Fri 18 Aug 2006
Ok, so the definition of maudlin is “drunk enough to be emotionally silly”.? Not sure that really applies to John Mauldin but I couldn’t pass up the obvious similarity between the word and his name.? I’m a sucker for puns.? But my general purpose is served to use some sort of adjective with a negative spin.? Do I have negative thoughts about John Mauldin?? The jury is out.? But I wanted to talk about some interesting data collected about his newsletter that does little to shine a positive light on the man’s market opinions.? I thought is was important to share given that he seems to have obtained a place of prominence in our blogosphere.? This is especially necessary when you consider how easy it is for like-minded biases to form in one’s reading patterns.? For example, if you feel bearish, you might start favoring bearish writers and vice versa.
Previously, I mentioned CXO Advisory Group has a very interesting site because of their emphasis on testing common market cliches with real data.? I made mention of their Guru Grades section but never noticed before that John “Maudlin” Mauldin was on the list.? In Guru Grades, CXOAG takes on the difficult task of quantifying the forecasts, intentional or otherwise, of newsletter or media gurus.? Now there are obvious?pitfalls in this approach but everyone is handled in a similar way so I do think it provides a valuable set of information.? What really snagged my attention as I was glancing back at the list was where Mr. Mauldin fell on it (27th out of 33).? He was 3 rungs lower than Jim Cramer of Mad Money for crying out loud.? His accuracy rating was 43% in a group of gurus that averages 50.8% and runs the range of 69% to 34%.? In other words, by CXOAG’s measure, the dude can’t see the future of the market for shit.
They counted 134 total measureable forecasts found in his “Thoughts From The Frontline” newsletter since 1/5/01, the earliest available.? His accuracy rating “exclude[s] commentaries in which we could not discern even implicit forecasts of market direction within a reasonable horizon.”? A very interesting point they made was how often Mr. Mauldin often makes forecasts only for very long time frames:
We infer, especially from his more recent commentaries, that Mr. Mauldin would agree to evaluation of his forecasts only over very long periods, such as a decade. For example, in his 8/6/04 commentary, he states: “You cannot time the market on a year to year basis, at least I can’t.” To us, such a stance is avoidance of accountability. To construct even a marginal sample (say 20-30) of independent observations each a decade long would take 200-300 years. No investor can hope to obtain out-of-sample confidence that such long-cycle views of a guru have validity.
Oh, snap!? They’ve got a point there.? If you are looking for a guru (and he puts himself out as someone you should pay to listen to when he promotes his book) why would you want one you can’t measure or hold to his word?? And when you can get him to voice a short to intermediate-term view, he’s only 43% accurate.? Now I know that we are smart guys who have our own minds, but I also know that anyone can be subconsciously influenced by what they read.? I think with Johnny M, you might want to be careful.? It’s like Samual L. Jackson says, “Motherfn’ snakes on a motherfn’ plane.”
Now what about the dudes at the top of the list: Ken Fischer (69%), John Kelly (68%)?? Well, since the near-future of the stock market is always a popular topic, let’s see what they are saying right now.
The damage may not be over, but it’s not the beginning of a sustained bear market. You should be buying stocks now. There’s more bull market ahead before any real bear market.? Ken Fischer, 2006/08/14.
Posied to buy shares on weakness…the market grinds lower before an end-of-year rally.? John Kelly, 2006/08/05-08/12.
And Mauldin?
Call for the DOW next summer…8900…I do not see this as an environment that is good for stocks. John Mauldin, 2006/07/28-08/11.
There you have it: more?spicy meatballs?to?throw into your cauldron of the gods.
August 19th, 2006 at 9:47 am
I’m reading today’s newsletter and realizing that Mauldin has been seeding some of my concerns and pessimism about the market. However, my concern about a downturn in the market in the near future is difficult to shake and I’m going to think long and hard this weekend about repositioning my current holdings into a more defensive stance. More on that in a future post this weekend…
Thank you for the Ken Fisher and John Kelly quotes–very interesting and challenging. It just goes to show that while reading other’s commentary is useful and instructive, without having the skills and knowledge to draw your own conclusions and to objectively analyze theirs, you’re just a pinball in the machine.
August 19th, 2006 at 2:19 pm
I have to challenge the implied point that someone’s track record has to be statistically provable over an intermediate time frame to be valid.
As both Quicksilver and CXO point out — looking at the percentage of correct predictions has its pitfalls. What happens if I make many correct but small predictions (the Dow will go up by at least 1 point this week!) and one really bad prediction (buy the Dow, it’s going to 36,000!)? I could have a great record but still be utterly daft.
Mauldin is not a stock picker, unlike many of the other names on the list. He portends to be a guru, but not a stock market guru. His books and most of his columns are about decade-long themes – regardless of whether or not they’re testable. Is that really an avoidance of accountability, or is it just a consequence of the themes he has focused on? I highly doubt he decided to pick longer-term themes just so he wouldn’t be accountable.
He professes to be unable to predict the market on a year-to-year basis, then try we hold him accountable on just that metric? I have a feeling most of his “misses” in the prediction record are from “smaller” predictions. His long-term themes are standing up well though — muddle through, dollar weakness, P/E compression, Fed going too far in either direction.
Don’t get me wrong… Mauldin is fallible and has plenty of warts just like everyone else. He has been wrong many times, and I expect him to be wrong many more times. I think Dow 8900 is a bit much for a bearish scenario (a 21% drop from current prices), but I?m certainly not going to write off the other enlightening things he writes.
One thing he does well is being a voice to the other side of the argument. Most of what one hears is from the sell-side; they are always bullish and it?s always a good time to buy stocks. Of course Mauldin is not a whole lot better; his answer is typically “hedge funds” which is the business he is in.