The guys who get you out will never get you back in

If there’s one thing – just one thing – we should have learned from the past ten years, it’s that most of the people who “called the crash” have had a rough go of it ever since.

Some have been uselessly frittering away the benefit of their having side-stepped the market’s decline in 2008 by repeatedly making long, short, in, out calls that have chopped up their acolytes for more than half a decade since. Others have called for more and more crashes that simply haven’t materialized, keeping their readers on the sidelines for one of the top five bull markets in history. And still others have opened hedge funds, advisories and timing services that have, to put it politely, sucked.

Almost all of the people who became household names as a result of having “seen it coming” in 2006 and 2007 have pretty much spent the post-crash period flailing.

The important thing to keep in mind is that this phenomenon isn’t new. As I laid out in Chapter 7 of my book, Clash of the Financial Pundits (full excerpt here), Wall Street was lousy with market timers as the 70’s bear market gave way to the 80’s bull market, and almost none of the famous market timers were able to get in sync with the tape – hence their eventual extinction.

A generation later, Elaine Garzarelli would fall victim to the same phenomenon – the 1987 crash call followed by, well, nothing much noteworthy at all.

And over at the Wall Street Journal, Mark Hulbert tells us how horrendous the Millennial crash-callers have done over the last fourteen years. Sure, they got the dot com peak right, but did it do any of their fans much good to continue heeding their advice? Not really, and in most cases its been deleterious.

Here’s Hulbert, using newsletter bear Richard Russell as a cautionary tale:

A Hulbert Financial Digest study of the past 15 years shows that Mr. Russell’s experience is more the rule than the exception. Just 11 of 81 stock-market timers—those advisers who try to predict when to get into or out of the market to sidestep declines and participate in rallies—actually made money during the bear market that began after the Internet bubble burst in March 2000 and ended in October 2002.

These market timers have lost so much since then that, on average, they are in the red over the entire period since March 2000, having chalked up a 0.8% annualized loss.

A simple buy-and-hold approach using the Wilshire 5000 over the same period, by contrast, gained an annualized 4.2%, including reinvested dividends.

When I hear a market call – especially one delivered so vociferously as though the speaker has actually figured out a way to see the future – I try to keep studies like this one in mind. Because even if the call to sell turns out to be perfectly right, for investors that’s only half of the equation – and the perfect buy call to get back in is never going to come from the same source.


Calling a Stock-Market Top Is Only Half the Battle (WSJ)

For more on this subject:

Tops, Bottoms and Middles (TRB)

Where Have All the Cowboys Gone? (TRB)

A man and his signals (TRB) 

The Man Who Moved Markets (TRB)

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