T Prior Bear Markets: A Poor Guide to Future Newsletter Performance

Investment Newsletters
Prior Bear Markets: A Poor Guide to
Future Newsletter Performance
By Mark Hulbert
The stock bear market that be-
gan in October 2007 has been such a
traumatic event in the lives of so many
investors, that it is likely to dominate
investment decision-making for years
to come.
Whether that’s a good thing, however, is an
open question—I’m not so sure that it is.
That’s because performance in bear markets is
a poor guide as to how an adviser or strategy will perform
over the long term. And this is true not only because the
stock market historically has had an upward bias. It’s also
because performance in one bear market is a poor guide to
returns in subsequent bear markets.
The Data
I support these bold claims with reference to the Hulbert Financial Digest’s database of investment newsletter
performance. That database, of course, contains returns
independently calculated by the Hulbert Financial Digest
(HFD), using its standard methodology.
Key elements of that methodology include executing
all model portfolio transactions on the days that subscribers
could actually act on the newsletters’ advice, and debiting
transaction costs such as bid-ask spreads and discount brokerage commissions. In addition, if a newsletter has more
than one portfolio, then the HFD calculates a composite
reflecting the average of its several portfolios, including those
that may have been discontinued over the years.
Let’s begin the discussion with the data in Table 1,
which lists the top 10 newsletters on the HFD’s monitored
June 2009
list based on their performance during the
2007–2009 bear market.
On average, these 10 newsletters produced a 4.3% annualized return during this
bear market—in contrast to a 38.7% annualized loss for the overall stock market,
as represented by the Dow Jones Wilshire
5000 total return index.
Now focus on how these 10 newsletters have
fared historically. Over the last five and 10 years (through
April 30), these newsletters on average are well ahead of
the market—which is not surprising given the extent of
their market-beating performance during the recent bear
market. But notice that, even given their impressive returns
in the recent bear market, they on average are behind the
overall market for performance over the last 15 years and
last 20 years.
This pattern is not limited just to the top performers in
the most recent bear market. Take a look at Table 2, which
lists the top 10 performing newsletters during the 2000–2002
bear market.
Once again, these newsletters are ahead of the market
over the last five- and 10-year periods, but they are behind
a buy-and-hold position for performance over the last 15and 20-year periods.
Furthermore, many of the top performers in the 2000–
2002 bear market did not acquit themselves very well in the
2007–2009 bear market. In other words, top performance
during the 2000–2002 bear market was not a guarantee of
performing well in the subsequent bear market.
Lastly, take a look at Table 3, which lists the 10 newsletters
with the best performance over the 10-year time period that
ended with the stock market high in March 2000. Perhaps
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Table 1. Top 10 Newsletters in the 2007–2009 Bear Market
Newsletter
2007–2009
Bear
Market*
Peter Eliades’ Stockmarket Cycles
23.4
Stealth Stocks Daily Alert
7.5
Yamamoto Forecast (The)
6.2
P. Q. Wall Forecast, Inc.
5.0
On the Money
2.7
Martin Weiss’ Safe Money Report
2.5
Stealth Stocks
2.3
National Investor (The)
(1.4)
Growth Stock Outlook
(2.4)
Growth Fund Guide
(2.6)
Average of Above 10 Newsletters
4.3
DJ Wilshire 5000 Total Market (w/divs)(38.7)
5 Yrs
Performance Through
4/30/2009 (%)
10 Yrs
15 Yrs
3.0
na
10.9
1.8
1.0
0.7
3.4
10.2
3.0
8.7
4.7
(2.0)
3.2
na
na
1.4
4.4
na
na
na
3.4
9.3
4.3
(1.6)
1.6
na
na
(3.7)
na
na
na
na
5.0
4.2
1.8
6.5
20 Yrs
4.2
na
na
na
na
na
na
na
5.2
4.9
4.8
7.6
Contact
800-888-4351
800-524-4832
808-877-2690
www.pqwall.com
800-772-5789
800-844-1773
800-524-4832
www.nationalinvestor.com
301-654-5205
605-341-1971
All returns are annualized.
*B
ecause the HFD’s performance database contains monthly returns, this bear market was defined to begin October 1, 2007, and end
February 28, 2009.
not surprisingly, given that this 10-year
period was so bullish, these newsletters
on average have not produced stellar
returns over the last five- and 10-year
periods (through April 30). On the other
hand, over the last 20-year period these
newsletters on average beat the market,
coming out well ahead of the average for
newsletters that came out on top during
either of the last two bear markets.
