Professional Documents
Culture Documents
these rules:
Does the adviser maintain a The last issue of the HFD! goal of independently tracking investment
specific model portfoliowith advisers performances was downright revo-
numbers of shares or portfolio It is with much sadness that I report that this is lutionary. In todays world, in contrast, awash
percentages assigned to each the last and final issue of the HFD. In coming as it is in Big Data, it seems to be less needed.
holding? Other things being days you will receive an email from Dow Jones That, at least, is the judgment of the market.
equal, you should give more providing details of the refund youre owed The one subscription product that will
weight to the performance for the unused portion of your subscription. continue is to the Hulbert Sentiment Indices;
numbers claimed by such an If you have any questions please dont hesitate for more information on those indices email
adviser, since advice this pre- to contact us via email at orders@marketwatch. sentiment@hulbertratings.com. And I will
cise makes it more difficult for com or by calling 1-888-485-2378. continue to write columns for the Market-
an unscrupulous advertiser to Thank you for being part of the HFDs Watch website. So I am not going away!
fudge the numbers. remarkable 36-year journey. The world today In the meantime, thanks again and best of
CONTINUED ON PAGE 2 is a lot different than it was in 1980, when my luck in your investments!
The HFD is one of a suite of products based on a database containing 35 years worth of invest-
ment recommendations from retail-oriented investment advisers. A service of
2 HFD
I say this because I have found find it extremely difficult to beat the market. ren Buffett, the most successful investor alive
that outright lying about perfor- Though the pasts long-term winners have bet- today, did betterthough not by a lot: He beat
mance is relatively rare. Far more ter subsequent track records than the pasts a buy-and-hold over this period by an annual-
common is spinning the numbers long-term losers, even they struggle. ized average of 7.7 percentage points per year.
in a way that implies something Keep these numbers in mind the next
that is false but doesnt actually Lesson #2 time an adviser claims annual returns in the
outright lie. The second lesson: The reason to deviate hundreds of percent. Though its theoretically
Particularly worthy of paying from a long-term buy-and-hold is as much possible a far-better-than-Buffett genius has
attention to are advisers whose psychological as statistical. You may find that decided to share his stock picks with you, call
specific portfolios arent hypothet- you cant resist trying to beat the market, for me if youre inclined to subscribe to him: I
ical but real-worldand who offer example. If so, the psychologically realistic have a bridge I want to sell you too.
to share brokerage statements thing to do is indulge your compulsion with-
with interested clients. out risking your entire portfolio in the process. Lesson #4
A related rule of thumb is to be I recommend following the advice of the The last timeless lesson I want to leave you
skeptical of performance claims late Harry Browne, a well-regarded adviser with is that short term performance is mostly
that are based simply on the from the 1970s and 1980s. He recommended noise. That means, when choosing an adviser,
average return of a list of recom- dividing your investments into two portfolios. you should barely pay any attention to recent
mended positions. Thats because The first, which he called your Variable performance and focus instead on returns
it makes a big difference the order Portfolio, would be the one that you actively produced over many, many years.
in which those recommendations manage and in which you try to beat the mar- When using a model introduced by Brad-
were made. Its theoretically pos- ket. Only a small fraction of your investable ford Cornell of the California Institute of
sible that you could lose every- net worth should be invested in it, with the Technology, for example, I calculated that
thing by following stocks whose balance in a so-called Permanent Portfolio more than 90% of the annual fluctuations in
average return is quite impressive. that would be well diversified among index advisers returns was due to luck rather than
When the advisor makes per- funds benchmarked to various asset classes. skill. Cornell reached the same result when
formance claims, does he report focusing on large-cap equity mutual funds.
the precise period over which the Lesson #3 Hopefully it goes without saying that if you
performance was produced and The third lesson: The best you can hope for were to pick an adviser based on his luck, you
the assumptions used to calculate is beating the stock market by an annualized have done absolutely nothing to increase your
that performance? The vaguer the average of just a few percentage point. This is odds of success. Yet that is what youre doing
parameters, needless to say, the crucial since it defines the risks and rewards of when choosing an adviser based on how hes
less importance you should place trying to beat the market. You might conclude, done over the last few months or quarters.
