| Chuck Royce | 7.05% | m |
| Ian Cumming | 6.99% | i |
| Jean-Marie Eveillard | 6.85% | m |
| Westport Asset Management | 6.49% | m |
| Ruane Cunniff | 6.12% | m |
| Edward Owens | 5.80% | f |
| David Einhorn | 5.76% | h |
| Steven Romick | 5.61% | f |
| Robert Rodriguez | 5.43% | f |
| Mawer Canadian Equity Fund | 4.81% | f |
| Bill Frels | 4.80% | m |
| Robert Bruce | 4.58% | m |
| Mario Gabelli | 4.51% | m |
| Bill Nygren | 4.46% | f |
| PRIMECAP Management | 4.40% | m |
| David Winters | 4.25% | m |
| CI Can-Am Small Cap Fund | 4.23% | f |
| John Paulson | 4.11% | h |
| Bruce Berkowitz | 3.99% | m |
| Fairholme Fund | 3.99% | f |
| Jeff Auxier | 3.90% | m |
| Tom Russo | 3.77% | h |
| James Barrow | 3.33% | m |
| Tweedy Browne | 3.33% | m |
| Meridian Funds | 3.17% | m |
| RS Investment Management | 3.05% | m |
| Diamond Hill Capital | 2.91% | m |
| Leith Wheeler Canadian Equity | 2.75% | f |
| Wallace Weitz | 2.51% | m |
| S&P 500 | 2.21% | |
| John Keeley | 2.03% | m |
| Chuck Akre | 2.02% | m |
| Manning & Napier Advisors, Inc | 1.89% | h |
| Brian Rogers | 1.87% | f |
| John Rogers | 1.86% | m |
| Ron Baron | 1.58% | m |
| Jeremy Grantham | 1.30% | m |
| NWQ Managers | 1.23% | m |
| Signature Select Canadian Fund | 1.05% | f |
| John Buckingham | 0.84% | m |
| Tom Gayner | 0.71% | i |
| Chou RRSP Fund | 0.69% | f |
| Francis Chou | 0.58% | m |
| Arnold Van Den Berg | 0.29% | f |
| Ken Heebner | 0.23% | m |
| Mason Hawkins | 0.14% | m |
| Dodge & Cox | -0.17% | m |
| Ken Fisher | -0.31% | m |
| Richard Snow | -0.54% | m |
| Mark Hillman | -0.72% | m |
| Martin Whitman | -0.73% | f |
| Third Avenue Management | -0.77% | m |
| Robert Olstein | -0.80% | m |
| Arnold Schneider | -1.22% | m |
| Murray Stahl | -1.45% | m |
| Chris Davis | -1.76% | m |
| HOTCHKIS & WILEY | -2.29% | m |
| John Hussman | -2.64% | m |
| Ronald Muhlenkamp | -3.54% | m |
| Charles Brandes | -5.92% | m |
| Table 3: Peak to Peak_1999-2012 Annual Return | ||
| Guru Name | Return | Fund Type |
| Daniel Loeb | 16.06% | h |
| Mawer New Canada Fund | 14.46% | f |
| Robert Bruce | 14.27% | m |
| Arnold Schneider | 13.22% | m |
| Ken Heebner | 13.00% | m |
| Jean-Marie Eveillard | 12.73% | m |
| Bruce Berkowitz | 11.21% | m |
| John Buckingham | 11.11% | m |
| Chuck Royce | 11.01% | m |
| Meridian Funds | 10.78% | m |
| Fairholme Fund | 10.37% | f |
| Robert Rodriguez | 10.15% | f |
| Westport Asset Management | 10.05% | m |
| Signature Select Canadian Fund | 10.02% | f |
| John Paulson | 9.85% | h |
| Arnold Van Den Berg | 9.69% | f |
| CI Can-Am Small Cap Fund | 9.68% | f |
| Prem Watsa | 9.46% | i |
| Edward Owens | 9.43% | f |
| Chuck Akre | 9.32% | m |
| Donald Yacktman | 9.24% | m |
| Mawer Canadian Equity Fund | 9.21% | f |
