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Hussman Calls Out Buffett


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https://www.hussmanfunds.com/wmc/wmc170306.htm

Meanwhile, the valuation of the median component of the S&P 500 is already far beyond the median valuations observed at the peaks of 2000, 2007 and prior market cycles, while our estimate for 10-12 year returns on a conventional 60/30/10 mix of stocks, bonds, and T-bills fell to a record low last week, making this the most broadly overvalued moment in market history.

 

There is a quick, knee-jerk response floating around these days, which asserts that “stocks are still cheap relative to interest rates.” This argument is quite popular with investors who haven’t spent much time getting their hands dirty with historical data, satisfied to repeat verbal arguments they’ve heard elsewhere as a substitute for analysis. It’s even an argument we recently heard, almost inexplicably, from one investor we’ve regularly agreed with at market extremes over several decades (more on that below).

 

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Hussman isn't a dumb guy. I don't think he (nor anyone else) thought interest rates would stay this low for this long. Buffett is obviously a much better investor though.

 

Hindsight is 20/20 but Buffett isn't always right and Hussman isn't always wrong.

 

For what it's worth:

 

https://www.hussmanfunds.com/wmc/wmc070716.htm

 

 

http://www.marketwatch.com/story/buffett-says-subprime-crisis-not-a-big-threat-to-us-economy

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Buffett these days plays his role of optimist statesman. He doesn't say anymore whether stocks appear cheap or expensive. He's just really positive.... super long term. One would be guided by Buffett's actions rather than word. If he thought stocks were cheap he'd be buying left right and center. Instead he's been sitting for years on a giant pile of cash.

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stahleyp,

I like your balanced approach.

There is a lot to learn here. It may be useful to "learn" from others' "mistakes".

I have long term respect for both men and this gives rise to cognitive dissonance.

Mr. Hussman may have a point when he suspects that Mr Buffett does not want to cause a ripple as he is writing his last chapter.

Mr. Hussman uses a lot of technical/statistical verbiage that tends to over-simplify the complex nature of markets. However I find that a lot of his conclusions have a sound basis. Timing is a key issue though.

If you are a vocal bear and a doom and gloom predictor, you better be lucky or right fast. Otherwise, you may look like you're stepping out of line.

Then you look at the trend for AUM and realize that it must really feel lonely.

Even if you're right, markets can remain irrational for very long periods.

Mr Buffett is really a champion in terms of being ready if and when warranted. Like right now with a huge cash position and a long term outlook. I really admire that.

One has to balance keeping rational principles intact with an evolving environment with new facts or newly integrated known facts. Challenging.

This board has to do with facts but opinions also count (less).

Right now, if I would manage funds for people outside of my inner circle, I would close my fund and advise to buy Berkshire stock.

My last line would be from the Terminator: "I'll be back".

 

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Who gives a shit about the market. There are fewer than 500 companies worth holding; DCFs are going to be horribly wrong anyway as cos. blow through "free cash" with piss poor capital allocation that most don't model out because they know it's pretty much impossible.

 

Even if the core business generates strong returns on capital, the actual return on capital can be nothing-to-negative b/c of bad acquisitions, mistimed share repurchases and stupid expansion plans that we don't see in the immediate future. Free cash flow comes in... but how much comes out? How much of it are you going to see? Of the part you don't see, what's going to happen to it? Sure, the business may be great, but...

 

If you don't value excess cash on a company's books at dollar for dollar, it's philosophically inconsistent to value its free cash flow at dollar for dollar (exc. time value effects) unless management is intent on paying it all out or has an admirable track record of reinvestment.

 

Are the high multiples of the old blue chippers like KO, JNJ, MMM because the market is yield starved, or is it because the market understands that the shareholders are used to their dividends and that sort of shareholder culture acts as a natural check on management's ability to blow through shareholder capital? Or else the stock price gets slashed and nobody gets rich on their options?

