Shareholder Yield book being given out for free. Kinda like Broken Markets last year, it is for a limited time i think
http://amzn.to/195cRrc
http://amzn.to/195cRrc
Global Macro Trading Journal
- Thread starter Daal
- Start date
http://www.hussmanfunds.com/wmc/wmc130722a.png
http://www.hussmanfunds.com/wmc/wmc130722.htm
I understand Hussman is not very well liked by a lot of folks at ET but how is that different from the value investors that got scorned during the 90's as their methodologies underperformed the momentum market?
Hussman built a system that is based on real data and it shows how to outperform the markets with less vol in the long-term, it didn't work well in the last three years mainly due a speculative mania that QE triggered in stocks, a mini-bubble. It's likely to pop at some point and stocks will become a hot potato and everybody will rush for the exits at the same time.
I can understand some of the criticism if they are based on system building concepts, for instance, I talked with a system guy and he said Hussman has more degrees of freedom than instances in a lot of his studies. I think that is a valid criticism. But still, a lot of the scorning just reminds me of people trying to justify any reason to owning stocks guilt-free
http://www.hussmanfunds.com/wmc/wmc130722.htm
I understand Hussman is not very well liked by a lot of folks at ET but how is that different from the value investors that got scorned during the 90's as their methodologies underperformed the momentum market?
Hussman built a system that is based on real data and it shows how to outperform the markets with less vol in the long-term, it didn't work well in the last three years mainly due a speculative mania that QE triggered in stocks, a mini-bubble. It's likely to pop at some point and stocks will become a hot potato and everybody will rush for the exits at the same time.
I can understand some of the criticism if they are based on system building concepts, for instance, I talked with a system guy and he said Hussman has more degrees of freedom than instances in a lot of his studies. I think that is a valid criticism. But still, a lot of the scorning just reminds me of people trying to justify any reason to owning stocks guilt-free
The difference is that value investing has a sound rationale based on economic fundamentals (cash flows, balance sheets, owning real assets on the cheap etc) and has worked for 100+ years, whereas Hussmans method is speculative data-mined curve-fitting with no solid theoretical justification behind it.
Hussman does not state what would falsify his theory, therefore it's unscientific hocus pocus. He also tries to excuse every failed prediction and underperformance with various BS rationalisations. And he has underperformed for a lot more than 3 years, I think he is behind since about 2006?
The odds, based on his performance, the weakness of his logical reasoning, and lack theoretical soundness of his method, are that he has no edge. Even if he did have an edge, a method which underperforms for 7 years and doesn't have a good long-term CAGR is pretty weak.
IMO Hussman made one good decision - avoid the 2000 bubble - and that is the major source of any outperformance he ever had.
Hussman does not state what would falsify his theory, therefore it's unscientific hocus pocus. He also tries to excuse every failed prediction and underperformance with various BS rationalisations. And he has underperformed for a lot more than 3 years, I think he is behind since about 2006?
The odds, based on his performance, the weakness of his logical reasoning, and lack theoretical soundness of his method, are that he has no edge. Even if he did have an edge, a method which underperforms for 7 years and doesn't have a good long-term CAGR is pretty weak.
IMO Hussman made one good decision - avoid the 2000 bubble - and that is the major source of any outperformance he ever had.
Of course Hussman's approach is based on solid fundamentals: on normalized profit margins, which have an excellent long-term forecasting track record for 100+ years.
I do think there is solid theoretical justification for it. If you look at the inputs, they are things like sentiment behavior (effectively putting the principle of being fearful when others are greedy into numbers), Shiller valuation (and markets mean revert by nature) and market internals/technicals. It's the last element that is the most controversial, I believe he made a mistake there because I saw some quantifiable research that has shown that since the 1970's (thats all the data study had), the S&P500 had never topped without a divergence in new highs (index makes a new high but the number of stocks making new highs is still bellow a previous point).
Recently this data turned and now there is a divergence in the new highs. This is why I'm expecting even more a bear market now. It might take a while, heck, the S&P500 could even go parabolic before it dies but the intermediate returns of being long here are dubious at best
Firstly, Hussman's model includes a technical input, what he calls 'market climate' - which has nothing to do with fundamentals. So he is a technician in part, not a fully fundamental investor.
Secondly, you are referring to how a strategy *would have* performed, in theory, had it been implemented over the last 100 years - yet the strategy was only devised after looking at that data after the fact. That is absolutely not a forecasting track record of any kind. A forecast must be made beforehand, not after the fact. The only forecasting record here is Hussman's fund performance, which has been middling at best.
There are a whole load of problems (many of which I already mentioned) with using past data to draw inferences about the future: survivorship bias, curve-fitting/data-mining, low sample size, systemic change, and so on. Hussman's writings (and performance) show that he doesn't really understand these properly. Looking at 100 years of US stock market annual returns and curve-fitting a strategy with numerous inputs that 'would have' delivered good returns on a 5 year time scale is definitely not sufficient to have strong confidence that it will work in future.
It's even possible there is no such thing as 'normalised' profit margins and the assumed mean reversion - the returns to capital can and do differ based on political and societal factors. There could potentially be a secular shift to higher or lower margins for a very long period of time. A similar thing happened with dividend yields vs bond yields from the 1950s until recently - stocks used to always yield more than bonds, then they didn't. Both regimes lasted 50+ years, longer than most investment careers.
For his method to be rigorous, he needs a much larger sample size (i.e. returns for all countries with stock market data, not just one country), he needs to test his method against out-of-sample data as well as in-sample data, he should reduce the degrees of freedom (model inputs), he needs the model inputs to be based on sound economic/financial theoretical justifications, he needs to reduce the sensitivity of his inputs to minor changes.
Finally, we can simply ask whether what the market did in the last 5-6 years was within the range of possibilities that Hussman expected. Back in 2007, was he saying "It's certainly quite possible I will underperform for the next 5 years in a row, and that profit margins will stay elevated for at least that long"? Or did he view that as extremely unlikely? Any time you view something as an outlier, and the world does that for 5-6 straights years, then only a fool would conclude that their method is sound and that it's reality which has the problem. Yet do we see any self-doubt, any honest reappraisal, any analysis of mistakes made? No - Hussman just sails on regardless, and so apparently do some of his cheerleaders. That is not the market of a critical thinker, or a good market practitioner.
An objective analysis of Hussman's performance, analysis, and writings would lead any impartial observer to conclude that, most likely, he has no statistically significant edge. His future performance is therefore likely to be the market return of his asset class mix, minus taxes and expenses. Given that his fund expenses are considerable, the most likely outcome is that he continues to underperform the market by 1-1.5% per annum.
Bash Hussy all you want. You talk about 100+ year periods as valid time references yet you resort to benchmarking over relatively minute time-frames as proof for your theory.
Remember to piss on Seth Klarman while you're at it for under-performing for 5.5 years during the mid/late 90s. He even charged 2/20 while underperforming and got away with it.
Remember to piss on Seth Klarman while you're at it for under-performing for 5.5 years during the mid/late 90s. He even charged 2/20 while underperforming and got away with it.