In Good Company

John Hussman's fund has handily beat the S&P 500 since inception. This is partially because he has hedged his exposure and partially due to superior stock picking. He has a greater than 30% weighting in health care, which is a huge overweight for a mutual fund. I am happy to be in his company.

3 comments:

Anonymous said...

Most of that outperformance occurred back in the early 2000's. His performance since 2004 isn't so hot. I like Hussman's commentary, but his execution (like that of Jeremy Grantham, who I also like) leaves a lot to be desired. Both Hussman and Grantham were warning about how stocks were way overpriced starting in 2005 or so and that prices were extreme by 2007. But instead of putting their money where their mouths were, selling all their stocks and moving into short-term treasuries, they made these baby steps of buying a few puts here and there or reducing equity allocation from 65% to maybe 50% (wow!).

By contrast, I actually listened to Hussman's and Grantham's warnings and got entirely out of stocks back then, and the result was I was ready for the bargains that started appearing Oct 10, 2008. As a consequence, my 1 year, 3 year, 5 year and 10 year performance blows that of both Grantham and Hussman out of the water.

Anonymous said...

How are you positioned now, anonymous #1? Do you think that stocks are overprices, as Hussman does? You must be very patient to have been out of equities from 2005-2008.

Anonymous said...

I think stocks are fairly priced right now, given that interest rates will be low for a long time to come. In fact, I believe the market is normally fairly-priced and that the efficient market hypothesis is usually true. But sometimes the market is radically inefficient. Sometimes prices are way too high or way too low, and those are the time I look for to buy and sell. Right now I am 100% intermediate-term corporate bonds (through a Vanguard fund), waiting for something awful to happen (and something awful WILL eventually happen, it always does) so I can buy stocks at a discount again instead of paying retail.

Damn right I'm patient (actually I never got deeply into stocks in 2005, so my patience actually extends from about 1999 to 2008), and so should most small investors be. Spreads and other costs for the little guy are much lower than in the past, but HFT and bots still give the advantage to the big players. The small investor's advantage is that the big players can't be patient. Imagine a trader at a Wall Street firm back in 2007 saying I'm just going to sit in cash for a year or so because everything is overpriced. He'd be out of job long before that year was up. Small investors don't have that problem. I try to make sure the other players at the games I play are also small investors, and preferably idiots who buy high and sell low. All I have to do then is take the opposite side of that trade to do very well indeed.

Hussman and Grantham both talk about doing what I am doing (and I listen to them closely and have great respect for their opinions). And since they run their own companies they could, in theory, do what I am doing without worrying about being fired. Grantham tried getting out of stocks back in the late 1990's and lost much of his assets under management because he missed the dot-com blowoff. So now he just talks the talk rather than walking the walking, and Hussmann likewise. That is, they are smart guys with stupid clients, who have learned that it is better to pander to these stupid clients than to follow their own smart advice.

I read Tschay here at CapitalObserver with great interest, but there is no way I'd try trading the short-term like he does, because he is playing a game that the hedgies and other big players can play. As far as I'm concerned, the easy and safe gains come from catching the longer term trends, where you are mostly playing against dumb money.