Hussman Strategic Growth HSGFX

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Erwin
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Hussman Strategic Growth HSGFX

Post by Erwin » Fri Dec 03, 2010 1:34 am

I know that this is a very unbogleheads question, but has anyone invested in the Hussman Strategic Growth (HSGFX). Looking at the history of this fund and reading about Dr. Hussman, one gets the feeling that he is a contrarian. He came out rather untouched from the 2008 stock fall, but has done very poorly since then as the market recovers. However, all in all, his performance has been far superior than the S&P 500 in the past 10 years. Any thoughts?
Erwin

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Post by Avo » Fri Dec 03, 2010 4:42 am

Hussman gets no love at the M* forums:

http://socialize.morningstar.com/NewSoc ... 29252.aspx

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Post by StoneReader » Fri Dec 03, 2010 8:56 am

Hussman may not be loved on this forum but he performs both on his individual stock selections and his overall market hedging strategy. He has both a lower volatility and much lower drawdowns than the index and has outperformed the index by over 100%. What is there not to like? The main drawbacks is his turnover which would lower your return in a taxable account and the fact that he is mortal like Warren Buffet.

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Post by hsv_climber » Fri Dec 03, 2010 9:15 am

StoneReader wrote:Hussman may not be loved on this forum but he performs both on his individual stock selections and his overall market hedging strategy. He has both a lower volatility and much lower drawdowns than the index and has outperformed the index by over 100%. What is there not to like? The main drawbacks is his turnover which would lower your return in a taxable account and the fact that he is mortal like Warren Buffet.
The main drawback is that past performance does not guarantee the future.

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Post by edge » Fri Dec 03, 2010 9:56 am

Looks like this is yet another one of those funds that has a few good years, attracts a lot of assets, and then can no longer perform.

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Post by hsv_climber » Fri Dec 03, 2010 10:05 am

BTW, take a look at HSGFX vs. VTI (or S&P 500 index) on a 1 year chart.
Difference is ~15%. And not in favor of the HSGFX.

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Post by SteveB3005 » Fri Dec 03, 2010 10:24 am

Any thoughts?

The active vs passive question distills down to Luck or Skill, and if an individual is convinced it's skill they should invest. Nothing difficult about that.

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Post by beardsworth » Fri Dec 03, 2010 10:41 am

hsv_climber wrote: BTW, take a look at HSGFX vs. VTI (or S&P 500 index) on a 1 year chart.
Difference is ~15%. And not in favor of the HSGFX.
I've never owned the fund, but I find Hussman interesting, so I follow his funds and his weekly essays.

It's simply not relevant to compare the performance of HSGFX to any single year in which the S&P 500 boomed. Hussman is clear––in all his writings and in his fund prospectus––that his goal is to provide a relatively smooth ride over long undulating cycles of bull–and–bear, and that he does not chase short–term returns when his metrics tell him that past market conditions (the only conditions truly known) did not favor added risk–taking or good returns in similar situations. He's also clear that his fund is for long–term holders, not short–term speculators.
hsv_climber wrote:The main drawback is that past performance does not guarantee the future.
As is true of every mutual fund that exists, not just HSGFX. Even index funds don't guarantee a good return; they only guarantee (or try to, depending on the precision of the tracking and the share of the market return lost to the fund's operating expenses) the average return of the market segment they target. Either way, Ya pays yer money 'n' ya takes yer chances.

Marc

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Post by OhioGozaimas » Fri Dec 03, 2010 10:47 am

Whether one invests in Hussman funds or not (I don't), their articles and commentaries are interesting and often thought-provoking.

Weekly Market Comment (and archive):
http://www.hussmanfunds.com/weeklyMarketComment.html

Investment Research & Insight (and archive):
http://www.hussmanfunds.com/researchInsight.html
Map out your future – but do it in pencil. – Jon Bon Jovi

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Post by dbr » Fri Dec 03, 2010 10:53 am

MarcMyWord wrote: It's simply not relevant to compare the performance of HSGFX to any single year in which the S&P 500 boomed. Hussman is clear––in all his writings and in his fund prospectus––that his goal is to provide a relatively smooth ride over long undulating cycles of bull–and–bear, and that he does not chase short–term returns when his metrics tell him that past market conditions (the only conditions truly known) did not favor added risk–taking or good returns in similar situations. He's also clear that his fund is for long–term holders, not short–term speculators.
Of course rating funds based on performance in one year is absurd, but based on the above, one would need about a century of past experience to know if the strategy had been viable, and even then one can't be certain about the future.