| Mark Hillman | 8.91% | m |
| Steven Romick | 8.89% | f |
| Leith Wheeler Canadian Equity | 8.78% | f |
| John Keeley | 8.70% | m |
| Manning & Napier Advisors, Inc | 8.38% | h |
| Warren Buffett | 8.22% | i |
| Bill Frels | 8.20% | m |
| Richard Snow | 7.75% | m |
| David Rolfe | 7.67% | m |
| Chou RRSP Fund | 7.65% | f |
| Dodge & Cox | 7.54% | m |
| Ian Cumming | 7.41% | i |
| Mario Gabelli | 7.40% | m |
| Tom Russo | 7.35% | h |
| Murray Stahl | 6.95% | m |
| John Rogers | 6.92% | m |
| Tom Gayner | 6.87% | i |
| Ron Baron | 6.81% | m |
| PRIMECAP Management | 6.71% | m |
| Robert Olstein | 6.59% | m |
| Francis Chou | 6.58% | m |
| Wallace Weitz | 6.55% | m |
| Jeff Auxier | 6.45% | m |
| Martin Whitman | 6.32% | f |
| Third Avenue Management | 6.30% | m |
| Mason Hawkins | 6.09% | m |
| Ruane Cunniff | 5.81% | m |
| Bill Nygren | 5.62% | f |
| Brian Rogers | 5.39% | f |
| James Barrow | 5.33% | m |
| RS Investment Management | 5.23% | m |
| Ronald Muhlenkamp | 5.22% | m |
| HOTCHKIS & WILEY | 4.90% | m |
| Jeremy Grantham | 4.76% | m |
| John Hussman | 4.65% | m |
| NWQ Managers | 4.38% | m |
| Tweedy Browne | 4.35% | m |
| Chris Davis | 3.89% | m |
| Ken Fisher | 3.75% | m |
| S&P 500 | 2.97% | |
| Charles Brandes | 2.65% | m |
| Table 4: Trough to Trough_2002-2008 Annual Return | ||
| Guru Name | Return | Fund Type |
| David Tepper | 17.16% | h |
| John Paulson | 15.90% | h |
| Robert Bruce | 14.02% | m |
| Prem Watsa | 13.00% | i |
| Jean-Marie Eveillard | 11.61% | m |
| Ken Heebner | 10.92% | m |
| Mawer New Canada Fund | 10.20% | f |
| CI Can-Am Small Cap Fund | 10.15% | f |
| Daniel Loeb | 9.37% | h |
| Warren Buffett | 9.26% | i |
| Chuck Royce | 7.12% | m |
| Bruce Berkowitz | 6.93% | m |
| Fairholme Fund | 6.93% | f |
| Chuck Akre | 6.79% | m |
| Ian Cumming | 6.51% | i |
| Leith Wheeler Canadian Equity | 6.40% | f |
| Diamond Hill Capital | 6.29% | m |
| Steven Romick | 6.21% | f |
| John Hussman | 6.02% | m |
| Mawer Canadian Equity Fund | 5.69% | f |
| Signature Select Canadian Fund | 5.45% | f |
| John Keeley | 5.37% | m |
| Donald Yacktman | 5.20% | m |
| Sarah Ketterer | 4.98% | m |
| Tom Russo | 4.51% | h |
| Edward Owens | 4.26% | f |
| Arnold Schneider | 4.04% | m |
| Ron Baron | 3.81% | m |
| Westport Asset Management | 3.34% | m |
| Francis Chou | 3.33% | m |
| Jeff Auxier | 2.88% | m |
| Murray Stahl | 2.69% | m |
| Meridian Funds | 2.68% | m |
| Robert Rodriguez | 2.60% | f |
| Bill Frels | 2.41% | m |
| Mario Gabelli | 2.21% | m |
| Martin Whitman | 2.04% | f |
| Third Avenue Management | 2.04% | m |
| Mark Hillman | 1.95% | m |
| Tom Gayner | 1.83% | i |
| PRIMECAP Management | 1.75% | m |
| Chou RRSP Fund | 1.45% | f |
| Ruane Cunniff | 1.40% | m |
