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Thursday, March 11, 2010

Mark Hulbert: "Fools R Us"

Posted March 11, 2010....First let me point out that Bob Brinker is not in Hulbert Financial Digest top-5 performers (in any category) as ranked over the past five or ten year time frames. Bob Brinker has not been ranked in the top-5 performers in the five or ten year time frames for many years.

Mark Hulbert's latest Marketwatch column titled "Fools R Us" verifies what we here on the Beehive have known for a very long time: Market-timing is a crap-shoot at best!

Mark Hulbert asked these questions:
"How many stock market timers, of the several hundred monitored by the Hulbert Financial Digest, called the bottom of the bear market a year ago?

And a follow-up: Of those that did, how many also called the top of the bull market in March 2000 -- or, for that matter, the major market turning points in October 2002 and October 2007?"

Mark went on to point out that many are "rewriting history" on this 10-year anniversary.

Then Mark Hulbert said:

"It's one thing to say now, with the benefit of hindsight, that the stock market in March 2000 was wildly inflated and ready to plunge. It's quite another to have predicted it at the time. The same goes for the end of the bear market one year ago........

.....It turns out that none of the markets timers I monitor were able to call the last decade's market's major turning points.

To be sure, there is no exact definition of what "calling" a market top or bottom involves. In the case of the March 2009 bear market bottom, for example, does "calling" it mean the adviser's portfolio needs to have moved from being all cash to 100% invested in stocks on the exact day of the bottom?

If my analysis had relied on a definition as demanding as this, then it wouldn't be surprising that no timers called recent market turning points.

But my analysis actually relied on a far more relaxed definition: Instead of moving 100% from cash to stocks in the case of a bottom, or 100% the other way in the case of a top, I allowed exposure changes of just ten percentage points to qualify.

Furthermore, rather than requiring the change in exposure to occur on the exact day of the market's top or bottom, I looked at a month-long trading window that began before the market's juncture and extending a couple of weeks thereafter.

Even with these relaxed criteria, however, none of the market timers that the Hulbert Financial Digest has tracked over the last decade were able to call the market tops and bottoms since March 2000."

Notice that Mark said that NONE of the market timers he has tracked over the last decade called the tops or bottoms over the past 10 years.

Mark wrapped up his column by saying that we should conclude that: "Predicting turns in the market is incredibly difficult to do consistently well. That means that, if your investment strategy going forward is dependent on your anticipating major market turning points, your chances of success are extremely low."

What an understatement! According to Mark's own words, it's IMPOSSIBLE. So one has to wonder why anyone would pay someone who has never been able to call a market top or bottom. And why would anyone pay for someone to rank what can't be done?

Mark Hulbert's Marketwatch article


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