I have no opinion one way or the other about the fund, but to answer to the above objective, past data would be useless and one would have to have an analysis based on some theoretical fundamentals of investing to support a recommendation. One fundamental of investing in funds is that a 1% ER is a bit of an eight ball to sit behind. One would have to investigate turnover related to trading costs not in the ER and also look at tax efficiency if held in taxable, at the least.

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Post by hsv_climber » Fri Dec 03, 2010 10:59 am

MarcMyWord wrote: It's simply not relevant to compare the performance of HSGFX to any single year in which the S&P 500 boomed. Hussman is clear––in all his writings and in his fund prospectus––that his goal is to provide a relatively smooth ride over long undulating cycles of bull–and–bear, and that he does not chase short–term returns when his metrics tell him that past market conditions (the only conditions truly known) did not favor added risk–taking or good returns in similar situations. He's also clear that his fund is for long–term holders, not short–term speculators.
Not sure I follow the logic here.

VG ST Investment Grade fund provides "relatively smooth ride over long undulating cycles of bull–and–bear, and that it does not chase short–term returns, etc."

So, lets take a look @ VCSH vs. HSGFX. Google finance shows:
VCSH 1yr. return 2.56%
HSGFX 1yr. return 1.16%

So, worse 1yr return than both S&P 500 and VG Short Term Index fund.
Please explain to me how any equity fund can have less risk than VG Short Term Inv. Grade?

In reality, equity fund can have only 1 goal - to beat its appropriate index. Everything else is marketing.

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Post by SpaceCommander » Fri Dec 03, 2010 11:02 am

If you were going to use the fund, it might be a part of a long term strategic asset allocation if you were to use it as a hedge fund substitute. I gave some thought to devoting 10% or so to the "hedge fund" asset class, thinking it would be a great diversifier. Real hedge funds are too expensive for my tastes, but the Hussman fund seems like it could stand in as a substitute.

In the end, I decided a hedge fund asset class for diversification purposes was just unnecessary. Keep it simple! However I do like the manager and his strategy. I just don't need it. :|

JC
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Post by Wagnerjb » Fri Dec 03, 2010 11:31 am

Avo wrote:Hussman gets no love at the M* forums:

http://socialize.morningstar.com/NewSoc ... 29252.aspx
He wasn't getting any love from me either, going all the way back to when the performance chasing started in early 2003.

Here is one of the early conversations on the Diehard forum at M* on this guy and his fund:

http://socialize.morningstar.com/NewSoc ... px#1762398

Best wishes.
Andy

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Post by Wagnerjb » Fri Dec 03, 2010 11:35 am

StoneReader wrote:Hussman may not be loved on this forum but he performs both on his individual stock selections and his overall market hedging strategy. He has both a lower volatility and much lower drawdowns than the index and has outperformed the index by over 100%. What is there not to like? The main drawbacks is his turnover which would lower your return in a taxable account and the fact that he is mortal like Warren Buffet.
This guy had no track record in 2000 (when his fund opened). He got fabulously lucky to avoid a deep market decline in 2000-2002. Inevitably, his fund - only then in 2003 - began attracting a huge number of performance chasers. Look at the returns from late 2003 to today, and you get a very different picture. That picture is what the performance chasers actually earned.

Heck, I own Microsoft stock today. But I am not fabulously wealthy either, since I didn't buy it in 1975.....

Best wishes.
Andy

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Post by beardsworth » Fri Dec 03, 2010 1:03 pm

hsv_climber wrote:
MarcMyWord wrote: It's simply not relevant to compare the performance of HSGFX to any single year in which the S&P 500 boomed. Hussman is clear––in all his writings and in his fund prospectus––that his goal is to provide a relatively smooth ride over long undulating cycles of bull–and–bear, and that he does not chase short–term returns when his metrics tell him that past market conditions (the only conditions truly known) did not favor added risk–taking or good returns in similar situations. He's also clear that his fund is for long–term holders, not short–term speculators.
Not sure I follow the logic here.

