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Mark Hulbert
Nov. 25, 2009, 12:01 a.m. EST · Recommend (3) · Post:
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By Mark Hulbert, MarketWatch
ANNANDALE, Va. (MarketWatch) -- It might not exactly be news that Robert Prechter, the famous follower of the Elliott Wave theory, is bearish on the U.S. stock market.
That's because he has been playing the equity market from the short side for quite some time now.
But what is news is that, earlier this week, he became even more aggressively bearish than usual: He is now recommending that traders allocate 200% of their stock trading portfolios to shorting the stock market.
What should be your response to Prechter's latest advice?
There is no easy answer, unfortunately.
But this question does raise a whole range of fascinating issues having to do with how best to interpret not just his, but any adviser's, track record.
On the one hand, Prechter's advice over the last couple of years has been top-rated. It's not just that he was bearish during the financial meltdown -- he also did a good job of playing the various intermediate-term corrections along the way.
Consider, for example, the issue of the Elliott Wave Financial Forecast that was sent out at the end of August 2008, some 15 months ago. This issue, edited by Prechter colleagues Steven Hochberg and Pete Kendall, appeared just two weeks before Lehman Brothers went bankrupt. Soon thereafter, of course, the entire financial system came dangerously close to becoming completely unraveled, and the stock market went into a free-fall from which didn't finally stop until March of this year.
Hochberg and Kendall wrote: "The stock market is building up the necessary reserves for its next major move, a third wave decline at multiple degrees of trend. This should be the strongest decline of the bear market to date."
Right on target, as we now know.
Furthermore, only a couple of weeks after the March lows earlier this year, Prechter and his colleagues reduced their short-side exposure, anticipating that the rally would continue for some time.
No wonder, therefore, that their newsletter has one of the best stock market timing records over the last two years of any that the Hulbert Financial Digest monitors.
On the other hand, Prechter's longer-term record couldn't be more different. The last time that his newsletter recommended that traders be long stocks was in 1997, some 12 years ago. In fact, during the bull market of the 1990s, traders following his advice spent most of the time short the market or in cash.
This helps to explain why the newsletter's timing advice for traders is in last place for performance over the last 20 years among all stock market timing strategies tracked by the Hulbert Financial Digest.
So take your pick: Short-term top-rated, long-term dead last.
The newsletter's track record therefore provides a particularly graphic illustration of an enduring problem for assessing an adviser's track record: How much weight should be placed on recent performance, versus how much on the long-term?
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
- nk19772006 | 12:15 a.m. Today12:15 a.m. Nov. 25, 2009
By creating two different classes of shareholders in its corporate structure, Facebook will need great financial results to attract investors to second-class status.
4:47 p.m. Nov. 24, 2009 | Comments: 5
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