Stock Market Newsletters Didn’t See Bear Coming
Billionaire investor Warren Buffet has written,
“We’ve long felt that the only value of stock forecasters is to make fortune tellers look good”.
That pretty much described how newsletters devoted to giving readers tips on the market fared in the fall of 2008.
The Hulbert Financial Digest, a newsletter that tracks the performance of the investment newsletter industry, looked back at what newsletters were saying in September 2008 and found that they did a poor job of alerting readers to the disaster that occurred in October.
Editor Mark Hulbert said many of the major newsletters seemed “strangely complacent” on the eve of one or the worst-ever months for stocks.
Bullish forecasters
He notes that Jeffrey Hirsch, editor of Almanac Investor, said he was “ready to be a bull again.”
Bob Brinker of Brinker’s Marketimer predicted the Standard & Poor’s 500 Index would top its previous record of 1565 in 2009 (it is now at about 1060).
Mark Skousen of Forecasts and Strategies predicted a “Santa Claus rally” at the end of the year, while Stephen Leeb of The Complete Investor said that the credit crisis had neared a conclusion and the downside risk in stock prices had been reduced.
Best of the bunch
A handful of writers seemed to get it right, but their forecasts were deceiving, Hulbert said.
The Elliott Wave Financial Forecast said the market was building toward its “strongest decline of the bear market to date.”
The only problem with that forecast was that the newsletter had been overwhelmingly bearish for 20 years, and investors who followed its recommendations would have missed out on the big gains of the 1990s and mid 2000s.
Hulbert found two other newsletters that indicated more stock declines, but strangely enough the model portfolios they published stayed heavily in stocks.
As Buffett concluded:
“I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”