VG ST Investment Grade fund provides "relatively smooth ride over long undulating cycles of bull–and–bear, and that it does not chase short–term returns, etc."

So, lets take a look @ VCSH vs. HSGFX. Google finance shows:
VCSH 1yr. return 2.56%
HSGFX 1yr. return 1.16%

So, worse 1yr return than both S&P 500 and VG Short Term Index fund.
Please explain to me how any equity fund can have less risk than VG Short Term Inv. Grade?

In reality, equity fund can have only 1 goal - to beat its appropriate index. Everything else is marketing.
hsv_climber,

As I said above, I find Hussman and HSGFX interesting, but have never owned the fund and have no stake in what anyone thinks of it. I've simply read what Hussman himself says about it. It's often difficult to interpret "tone" from the printed word alone, so please understand that the following is written respectfully.

As in your first post, comparing the one–year return of HSGFX to the S&P 500, you've again offered a one–year return, comparing HSGFX to a short–term bond fund. I hope I'm not putting words into Hussman's mouth, but I think his answer would be that (1) he's looking at long cycles and isn't interested in the return of a single year; and (2) HSGFX is an all–stock fund, not a balanced fund, and the fund's stated approach calls for Hussman to offset stock risk (as he sees it) by hedging stocks rather than buying bonds.

His benchmark is the S&P 500; his goal is to outperform that index over the long term and to emphasize capital preservation in market conditions which market history and his metrics tell him are likely (though not certain) to be dangerous. His fund opened in 2000 and––see the chart posted by StoneReader above––"since inception" he's accomplished his stated goal.

But, as you rightly point out, our impressions of any fund are dependent on the time period being examined. Anyone who bought into Hussman in 2000 has done very well compared to the S&P 500 index. Anyone who was making a choice between these same two alternatives for a new account in March 2009 would have done much better––so far, in a market which has not yet encountered its next serious downward leg––with the index. And, as we all agree, there's no way to foretell the future. People drawn to Hussman's approach should consider Hussman. People drawn to tracking the S&P 500 in both up and down markets should go with a 500 index fund.

Don't want to "argue" further about a fund in which I have no financial (or psychological!) investment, so will let it go at that and move on to other threads.

Best wishes,

Marc

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Post by MP173 » Fri Dec 03, 2010 1:24 pm

One of the first things I do each Monday morning is to read his economic commentary.

I do not own his funds, but just might after the dust settles this month.

Ed

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Post by porcupine » Fri Dec 03, 2010 1:29 pm

StoneReader wrote:Hussman may not be loved on this forum but he performs both on his individual stock selections and his overall market hedging strategy. He has both a lower volatility and much lower drawdowns than the index and has outperformed the index by over 100%. What is there not to like? The main drawbacks is his turnover which would lower your return in a taxable account and the fact that he is mortal like Warren Buffet.
StoneReader:

Would you mind adding PRPFX to this chart and re-charting?

- Porcupine

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Post by HomerJ » Fri Dec 03, 2010 1:41 pm

Wagnerjb wrote:This guy had no track record in 2000 (when his fund opened). He got fabulously lucky to avoid a deep market decline in 2000-2002. Inevitably, his fund - only then in 2003 - began attracting a huge number of performance chasers. Look at the returns from late 2003 to today, and you get a very different picture. That picture is what the performance chasers actually earned.
This... This EXACTLY.

If you held from 12/3/2002 to today, you did worse than the S&P 500 Index.

So the only way people have made big money on this guy is if they invested in his fund BEFORE he had a long-term track record...

Anyone who invested with him in 2000 or 2001 got lucky... There are always plenty of funds with excellent 1 or 2 year records.

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Post by HomerJ » Fri Dec 03, 2010 1:52 pm

MarcMyWord wrote:But, as you rightly point out, our impressions of any fund are dependent on the time period being examined. Anyone who bought into Hussman in 2000 has done very well compared to the S&P 500 index. Anyone who was making a choice between these same two alternatives for a new account in March 2009 would have done much better––so far, in a market which has not yet encountered its next serious downward leg––with the index. And, as we all agree, there's no way to foretell the future. People drawn to Hussman's approach should consider Hussman. People drawn to tracking the S&P 500 in both up and down markets should go with a 500 index fund
Anyone who invested with him in 2000 or 2001 made money... But that was pure luck. Anyone who has invested with him since then has made less money than just holding the S&P500 Index...