The Bottom Line
Given our recent trauma, most of
us would readily accept a Faustian bargain to retroactively give up much of
Table 2. Top 10 Newsletters in the 2000–2002 Bear Market
Newsletter
2000–
2002
Bear
Market**
2007–
2009
Bear
Market*
Performance Through
4/30/2009 (%)
5 Yrs
10 Yrs 15 Yrs 20 Yrs
Peter Eliades’ Stockmarket Cycles
15.9
23.4
3.0
3.2
1.6
Growth Fund Guide
10.8
(2.6)
8.7
9.3
4.2
Investment Quality Trends
10.7
(39.8)
(2.1)
4.5
7.6
Blue Chip Investor (The)
6.7
(38.3)
(3.4)
0.5
5.5
F.X.C. Newsletter (The)
6.6
(31.5)
0.5
2.8
6.4
Coolcat Explosive Small Cap Growth
Stock Report
5.7
(10.5)
(5.5) 11.4
na
Growth Stock Outlook
3.6
(2.4)
3.0
3.4
5.0
Buyback Letter (The)
3.6
(37.5)
(0.9)
4.1
na
Superstock Investor
2.3
(25.3)
(2.1)
1.9
4.4
Investors Intelligence
2.1
(18.2)
1.6
2.6
4.2
Average of Above 10 Newsletters
6.8 (18.3)
0.3
4.4
4.9
DJ Wilshire 5000 Total Market (w/divs) (20.7) (38.7)
(2.0) (1.6)
6.5
Contact
4.2
4.9
8.7
na
7.8
800-888-4351
605-341-1971
866-927-5250
na
5.2
na
3.9
5.3
5.7
7.6
559-875-0613
301-654-5205
888-289-2225
800-894-3424
914-632-0422
800-392-0992
All returns are annualized.
*Because the HFD’s performance database contains monthly returns, this bear market was defined to begin October 1, 2007, and end
February 28, 2009.
**Because the HFD’s performance database contains monthly returns, this bear market was defined to begin April 1, 2000, and end
September 30, 2002.
12
AAII Journal
Investment Newsletters
Table 3. Top 10 Newsletters Over 10 Years Through March 31, 2000
Newsletter
10 Years
Through
3/31/2000 5 Yrs
Louis Navellier’s Emerging Growth
27.2
Prudent Speculator (The)
23.5
Timer Digest
23.1
Oberweis Report (The)
22.1
Medical Technology Stock Letter
21.4
Chartist (The)
21.0
No Load Fund*X
19.9
Cabot Market Letter
19.7
BI Research
17.9
Fidelity Monitor
17.3
Average of Above 10 Newsletters
21.3
DJ Wilshire 5000 Total Market (w/divs) 18.5
(7.8)
(3.4)
1.3
(8.1)
(25.4)
4.6
(0.9)
3.5
(20.2)
(0.2)
(5.7)
(2.0)
Performance Through
4/30/2009 (%)
10 Yrs
15 Yrs 20 Yrs
(2.9)
7.6
0.4
5.6
(5.2)
(1.1)
5.2
0.9
(1.2)
2.8
1.2
(1.6)
4.2
14.2
8.0
5.8
(3.7)
5.8
11.2
5.9
2.6
6.5
6.1
6.5
8.6
13.1
10.3
10.4
0.9
8.9
10.8
6.2
6.3
9.5
8.5
7.6
Contact
navelliergrowth.investorplace.com
877-817-4394
800-356-2527
800-323-6166
510-843-1857
800-942-4278
800-763-8639
978-745-5532
www.biresearch.com
800-397-3094
All returns are annualized.
our bull market returns in order not to
have lost so much in the bear market.
But the data do not suggest that this is
a rational trade-off.
If history is any guide, you will be
better off going with newsletters that
have the best long-term returns, even
if that means incurring sizeable bear
market losses.
It appears that it is more important
to perform well during the bull markets
than it is to perform well during the
bear markets.
In other words, the best thing we
can do for our portfolios might be to
forget that this bear market ever happened—as difficult a task as that might
otherwise be. 
Mark Hulbert is editor of the Hulbert Financial Digest, a newsletter that ranks the performance of investment advisory
newsletters. It is published monthly and is located at 5051B Backlick Rd., Annandale, Va. 22003; 703/750-9060.
June 2009
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