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Canadian Value
Canadian Value
Articles (4624) 

John Hussman - Rock, Paper, Scissors

May 28, 2013 | About:

From John Hussman:

It will come as no surprise that market conditions remain of great concern here. As always, but particularly now, it’s important to stress that our defensiveness is a reflection of prevailing, observable evidence and the alignment of our investment views with the average outcome of such evidence across similar instances over the course of history. The consistency of negative outcomes also worsens the expected return/risk ratio presently. A defensive stance here does not require any particular forecast about recession, profit margins, bubble/crash dynamics, QE, European banking strains, or any of the numerous risks in the economic and financial backdrop. All of these factors are worthy of discussion in their own right. Still, our approach is always to align our investment stance with the average return/risk profile that is associated with a given set of market conditions, placing heavy weight on valuations, market action (e.g. trend-following factors, market internals, measures of overextension, price/volume behavior), as well as monetary factors, sentiment, economic measures and other considerations. See Aligning Market Exposure with the Expected Return/Risk Profilefor a review of this general approach.

My concerns here are not based on a forecast about any particular event in this specific instance. It is based on an ensemble of observable factors that can be tested and validated across numerous independent samples of market history over time, and the average profile of market return and risk produced by instances that share the same central features. Every instance matching the present one oncentral features (which in this case include the 1929 peak, the late-1972 euphoria as gold-linked monetary policy was abandoned, the 1987 pre-crash peak, the 2000 peak of the tech bubble, and the 2007 peak of the credit bubble) has also had other features that never before and will never again be observed in exactly the same way. That’s the reason for validating those central features against numerous independent samples of history. In some respects, this time is always different. But on the central features that have regularly been associated with the worst market outcomes – namely the acute syndrome of overvalued, overbought, and overbullish conditions that we presently observe – this time has never been different.

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Canadian Value

Rating: 1.7/5 (14 votes)


Sww - 4 years ago    Report SPAM
Kidchoi - 4 years ago    Report SPAM
This guy spends a lot of time doing commentary on the market. Why would you waste your time on trying to predict macro and market moves.
Tonyg34 - 4 years ago    Report SPAM
He has a fund based on academic research.

Basically he runs the activist version of DFA.

score another one for passive investing
Vgm - 4 years ago    Report SPAM
The weekly gospel according to Dr John. Deja vu all over again. A remarkable waste of time.

''Since the basic game is so favorable, Charlie and I believe it’s a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of “experts,” or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it.''

Warren Buffett
AlbertaSunwapta - 4 years ago    Report SPAM
^ "score another one for passive investing" Aka buy and hold. I love it.

Prem Watsa has hedged Fairfax's equity portfolio too. Both utilize macro perspectives with the aim of protecting investor capital, don't they?

I love these kinds of debates.
Matt Blecker
Matt Blecker - 4 years ago    Report SPAM
Hussman is a bright guy. I have said this many times.

And it is pointless to judge on short-term poor performance.

However, here is the bottom line with Hussman:

He makes a point to say his fund gives downside protection. Yet in a ten year period which includes the worst bear market since the Great Depression, Hussman has earned his investors nothing. His ten year annualized return is 0.69% while many high quality funds have earned a ten year annualized return as of today in the high single digits.

He spends so much time dealing with minucia and does not seem to have a long-term strategy. He seems to be attempting to call the next big correction so he can say "I told you so." This is very dangerous.

His ego has clearly blinded his intelligence.

How this site sees Hussman as a "value investor" is beyond me. He does no bottom-up fundamental analysis of individual companies. None. IMO, painting Hussman as a value investor discredits this site. Hussman is a short-term speculator.

Waup7707 - 4 years ago    Report SPAM
Sometimes, geniuses fail miserably, especially when they are equipped with sophisticated mathematical models. Long-Term Capital Management is the epitome of a collection of super brain power that blew up spectacularly.

I can't say better than Buffett,

Forecasts may tell you a great deal about the forecaster, they tell you nothing about the future.

In terms of "short-term" poor performance, is 10 years short-term? How about 20 years? How about life time? Anyway, it can be excused as bad luck; even everyone is playing in the same market.
Kidchoi - 4 years ago    Report SPAM
He reminds me of that guy Roubini, this economist that presumably has a lot of merit, constantly on CNBC giving his gloom & doom predictions. Do people take this guy serious? Seriously? It has actually gotten very annoying. His words are less than zero to me.
Vgm - 4 years ago    Report SPAM
I've often pointed to the stark contrast between Hussman's futile attempts to predict the economic future and Tweedy Browne's value investing bottom-up approach of valuing businesses.

The latest TB annual is out and is well worth reading in this context:

"So the question is, what are we to make of all this and how do we translate it into coherent investment decisions? We certainly are not about to pick sides in the debate. A compelling case can be made either way, and much depends on how finite your time horizon is. The first and simplest conclusion is that macro forecasting is at best difficult if not impossible to get right on a sustained basis. Forecasting how the multitude of economic crosscurrents and behavioral factors driving buy and sell decisions will be translated into stock prices at any given point in time is beyond our skill set. That said, we accept that macroeconomic circumstances are going to have an impact to a greater or lesser extent on every business and every individual. Our response should come as no surprise; we always revert to what has been our firm’s investment framework for the past five decades. We own a business and businesses have a value independent of stock prices."

AlbertaSunwapta - 4 years ago    Report SPAM
^ I'd say twaddle to that. Everyone is making macro assumptions which are essentially longer term forecasts.

A primary macro forecast is embedded in the discount rates people choose to find intrinsic equity value, and the list would go on and on.

Shying away from bonds in the current environment is making a macro forecast that we can't have deflation. That said, some companies will do very well in a deflation while others will do very well in an inflation.

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