It's not just the 1-year return.... His 8-year return, 7-year return, 6-year returns all lag the S&P 500... and those returns INCLUDE a huge bear market (2008-2009) that he claims to protect you from...

Well, buy and hold still beat his active management, even through a huge bear market... And for a much smaller fee...

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Post by HomerJ » Fri Dec 03, 2010 2:01 pm

This shows exactly what we always talk about here...

You can find plenty of funds looking backward that beat the market over a period of time...

But that doesn't help you make any money.

Because it's impossible to identify those funds BEFORE they beat the market....

And very very few funds can maintain their track record.

Maybe the market changes (i.e. small vs big, growth vs. value) and the management style they used no longer works as well...

More likely, investors flock to a winning fund, and it bloats... It's a lot easier to pick small underlooked winners that make a big difference to your returns with a $50 million fund, than with a bloated $2 billion dollar fund that is so huge that you're forced to just trade large company stocks like everyone else.

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Post by Wagnerjb » Fri Dec 03, 2010 2:34 pm

rrosenkoetter wrote:Anyone who invested with him in 2000 or 2001 made money... But that was pure luck. Anyone who has invested with him since then has made less money than just holding the S&P500 Index...
I did a search on Morningstar of posts with references to Hussman or HSGFX. Prior to mid-2002 there were 17 posts. Since that time there were 4863 posts.

If you look at the net assets of HSGFX you will see the same thing (I likely did that exercise back in the 2005/2006 time frame). Funds like this have little in net assets until their lucky streak. Then - and only then - do their net assets balloon. And all those new investors get the mediocre performance. Sadly, many of them brag about owning a great fund with long-term outperformce. The joke is on them... :D
Andy

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Post by HomerJ » Fri Dec 03, 2010 2:50 pm

Wagnerjb wrote:
rrosenkoetter wrote:Anyone who invested with him in 2000 or 2001 made money... But that was pure luck. Anyone who has invested with him since then has made less money than just holding the S&P500 Index...
I did a search on Morningstar of posts with references to Hussman or HSGFX. Prior to mid-2002 there were 17 posts. Since that time there were 4863 posts.
That's a GREAT statistic...
If you look at the net assets of HSGFX you will see the same thing (I likely did that exercise back in the 2005/2006 time frame). Funds like this have little in net assets until their lucky streak. Then - and only then - do their net assets balloon. And all those new investors get the mediocre performance. Sadly, many of them brag about owning a great fund with long-term outperformce. The joke is on them... :D
Yep, they all think they own a great fund, but 99% of the people invested in it have made less than the Index it claims to beat...

This was an extremely useful practical example to show the folly of "following" a investment guru... This guy puts out a newsletter, he hasn't beaten the Index he claims to compete against for 8 years, and STILL people think he's awesome..

Thanks OP for bringing this up!

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Post by Noobvestor » Fri Dec 03, 2010 3:10 pm

Sad-face graph makes me sad :(

Image

For the sake of folks holding this short-time-all-star fund, I hope the rest of the upside-down smile doesn't get rounded out.

On a more serious note, though, this seems like a long time to go and just break even, regardless of the fund's long-term strategies:

Image
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Post by matt » Fri Dec 03, 2010 5:13 pm

noobvestor wrote:On a more serious note, though, this seems like a long time to go and just break even, regardless of the fund's long-term strategies:
U.S. equity investors have had pitiful returns for the past decade, but with substantially more volatility than HSGFX. Is that preferable to flat and uneventful?

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Post by MP173 » Fri Dec 03, 2010 5:20 pm

Yeah, my SPY (S&P 500) ETF is treading water this decade. My Vanguard Total International index is below water.

Certainly a long time to go and break even (or below water).

Thank goodness for GNMA, IBonds, CNI, XOM, MCD, KO, et al, otherwise a lost decade.

