|Back to main|
John Hussman and Jimmy Buffett?
By: Roger Nusbaum
Parrotheads, aka Jimmy Buffett fans, will know the lyric from the song Fruicakes that goes mea culpa, mea culpa, mea maxima culpa which is what John Hussman appears to have been saying in assessing the Hussman Strategic Growth Fund's (HSGFX) 3.62% decline in 2010 versus an almost 13% rise (plus the dividend) for the S&P 500. If he says I'm wrong about his post being a mea culpa I won't argue.
According to Morningstar over the last three years $10,000 invested in HSGFX would have shrunk to $9193 versus $9300 for the S&P 500. The five year comparison is worse at $9868 versus $11,017. The ten year number is where the Hussman Fund shines at $17,778 versus $11,272. Reasonably speaking there probably aren't too many shareholders who have been in the fund for ten years (it started in July 2000) as not too many people understood what was happening back then even if Hussman did--and make no mistake he did understand.
The last few years for the fund provides a great learning opportunity. If you are familiar with Hussman's commentaries then you know that market conditions have been very unfavorable for a long time offering a poor expected average annual return over the next ten years, as he sees it, well below normal to the point of being unattractive. The conclusions are based on valuations and what these numbers have meant in the past.
While I am not certain if the methodology was exactly the same when the fund started, the results have been different. The vast majority of the $17,778 for ten years occurred in the first three years with $10,000 growing to $16,165. So since 12/31/2003 the fund is only up 9.9% versus 30.2% for the S&P 500 including dividends. Hussman is a big believer in looking at the entire stock market cycle (me too). It might be reasonable to date the last cycle to March, 2003 forward. In that time $10,000 in HSGFX has grown to $13,552 versus $16,393 for the S&P 500.
During the tech wreck HSGFX appears from the chart to have had a negative correlation to the S&P 500 as the fund went up a lot. Fast forward to the Great Recession and the same effect was not captured. One way to look at this is that he is one for two. Does that merit giving him the benefit of the doubt? It probably does but ultimately that one is in the eye of the end user.
In looking forward with him let's say he turns out to be correct that the US market averages 3-4% per year for the next decade. This would result in growth that is below "normal." The previous decade was below normal in the US as well and yet there were plenty of other countries that had normal or better than normal decades. If Hussman is correct there will be countries in this decade that are also normal or better than normal. They may or may not be the same countries as the last decade but there will be plenty that do well.
Another outcome that allows Hussman to be correct is some combination for the US market of years up 20-25%, down 20-25% such that it averages 3-4% annualized. Against that backdrop a strategy that targets being up 20% in an up 25% year versus down 10-12% in a year where the market is down 20-25% (I believe this can be done heeding the 200 DMA) would yield a result far above 3-4% annualized. I doubt this is something Hussman would feel comfortable with as his track record has been to heed his own analysis of current conditions which is a subjective approach versus something objective like a moving average or the like.
However we all must prepare for an outcome that is unlike anything in the previous ten years. A general idea ahead of time is important but so too is the ability and willingness to make changes as circumstances dictate assuming of course you actively manage your portfolio.
Finally a public service announcement albeit tardy by a couple of days. The Versus Channel is showing a daily highlight show for the 2011 Dakar Rally that is going on right now. I've mentioned this in years past, it is a very neat event. The big trucks are my favorite.