 

Often, a DCF can be a ceiling for valuation that management detracts from, rather than being a sufficient valuation that encompasses the entity as a whole. In rarer circumstances, we can incredibly underestimate the value of companies by assuming the cash they generate will be distributed to us rather than reinvested at a rate in excess of a company's cost of capital. The DCF would be right, save for man's strange inability to fit the world into a spreadsheet.

 

Which companies have hidden compounding machines within them and which ones look like cash generating machines, but are actually cash dumpster fires?

 

Most companies are not worth owning. Very few are. Who cares about the market if your companies can do well?

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1. Lose money for investors every year.

2. Earn fees for yourself in the meantime.

3. Write a semi-intellectual blog post 'challenging' Warren Buffett for free attention. Make sure to include a lot of fancy graphs. Hopefully you can get on tv or your post is discussed on the internet.

4. Get more AUM from gullible investors. Go back to step 1.

 

Call 1-800-HUSSMAN! Get in there! Expense ratio is only 1.20% and if you had invested $100 in his bear fund ten years ago, just before the greatest crisis of the century, you'd still have over $58 for your retirement in 2017!

 

And yeah, it's really his phone number ..

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Mr. Hall, you are spot on.

 

But the world will keep on looking for complex problems. Here's what I find interesting about America - it tries to protect and talk up *everyone*. That's the capital markets. It may not be great for YOUR health, but without it, without all the horses in the race, who would watch the sport? You need everyone , even those who are, let's say politely, handicapped, to play their part. This truism probably applies to investment managers too. I think there was a Shakespeare quote, something about all the world's a stage...:)

 

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1. Lose money for investors every year.

2. Earn fees for yourself in the meantime.

3. Write a semi-intellectual blog post 'challenging' Warren Buffett for free attention. Make sure to include a lot of fancy graphs. Hopefully you can get on tv or your post is discussed on the internet.

4. Get more AUM from gullible investors. Go back to step 1.

 

Call 1-800-HUSSMAN! Get in there! Expense ratio is only 1.20% and if you had invested $100 in his bear fund ten years ago, just before the greatest crisis of the century, you'd still have over $58 for your retirement in 2017!

 

And yeah, it's really his phone number ..

 

+1!  $3.5M in advisory fees in the first six months of 2016 alone!  Now that's one hell of a cash flow machine...but nothing like the Chanos short machine.  Cheers!

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His AUM (Strategic Growth) is at $411 million for his main fund. In 2010 it was at about $6.2 billion. For perspective, in 2007, it was a little less than $3 billion.

 

His Strategic Total Return fund is actually fairly solid (though not great). Having only two down years over the past decade - 2013 (down a bit more than 8%) and 2015 (down about 1%).

 

For better or worse (so far, certainly worse for his investors and himself), he's held on this viewpoint. I do read his stuff from time to time.

 

Thanks, cigar.

 

writser,

 

That's not technically true. He's made money in 2007, 2009 and 2011. ;)

 

He's generating fees while his investors are poorer, no doubt.  He's felt the pain too (I can't say that about a lot of other managers) Late last year, he had over $30,000,000 of his own money in his fund. I would assume he had much more than that in previous years.

 

If Hussman shuts down the fund or becomes bullish - that is the ultimate sell signal. ;)

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Hey, I'm getting pretty cautious of markets and I think we have a fairly significant bubble in all asset classes.  But that doesn't mean a manager can continue to reap huge fees by underperforming for a decade...that's called welfare!  It's why an incentive-based fee structure makes far more sense. 

 

Hussman has been guilty of what many managers do...anchoring!  In the last decade, you're going to tell me he couldn't find 10 good ideas?  Our non-PDH assets (including cash, which there was alot of) did over 45% in 2016...even cash alone would have been flat...Hussman lost over 15%!  Calling out Buffett is probably not a good idea.