on them. for example, that even though beat-
100% Investment newsletter performance from June 1980 through January 2016
If a performance claim seems ing the market over the long term
90%
too good to be true, it probably is. is not impossible, you might as well 80%
Im amazed by investors gull- not even trysince what you gain if 70%
ibility: Those who are incredibly you win is too small to justify the 60%
shrewd elsewhere in their lives risk of the bigger losses you will 50%
face of advisers claiming sky-high Consider the letter at the top of 30%
fool and his money will soon be since mid-1980: It beat a buy-and- 10%
parted. Dont let that sage wisdom hold by 3.7 percentage points per 0%
Beat market since mid-1980 Lagged market since mid-1980 Newsletter didn't survive but was Newsletter didn't survive but was
be referring to your behavior! year on an annualized basis. War- ahead of market at time coverage behind the market at time
came to an end coverage came to an end
HFD 3
MARKS COMMENTARY:
$10,000,000
Wilshire 5000 Total Market Index
Represented by vertical bars
Bob Brinkers newsletter is primarily (Series shifted so that the index
equals $100,000 at the point the HFD
intended to help mutual fund investors began following newsletter)
MARKS COMMENTARY:
$10,000,000
Wilshire 5000 Total Market Index
Represented by vertical bars
The Investment Reporter has been (Series shifted so that the index
equals $100,000 at the point the HFD
published continuously since 1941, began following newsletter)
of investing. *
The HFDs performance calculations PERFORMANCE (THROUGH 1/31/16)
for The Investment Reporter are based Lifetime* 1 yr 3 yrs 5 yrs 8 yrs 10 yrs 15 yrs
% GAIN/LOSS**
primarily on the stock recommenda- Letters Average +3586.2( 11.9) +1.8 +18.3(5.8) +59.2(9.7) +77.1(7.4) +118.5( 8.1) +372.5(10.9)
tions that appear in a monthly supple- Wilshire 5000 +2282.6( 10.4) -2.1 +35.4(10.6) +63.7(10.4) +68.0(6.7) +86.3(6.4) +106.2( 4.9)
ment entitled The Investment Planning ADJUSTED FOR RISK***
Portfolio performance produced an 11.9% annualized gain Balanced, and Growth. They are
Since the beginning of 1996, The Invest- from the beginning of 1984 through constructed from stocks recommended
ment Reporter has recommended that 1/31/16beating the 10.4% annualized in the monthly Investment Planning
subscribers allocate 25% to U.S. stocks. return for the Wilshire 5000 index. It Guide. However, because the editor
Therefore, in calculating an average of also outperforms the Wilshire 5000 on insists that these are not recommended
this newsletters many portfolios, the a risk-adjusted basis. model portfolios, the HFD simply
HFD follows this allocation advice. calculates their performances but does
Prior to 1996, in contrast, each portfolio Sample portfolios not take them into account when calcu-
was given equal weight. In 2001, this newsletter created three so- lating the newsletters overall average
Calculated in this way, the newsletter called sample portfolios: Income, performance.
6 HFD
N E W S L E T T E R A N A LY S I S
MARKS COMMENTARY:
$10,000,000
Wilshire 5000 Total Market Index
Represented by vertical bars
Louis Navelliers Emerging Growth is (Series shifted so that the index
equals $100,000 at the point the HFD
in 5th place among the 24 investment began following newsletter)
Glossary
Risk-Adjusted RankThis reports what the letters rank risk level above 100 means the letter was riskier than KEY
would be if all were ranked on a risk-adjusted basis. the Wilshire 5000. A lower number is preferable. 1 Ranks in top ten among those letters
Risk-Adjusted RatingMonthly performance per unit Unadjusted GainThe newsletters total return (an- beating market over trailing 1 year
of risk, calculated using the Sharpe Ratio. Other things nualized), before adjusting for risk. 5 Ranks in top ten among those letters
being equal, a higher number here is preferable. Unadjusted RankThe newsletters rank when ranked beating market over the last 5 years
RiskRisk, as measured by volatility. All letters risk on basis of performance before risk adjustment.
10 Ranks in top ten among those letters
levels are normalized so that the risk level of the Data BeganThe year HFD began monitoring this
Wilshire 5000 Total Market Index becomes 100. Thus, a
beating market over the last 10 years
newsletters performance.