| John Buckingham | 1.30% | m |
| Arnold Van Den Berg | 1.12% | f |
| Manning & Napier Advisors, Inc | 0.63% | h |
| Dodge & Cox | 0.54% | m |
| Brian Rogers | 0.53% | f |
| Tweedy Browne | -0.04% | m |
| Richard Snow | -0.50% | m |
| NWQ Managers | -0.59% | m |
| James Barrow | -0.65% | m |
| Jeremy Grantham | -0.83% | m |
| HOTCHKIS & WILEY | -1.08% | m |
| Ken Fisher | -1.28% | m |
| David Rolfe | -1.35% | m |
| Bill Nygren | -1.37% | f |
| S&P 500 | -1.38% | |
| Ronald Muhlenkamp | -1.61% | m |
| RS Investment Management | -1.92% | m |
| John Rogers | -2.48% | m |
| Chris Davis | -2.78% | m |
| Mason Hawkins | -2.79% | m |
| Wallace Weitz | -2.95% | m |
| Robert Olstein | -3.50% | m |
| Frank Sands | -4.49% | m |
| Charles Brandes | -7.56% | m |
Data source:
http://performance.morningstar.com/fund/
http://finance.yahoo.com/
http://www.gurufocus.com/
For the fund type, h means hedge fund, m means mutual fund, f means fund and i means investment company. The yellow marked line is the S&P 500, and the green marked line and the above are the top 20 gurus for each complete economic cycle. From the above four tables, we can see Daniel Loeb, Mawer New Canada Fund (Canadian Guru), Robert Bruce, Jean-Marie Eveillard, Chuck Royce, Ken Heebner, John Paulson, Bruce Berkowitz, Chuck Akre and Prem Watsa did a pretty good job for at least three complete economic cycles. Almost all the funds outperformed the market during 1999 to 2007, 1999 to 2012 and 2007 to 2012, yet due to the financial crisis, only 55% of the gurus outperformed the market. From 2007 to 2012, Prem Watsa, David Rolfe, Daniel Loeb, Donald Yacktman, as well as Warren Buffett did the best in beating the market. We need to mention that Canadian gurus, including Mawer New Canada Fund, Mawer Canadian Equity Fund, Signature Select Canadian Fund, CI Can-Am Small Cap Fund and Leith Wheeler Canadian Equity, performed well during these time periods.
Five-Year Rolling Analysis
In order for us to better assess the performance of those funds, now we use five-year rolling basis to analyze our funds. This methodology is commonly used with time series data to smooth out short-term fluctuations and highlight longer-term trends. In Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial)’s annual report of 2012, Warren Buffett mentioned this methodology. We first calculate the five-year rolling annualized returns for each fund from their inception date to today, then compare them with five-year rolling annualized returns of the S&P 500, and finally we calculate the percentage of years when each fund outperformed the market. We ignore those funds which had less than eight five-year rolling returns from 1980 or their inception date, whichever comes first, to 2012.