 

He may be right eventually, but so is a broken clock as the well-turned phrase states.  I have more respect for someone like Vito Maida at Patient Capital, who had like one losing year in 17+ years and cautiously out performs the markets by a small margin.  He's keeping his clients wealthy, rather than simply writing an interesting newsletter and reaping unearned fees. 

 

Hussman talks about his and Buffett's mutual admiration and respect for Ben Graham, yet what I have learned over the last 12 years (and I get awfully tired of) is reading gobs of data by very intelligent portfolio managers or analysts, and then watching them not act the way Graham would...find cheap stocks, buy them and ignore macroeconomic events.  Maybe stop writing such long diatribes of research and focus on finding ideas!

 

Often, smart people become too smart for themselves or their own good!  Cheers!

 

 

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Sanj,

 

I agree with you for the most part.

 

If the broken clock happens to be right again, though, he may have very well earned his fees. Admittedly, the chance of this happening is very, very, very small - but it could happen!

 

He was right in 2000, he was right in 2007 and he's been wrong (so far). What the future brings, I don't (and won't) ever know. I try not to dip my toe in the macro waters very much. Like I said, I admire a man who eats what he cooks though (even when the food isn't healthy).

 

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I would say that Mr. Hussman never came across as a greedy or dishonest individual.

You can affirm that he's been wrong but, at least, you can base your conclusion reviewing what he has repeatedly explained concerning his premises and reasoning.

True, he may suffer from anchoring bias (most of us do, don't we?) but, at least, he's been consistent. For (?gullible) investors still with him, at least they know that his process will not change 180 degrees because of a relatively peripheral reason ie a presidential election.

To outperform, you have to be different AND you have to be right. In 1969, Mr. Buffett felt that relevant opportunities had virtually disappeared, that he was no longer attuned to the market environment and that he did not want to play a game he did not understand anymore. Based on that, he liquidated his partnership. Wow! He was different, he was right and he had the timing right. That's why he's referred to an Oracle. I would submit though that Mr. Hussman's message here maybe was simply related to the fact that it may not be easy to liquidate BRK now (!), in the event that, deep inside, Mr. Buffett felt that markets are speculative now.

And yes, let's focus on finding ideas.

By the way, in a video presentation (around 3-4 years ago), Mr. Maida had shown a slide showing his returns with the effect of cash balance removed. He had explained that he usually kept a high cash balance and that caused his overall returns to come down. Perhaps the easy conclusion is to remain fully invested at all times? However, 1-this is retrospective analysis, 2-maybe the higher stock returns happened because of the high cash balance or the hedging and 3-a challenging aspect of investing is that it takes a VERY long time to define your performance. Secular forces sometimes have a way to change individual trajectories. 

 

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Secular forces sometimes have a way to change individual trajectories.

 

Incidentlaly, I'm not questioning Hussman's motives or ethics.  But if he had simply invested using Graham's methods, he would be up 200% or so in the last 10 years.  Even if markets fall 50%, he would still be far ahead of the dollar bills he is managing that are now worth 60 cents!

 

I think what defines a great manager is one that can adjust their approach to secular forces without betraying the underlying intellectual framework they subscribe to.  Buffett evolved and adapted after the Buffett partnerships. 

 

Anyone who didn't adjust to the internet and how that has affected what used to be competitive economic moats is liable to become obsolete.  Buffett hasn't turned his back on Graham, but is evolving again...at 89 years old he sees the writing on the wall. 

 

He did this when he stepped into Berkshire, then by buying entire businesses and not selling them, then into quality businesses with competitive advantages, and then recently capital-intensive businesses.  Moats are falling, while other moats are building.

 

Some may say that Hamblin-Watsa was guilty of something similar to Hussman's anchoring, but the argument doesn't apply.  Fairfax is a leveraged business where mistakes can have a significant impact on the company to underwrite insurance business.  Hussman has no such risk. 

 

Again, I reiterate that I'm not judging Hussman's integrity, but I think he could take a page from Francis' book and reduce his fees after such an abysmal performance.  Secular forces be damned!  Cheers! 

