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February 01, 2009

How Much Faith Should You Place in Stock Market Forecasts?
by Tom Madell

How successful were some of the most well known investment experts in helping their readers avoid the bear market? Let's take a quick look by referring to the website www.cxoadvisory.com. This site shows comments from a slew of market experts and provides an estimate of how accurate their stock market judgments have been over a number of years. The list of forecasters rated can be found at www.cxoadvisory.com/gurus/

I will select a few recognizable names from their list of "gurus" and present what these experts said near the beginning of the bear market. Remember that while the bear market actually started in Oct. 2007, it was really only recognized by mid-2008 when the S&P 500 first showed a 20% loss.

Bob Brinker - has one of the most popular newsletters and website and is well known from his weekly syndicated radio shows.

1-23-08 "...the risk of a cyclical bear market decline in excess of 20% is not likely to the materialize any time soon ...We expect the S&P 500 Index to achieve new record highs this year and to reach the 1600's range. (His model portfolios are fully invested.)"

Ken Fisher - commentator for Forbes magazine and investment advisor.

1-28-08 "I'm still bullish ...We aren't likely to get much gloomier. Eventually we'll come around. So 2008 is more likely to be a robust market than a bust one. Stocks are cheap ..."

Louis Navellier - writer of several newsletters and investment advisor.

2-1-08 "...there could be a great buying opportunity for conservative investors ... soon, ... we are now in the midst of an incredible buying opportunity. Aggressive investors can jump in any time ..."

Of course, to be fair, there were some forecasters who pretty much got things right. For example:

John Mauldin - advisor, newsletter writer, and author of "Bulls-Eye Investing":

2-8-08 "You need to use these bear market rallies to lighten up your ... exposure... I would not want to be anywhere close to an index fund. And it is not too late to get out. There is still more downside in this bear." (Note, though, that index funds did a tad better than the average US stock fund last year. And on 1-4-08, Mauldin said that he expects "to become more bullish on the market some time this summer, if not before.")

My purpose in presenting these quotes is not to belittle my fellow newsletter writers and/or advisors. Rather, it is to point out that bear markets frequently hit when we least expect them. And once a bear market hits, nearly all stock funds go down in unison so that there is little advantage to be had anywhere; in other words, there appears to be no place to hide.

What did we say in our Jan. 1, 08 Newsletter? (approximately a month before the above quotes)

"...we hope that investors can refocus on just how bad it can get if we indeed do enter into a new bear market (or already stealthfully have, since we may continue to pull back from 2007's highs.) ... even if the losses of a potential bear market turn out only HALF of what they were during 2000-2002, it makes sense for all of us to consider taking some precautions...We are presenting data here that a bear market ahead seems to be a real possibility."

The funds-newsletter.com website does not explicitly make stock market forecasts. Rather, we focus on making suggestions for asset allocations both across asset categories (ie stocks vs. bonds) and within each category (ie which specific stock/bond funds are the most attractive) for portfolio enhancement, rebalancing, or trading purposes. However, one can readily judge our attitude toward the stock market not only from our commentary, but from the percentage of our portfolio which we allocate to stocks each quarter.

Tom Madell, Ph.D.
Publisher
Mutual Fund Research Newsletter

Mutual Fund Research Newsletter is a free newsletter which began publication in 1999. It has become one of the most popular mutual fund newsletters on the Internet, ranking number 7 on the Google Directory page for Mutual Funds News and Media Newsletter websites. Since we began publishing our quarterly Model Portfolios, 29 out of the 36 Stock Portfolios have outperformed the S&P 500 Index over the following year (data as of Sept., 2009). Since 2000, 28 of our Model Stock Portfolios have had the opportunity for at least 3 years to pass since we first published it. 25 out of 28 of these Model Stock Portfolios have outperformed the S&P 500 Index over the following 3 years, and ALL Stock Portfolios (20 out of 20) have outperformed over 5 years as well. Mean level of outperformance has ranged from about 3% over 1 year to over 4% PER YEAR over 5 years.

Copyright © 2003-2009 Tom Madell

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