The results are as follows:
| Table 5: Percentage of Years When Guru Outperformed the Market (Five-Year Rolling Basis) | ||
| Guru Name | Percentage | Number of Data |
| Warren Buffett | 100.00% | 29 |
| Daniel Loeb | 100.00% | 14 |
| Westport Asset Management | 100.00% | 11 |
| Diamond Hill Capital | 100.00% | 8 |
| CI Can-Am Small Cap Fund | 100.00% | 11 |
| Edward Owens | 95.83% | 24 |
| Meridian Funds | 92.86% | 14 |
| David Tepper | 92.86% | 14 |
| Tom Gayner | 91.67% | 12 |
| Bruce Berkowitz | 88.89% | 9 |
| Jeff Auxier | 88.89% | 9 |
| Fairholme Fund | 88.89% | 9 |
| Prem Watsa | 86.36% | 22 |
| Ruane Cunniff | 86.21% | 29 |
| Chuck Akre | 84.21% | 19 |
| NWQ Managers | 83.33% | 12 |
| Tom Russo | 83.33% | 24 |
| PRIMECAP Management | 83.33% | 24 |
| Ken Heebner | 81.82% | 11 |
| Manning & Napier Advisors Inc. | 80.00% | 10 |
| Signature Select Canadian Fund | 80.00% | 10 |
| Ian Cumming | 78.57% | 28 |
| John Paulson | 78.57% | 14 |
| Robert Rodriguez | 76.00% | 25 |
| Ken Fisher | 75.00% | 12 |
| Frank Sands | 75.00% | 8 |
| David Rolfe | 75.00% | 16 |
| Mawer New Canada Fund | 75.00% | 20 |
| Steven Romick | 73.33% | 15 |
| Mario Gabelli | 72.73% | 22 |
| Leith Wheeler Canadian Equity | 71.43% | 14 |
| Ron Baron | 70.59% | 17 |
| Chuck Royce | 70.59% | 17 |
| Murray Stahl | 69.23% | 13 |
| James Barrow | 66.67% | 12 |
| Jean-Marie Eveillard | 65.52% | 29 |
| Bill Frels | 65.52% | 29 |
| Bill Nygren | 64.71% | 17 |
| Richard Snow | 64.71% | 17 |
| Chris Davis | 64.71% | 17 |
| Mawer Canadian Equity Fund | 64.71% | 17 |
| Tweedy Browne | 64.29% | 14 |
| Wallace Weitz | 64.00% | 25 |
| Donald Yacktman | 62.50% | 16 |
| RS Investment Management | 61.54% | 13 |
| Brian Rogers | 60.87% | 23 |
| Ronald Muhlenkamp | 60.00% | 20 |
| John Keeley | 60.00% | 15 |
| Arnold Schneider | 60.00% | 10 |
| Mark Hillman | 60.00% | 10 |
| Francis Chou | 59.09% | 22 |
| Dodge & Cox | 58.62% | 29 |
| Mason Hawkins | 57.14% | 21 |
| John Hussman | 55.56% | 9 |
| Robert Olstein | 53.85% | 13 |
| John Buckingham | 50.00% | 10 |
| Robert Bruce | 48.00% | 25 |
| John Rogers | 45.45% | 22 |
| Martin Whitman | 44.44% | 18 |
| Third Avenue Management | 44.44% | 18 |
| Jeremy Grantham | 44.44% | 9 |
| Arnold Van Den Berg | 41.38% | 29 |
| Charles Brandes | 37.50% | 16 |
| Chou RRSP Fund | 36.36% | 22 |
| HOTCHKIS & WILEY | 33.33% | 21 |
Data source:
http://performance.morningstar.com/fund/
http://finance.yahoo.com/
http://www.gurufocus.com/
From above table 5, we can observe Warren Buffett, Daniel Loeb, Westport Asset Management, Diamond Hill Capital and CI Can-Am Small Cap Fund (Canadian Guru) outperformed the market for all the years since 1980 or their inception date using a five-year rolling basis. Besides, almost all the top 20 Gurus of table 5 show up on the top 20 Gurus of the peak-to-peak and trough-to-trough tables we mentioned above.
Conclusion
In general, the Gurus we track did well in complete market cycles. They do not outperform the market all the time. They may even underperform the market over three-year and five-year periods. But over complete market cycles, most of them outperformed the market.
In the five-year rolling periods, 21 out of 65 Gurus can outperform S&P 500 over 80% of the time. Fifty of them can outperform S&P 500 over 60% of the time. And 56 of them can outperform the S&P 500 over 50% of the time. These facts again prove that the Gurus we track did well since 1980 or their inception date, whichever comes first.
The above two methods of analyzing funds’ performance are good if you are a long-term investor. They might not be a suitable way if you want to invest in a shorter time period.
