Published: Mar 11, 2016 2:03 p.m. ET
Mark Hulbert called out bogus claims for 36 years at the Hulbert Financial Digest
ChuckJaffe
Investment-newsletter editors are breathing easier this month, and it’s not because the stock market has rebounded.
Meanwhile, investors who use newsletters should be more nervous than they have been in decades.
The reaction of both sides is the logical response to the shutdown of the Hulbert Financial Digest, the ground-breaking newsletter started 36 years ago by Mark Hulbert, my fellow senior columnist at MarketWatch.
Hulbert Financial Digest was a newsletter about newsletters. Launched in 1980, Hulbert’s turf was previously uncovered; newsletters would make outrageous performance claims and investors had little to no hope of figuring out if those brags were true.
Hulbert filled that void, buying newsletters anonymously, then following the portfolio changes recommended by newsletter editors to see how investors would have fared. Some editors quarreled with Hulbert’s interpretation of their strategy, or insisted their performance was somehow different from his calculations; they feared being ripped by the newsletter evaluator.
Hulbert’s research spoke volumes for the quality, or lack thereof, of newsletters, but also was a crucible for portfolio management. Hulbert’s database, effectively, stops being updated this month, with the end of the newsletter, which is a loss for all investors.
In hindsight, there were issues that may make it surprising that the Digest lasted so long.
I can’t say how many people, over the years, told me they had subscribed to Hulbert Financial Digest for a time, only to find a newsletter or two that really clicked with them. Having found a guru or multiple money managers they were comfortable with, the investors no longer needed Hulbert’s guidance in shopping for a newsletter.
‘You don’t need decades of research to know that you can’t take all performance claims at face value.’ Mark Hulbert
Just as important, however, was the lesson that Hulbert’s research was teaching them, namely that it’s a folly to try to find someone who can beat the market over the long haul, because few people can do it, and those that do can attribute their good fortune mostly to luck.
If they followed that advice, subscribers would give up the search, and the newsletter too.
Either way, Hulbert acknowledged that while many people were glad his service existed, not enough were willing to subscribe, leading to the decision to discontinue the newsletter. Hulbert is staying on as a MarketWatch columnist.
«The most important lesson [of the 36 years running the newsletter] is just how difficult it is to beat the market,» Hulbert said this week during an appearance on «MoneyLife with Chuck Jaffe.» He recalled a speech given when the newsletter was in its infancy, in which he told the audience: «If we get together in 30 years and compare how we did starting then until 30 years hence, we’ll find that almost all of you would do better if you put all your money in Vanguard’s Index 500 Fund VFINX, -0.07% and did nothing else for the next 30 years.»
«It turns out,» Hulbert deadpanned, «I was being too optimistic. Hardly anyone has beaten the market over that period of time, and it’s not just true of newsletters; it’s true of hedge funds , it’s true of mutual funds, money managers and so forth.
«It’s even more depressing than that,» he added, «because even if you took the very select group that has beaten the market and looked at them alone going forward, you would find that most of them fail to beat the market [in the future].»
Most of the short-term gains posted by a manager, a portfolio or a strategy, Hulbert said, can be attributed to luck. And even if you find someone who beats the market, their edge, said Hulbert, is likely to be so narrow that it’s hardly worth the effort.
«Mark may have hastened the newsletter’s demise because, essentially, he preached that you should not buy newsletters and should just stick with index funds instead,» said John Buckingham, editor of The Prudent Speculator, a newsletter that ranked atop Hulbert’s charts. «But we also learned a lot about newsletters and money management from Mark, and while the Digest is gone, we have Hulbert-isms to help the average Joe not be separated from his money.»
The problem is that the end of the newsletter is likely to make it more likely that investors face operations trying to fleece them, cads and scoundrels claiming to have called every market upturn and downturn for years.
Hulbert acknowledged that bad actors still managed to find victims, even when they were in the Digest’s crosshairs, noting the «ingenuity of advertising and marketing personnel to wriggle out from … an absolutely damning track record.»
«I haven’t really put bad advertising out of business, much as I would have hoped to do so,» he said.
No, but he was a sheriff in the wild west of newsletters, and now that town is lawless again.
There’s no one on the horizon to step up and fill the void; there have been no buyers to keep the Digest or its database going. There is no hero ready to step in and wear the badge.
That means investors need to keep Hulbert’s work in mind; if they can’t rely on him, they need to verify performance claims before trusting them.
«You don’t need decades of research to know that you can’t take all performance claims at face value,» Hulbert said.
No, but investors need every possible reminder of that lesson, and now they are down one key reminder and resource for determining what performance claims are too good to be true.