Ed

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Right

Post by SpaceCommander » Fri Dec 03, 2010 5:22 pm

matt wrote:
noobvestor wrote:On a more serious note, though, this seems like a long time to go and just break even, regardless of the fund's long-term strategies:
U.S. equity investors have had pitiful returns for the past decade, but with substantially more volatility than HSGFX. Is that preferable to flat and uneventful?
This is exactly the point. I can name any number of funds that have lagged the S&P500 over the last 10 years. But that is besides the point. The issue is: can this fund be useful for diversification purposes? What was it's volatility with respect to the broad market? Correlation? What was it doing when the rest of the market was in meltdown mode late 2008?

Adding a fund like this might be a prudent move with a small portion of the portfolio if you were to buy and hold for the long term. It is likely to lower the overall volatility of the portfolio and still net you something close to the overall market return.

Simply showing how the fund has been flat for the last 8 years means nothing. I bet there's a large number of investors who, in hindsight, would be grateful for relatively flat performance during one of the worst decades for investing ever.

JC
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Re: Right

Post by hsv_climber » Fri Dec 03, 2010 5:28 pm

SpaceCommander wrote:The issue is: can this fund be useful for diversification purposes? What was it's volatility with respect to the broad market? Correlation? What was it doing when the rest of the market was in meltdown mode late 2008?
Absolutely not.
The goal of diversification is to hold different assets, so that whenever one asset class zing, the other one zang.

But when you own an actively managed equity fund or a hedge fund then you are at the mercy of its manager to change its portfolio on a wimp in order to satisfy some unknown secret formula, which is stored under the Arctic Pole.
In other words, correlation of this fund to S&P 500 in 2009 does not tell us anything about correlation of this fund to S&P 500 in 2011. Thus, it makes it useless to use this fund for diversification.

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Post by Avo » Fri Dec 03, 2010 5:58 pm

I agree that it has no diversification benefit. The strategies it uses are (1) timing of overall market exposure, and (2) picking stocks (long and short). So MPT predicts zero return and zero correlation with anything else. Therefore the only reason to hold this fund is a belief that Hussman knows something that the market doesn't.

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Post by StoneReader » Fri Dec 03, 2010 6:09 pm

StoneReader:

Would you mind adding PRPFX to this chart and re-charting?

- Porcupine
Porcupine,

I just copied that graph from Hussman's website so I can not change it or add anything to it. Sorry.

Stone

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Re: Right

Post by Noobvestor » Fri Dec 03, 2010 6:16 pm

hsv_climber wrote:
SpaceCommander wrote:The issue is: can this fund be useful for diversification purposes? What was it's volatility with respect to the broad market? Correlation? What was it doing when the rest of the market was in meltdown mode late 2008?
Absolutely not.
The goal of diversification is to hold different assets, so that whenever one asset class zing, the other one zang.

But when you own an actively managed equity fund or a hedge fund then you are at the mercy of its manager to change its portfolio on a wimp in order to satisfy some unknown secret formula, which is stored under the Arctic Pole.
In other words, correlation of this fund to S&P 500 in 2009 does not tell us anything about correlation of this fund to S&P 500 in 2011. Thus, it makes it useless to use this fund for diversification.
Precisely - I wouldn't begin to know how to factor it into an AA. At least a 500 index is a known entity ... those I can handle flatlining for a while because I understand how they fit in the mix, but a mixed-strategy active fund staying flat through both ups and downs ... ? No thanks, I can do that in a savings account.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: Right

Post by HomerJ » Fri Dec 03, 2010 6:46 pm

SpaceCommander wrote:Simply showing how the fund has been flat for the last 8 years means nothing. I bet there's a large number of investors who, in hindsight, would be grateful for relatively flat performance during one of the worst decades for investing ever.
What???!

The guy totally beat the S&P500 his first two years... when the fund was small and nimble, and he guessed right...

Since then, anyone who invested with him has paid him 1% fees to underperform the S&P 500 Index (which is the benchmark he chose)

What are you people thinking??

Sure it's been flat, but so was a bond fund, or a CD...

How can people read his newsletter, and be thinking about investing with him, when he charges you to do worse than the Index?

He didn't drop as much as the Index during the last bear market (although he did drop), but he got pretty much NOTHING out of the upside movement...

Anyone who invested with him in 2003,2004,2005,2006,2007,2008,2009, or 2010 has done worse than the Index... And that's most everyone.... because very few people got lucky enough to invest with him in 2000 and 2001...

