Hulbert: The Best Still Say Buy
10/24/2003 12:00 am EST
Next week, we'll bring you highlights from the just-completed San Francisco Money Show. This week, we offer the forecasts of the best-performing advisors, as rated by Mark Hulbert, the leading authority on the performance of newsletter portfolios. He notes, "I suspect you will be pleasantly surprised by what these top performers are saying."
"The editors of the best-performing newsletters have not only survived, but thrived, in both bull and bear markets alike. So their opinions are especially worth paying attention to. Now, t hey are betting that the US stock market is the place to be. That’s the conclusion I draw from an assessment of the recommended US equity exposures of each of these best-performing newsletters. Of the 22 newsletters in this study, only four are outright bearish, and a fifth is neutral. The remaining 17 range from bullish to very bullish. The average recommendation among all entries is an equity exposure of 83.6%. That certainly seems bullish.
"But how does this compare to previous periods? I have conducted this study on two prior occasions this year. In May, when the Dow stood at 8560, the comparable average was 86.8% and in March, just prior to the beginning of the Iraq war, when the DJIA stood at 7552, the comparable average was 66.8%. To be sure, those earlier readings look prescient, since the stock market is significantly higher now than then. But might it be that these newsletters always are bullish? In that case, their good record this year would be nothing more than a fluke. Not to worry. In February 2002, for example, when bullish sentiment was running high among investors in general, and the DJIA was above 10,000, the market timers with the best risk-adjusted performances were recommending an average exposure of just 18.9%. The comparable number in November of last year was 28.5%. On both occasions their caution was vindicated.
"You might also worry about the bullish consensus on the contrarian ground that the stock market rarely accommodates the majority. I do not think contrarian analysis applies in this case. Note carefully that the newsletters in this study do not reflect the majority among all letters. They instead represent a small subset of newsletters with the best long-term performances. The Hulbert Financial Digest does track sentiment among all newsletters, and there is a lot less bullishness among this broader group. The average exposure among all stock market timers we track currently stands at 20.4%, well off its all time high of 79.7%. It is that 20.4% on which a contrarian would focus, and because it does not represent excessive bullishness, would not trigger immediate warning bells. So a real contrast exists between the best long-term performers and their poorer performing brethren. On the assumption that those best long-term performers are more likely to be right, this is good news indeed for the stock market."