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Re: Right

Post by Wagnerjb » Fri Dec 03, 2010 9:18 pm

SpaceCommander wrote:This is exactly the point. I can name any number of funds that have lagged the S&P500 over the last 10 years. But that is besides the point. The issue is: can this fund be useful for diversification purposes? What was it's volatility with respect to the broad market? Correlation?
Well, over the past 8 years HSGFX has lower returns than the S&P500. It also has lower returns that fixed income investments AND it has greater volatility than fixed income. I don't see how such an instrument could add value to a diversified portfolio of stocks and bonds.
What was it doing when the rest of the market was in meltdown mode late 2008?
That's a very dangerous statement. If you make the mistake of assuming that a mutual fund has characteristics that can be counted on to continue, you would have assumed that HSGFX would have risen in 2008. After all, it rose substantially in the 2000-2002 time frame. But you would have gotten burned in 2008 since it also lost money.

Personally, I see little use for an unpredictable fund that returns less than stocks and less than bonds...and has a 1.05% ER.

Best wishes.
Andy

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Sorry all

Post by SpaceCommander » Sat Dec 04, 2010 12:41 am

Sorry all. I respectfully disagree.

There will come a time when Hussman outperforms again. I think this fund could be a useful diversifier. Sure, it's actively managed, but I don't believe that makes it necessarily toxic. (I have yet to drink the kool-aid around here!) :wink:

Swensen stashes 25% in an "Absolute Return" asset class in the Yale endowment (as well as a similar stake in "Private Equity"). How can an individual investor duplicate such an allocation? There are no passive investments to my knowledge that will allow for it. Hedge funds are an option, but they're too expensive for my tastes.

Including a fund like Hussman's under discussion here, makes for a reasonable simulation. Potential to underperform? Sure! Potential to outperform? Absolutely! We don't know what the NEXT 10-20 years might bring. However, to take a small portion of one's portfolio (10% or so) and to devote that to an intentional strategy that does NOT passively track the market, does indeed make for a good diversifier. It's likely it will lower the overall volatility of the portfolio and possibly enhance returns. Of course, it may well lower volatility and overall returns too! But that might be a price that a prudent investor would be willing to pay to tilt away from the broad market.

Hussman's poor performance? As we all know, past is not prologue! In fact, the best time to get in might be after a period of poor performance. His bad luck can't last forever!

To each his own!

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Post by Avo » Sat Dec 04, 2010 1:26 am

I don't drink the kool-aid either (the majority of my portfolio is actively managed), but HSGFX is in the bottom third of all long-short funds over the past five years. So it seems to me there are better choices out there if actively managed long-short is what you want.

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Re: Sorry all

Post by HomerJ » Sat Dec 04, 2010 2:09 am

SpaceCommander wrote:Hussman's poor performance? As we all know, past is not prologue! In fact, the best time to get in might be after a period of poor performance. His bad luck can't last forever!
Heh, now that's an interesting way to pick funds....

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Re: Sorry all

Post by Wagnerjb » Sat Dec 04, 2010 10:07 am

rrosenkoetter wrote:
SpaceCommander wrote:Hussman's poor performance? As we all know, past is not prologue! In fact, the best time to get in might be after a period of poor performance. His bad luck can't last forever!
Heh, now that's an interesting way to pick funds....
I'd like to see what his portfolio looks like today :)
Andy

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Re: Sorry all

Post by Jacobkg » Sat Dec 04, 2010 10:10 am

rrosenkoetter wrote:
SpaceCommander wrote:Hussman's poor performance? As we all know, past is not prologue! In fact, the best time to get in might be after a period of poor performance. His bad luck can't last forever!
Heh, now that's an interesting way to pick funds....
I believe Morningstar did a study which concluded that while the 4 and 5 star funds were not more likely than average to outperform going forward, the 1 and 2 star funds WERE more likely to continue to underperform.

Wagnerjb
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Post by Wagnerjb » Sat Dec 04, 2010 10:10 am

I know everybody already has figured this out, but Morningstar has statistics that capture the returns that real (typical) investors earned. Over the past 10 years, HSGFX has returned 7.04% annually. But the "investor returns" have been 1.04% annually.

Best wishes.
Andy

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fluffyistaken
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Post by fluffyistaken » Sat Dec 04, 2010 10:40 am

John Hussman on November 17, 2008 wrote:As for extreme and less likely benchmarks, the 780 level on the S&P 500 would represent a 50% loss from the market's peak, and would put the market in the lowest 20% of all historical valuations. I would expect heavy demand from value-conscious investors about that level if the market were to decline further, and a decline below that level could be expected to reverse back toward 780 fairly quickly. Further down, but very unlikely at this point from my perspective, the 700 level on the S&P 500 would represent the lowest 10% of historical valuations, 625 would put the market in the lowest 5% of valuations, and anywhere at 600 or below would put the market in the lowest 1% of historical valuations. I don't expect to see such a level, but there it is. Note that these estimates are unaffected by how low earnings might go next quarter or next year. Stocks are not a claim on next quarter's or next year's earnings – they are a claim on an indefinite stream of future cash flows.
John Hussman on March 9, 2009, with S&P500 at 680 wrote:As for the stock market as a whole, I continue to view the market as undervalued, but not deeply undervalued. So over the course of a 7-10 year holding period, I do expect passive buy-and-hold investors in the S&P 500 to achieve total returns somewhat above 10% annually. ... In the Strategic Growth Fund, over 90% of our stock holdings are hedged with offsetting short sales in the S&P 500, Russell 2000, and Nasdaq 100 indices. Again, the Fund does have about 1% of assets in call options essentially to “soften” our hedge in the event of a strong market rebound, but that “anti-hedge” is more like insurance than expectation.
If only he heeded his own words about valuations...

fundtalk
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Post by fundtalk » Sat Dec 04, 2010 10:50 am

There are several posts on this thread which point out that the returns of HSGFX have come close to the S&P 500, but with far less volatility, so perhaps it should be considered a worthwhile investment.

I disagree with this argument. If you were an investor in the accumulation stage over this time frame, the volatility of the equity indexes has improved your return. You were able to add to these indexes at much lower prices along the way thereby increasing your long term return.

On the other hand if you were an investor in the distribution phase, you would have been better off getting volatilty reduction by increasing your fixed income allocation. Fixed income had far better returns than HSGFX over this time frame.

Either way, you would have been better off in a typical stock/bond balanced portfolio.

fundtalk
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Post by fundtalk » Sat Dec 04, 2010 10:56 am

Fluffyistaken points out what has been discussed extensively on the morningstar boards.

If you look at his fund return, there was a big drop in Oct. 2008. As stocks were plummeting (and becoming a good value) he started to decrease his hedge. He was a little early and the fund dropped 10% which is a huge move in this fund. I suspect he lost his nerve and he has hedged the portfolio ever since. If he had reduced or dropped his hedge in 2009, he would look like a superstar right now. He did not follow his own advice or the funds stated objectives...why would any investor trust him to do it in the future?

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Post by diasurfer » Sat Dec 04, 2010 11:44 am

fundtalk wrote: Either way, you would have been better off in a typical stock/bond balanced portfolio.
I think a good comparison is Vanguard Balanced, VBINX. I pulled up the growth of 10K charts.

Okay, so despite the usual emphasis on long term, we're not going to consider the 10 year returns which show Hussmann beating the pants off VBINX most other funds. [FYI 10K -> 20K for HSGFX, 10K -> 14.5K for VBINX].

On five year, so starting Oct 2005, 10K HSGFX has grown to about 10700 and 10K in VBINX has grown to 12000. That's pretty solid outperformance by a balanced index fund, even if nothing like the 10 year difference above. However, the two funds were virtually tied this July. VBINX has left Hussman behind during the Fall rally. If you read Hussman's commentary, he thinks QE2 is a mirage and is highly skeptical of this rally. If he is right, and reality comes crashing down on the market in the next few years, then HSGFX will look good compared to VBINX once again.

Either way, HSGFX has had MUCH less volatility than VBINX along the way.

I'm a balanced index investor, so I don't invest with Hussman, but I do like to read his commentary.

Nate270
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Post by Nate270 » Sat Dec 04, 2010 5:08 pm

Dr. Hussman is very smart and I enjoy his writings. I used to own the fund a long time ago, but have since become a boglehead. Compared to the S&P the numbers look good but when compared to a diversified "lazy" portfolio, I would much rather take mpt.

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