 

 

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Just looked on Bloomberg.  Since 2000 his fund is down 31% and his other fund is up 19% since the end of 2002. These are just disastrous results during what I would call an 'entire cycle of bull and bear market'.  His strategy is clearly not working.  He is probably a great intellectual, but a very bad money manager. 

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Given he has been having major down years during the market run up, he is clearly not *hedging*, his fund moves like it's a bear fund, not a market neutral fund.

 

His commentary on this is not honest in my opinion.  I often enjoy some data he shares, but it's bonkers how he manages his fund...

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Guest longinvestor

Secular forces sometimes have a way to change individual trajectories.

 

Incidentlaly, I'm not questioning Hussman's motives or ethics.  But if he had simply invested using Graham's methods, he would be up 200% or so in the last 10 years.  Even if markets fall 50%, he would still be far ahead of the dollar bills he is managing that are now worth 60 cents!

 

I think what defines a great manager is one that can adjust their approach to secular forces without betraying the underlying intellectual framework they subscribe to.  Buffett evolved and adapted after the Buffett partnerships. 

 

Anyone who didn't adjust to the internet and how that has affected what used to be competitive economic moats is liable to become obsolete.  Buffett hasn't turned his back on Graham, but is evolving again...at 89 years old he sees the writing on the wall. 

 

He did this when he stepped into Berkshire, then by buying entire businesses and not selling them, then into quality businesses with competitive advantages, and then recently capital-intensive businesses.  Moats are falling, while other moats are building.

 

Some may say that Hamblin-Watsa was guilty of something similar to Hussman's anchoring, but the argument doesn't apply.  Fairfax is a leveraged business where mistakes can have a significant impact on the company to underwrite insurance business.  Hussman has no such risk. 

 

Again, I reiterate that I'm not judging Hussman's integrity, but I think he could take a page from Francis' book and reduce his fees after such an abysmal performance.  Secular forces be damned!  Cheers!

 

We've a new script developing, lose money because of some clever sounding theory but shitty approach, then engage in name dropping Buffett or Graham and a legion of groupies will discuss it. Winters, Hussman and the next loser will do that. Ask the guys who've pulled billions from Hussman what they think. On yesterday's WSJ, they talk about the emergence of family practices where some 4 trillion dollars have moved to, pulling money from the hedge funds. Wtf cares what Hussman thinks.

 

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Thank you all for the discussion. Yes this is a great board.

I agree:

-Mr. Hussman's record has been poor over quite a long period.

-when one is wrong, it can become very hard to admit it without losing face.

-I agree (not as easy as it sounds) that one has to change conclusions with changing facts.

-investment is most fun bottom-up looking for opportunities.

However, it may be still to early to cast the final vote on him as:

-many respected value investors look awkward now.

-some could argue quite strongly that markets now are at least frothy.

If I would lose my mind (I have a feeling some here may politely and rapidly suggest that hypothesis), I would split my estate and probably a portion would be allocated to both Mr. Vaida and Mr. Chou.

Just like a business, I submit that one has to look for:

-competence (education and experience)

-passion

-integrity (and that includes intellectual integrity)

Bottom line though, if I would have to choose the best of a limited set of options, based on the third criteria, I prefer somebody who is wrong but gives you his rational underlying the conclusions versus another group who change (radically, with basically the same numerous underlying assumptions in place, just adding an inconsequential ingredient) their mind without a reasonable and rational explanation. Sorry.

We may have a chance to discuss this in another thread later on today.

 

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I didn't read the article (did a few CTRL+Fs though), but it appears he didn't talk about returns on capital at all? I see lots of articles writing about the market highs, but very few of them consider the fact that returns on capital are higher now than ever before. This of course justifies (at least somewhat) higher earnings ratios. Did he factor that in?

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1. Lose money for investors every year.

2. Earn fees for yourself in the meantime.

3. Write a semi-intellectual blog post 'challenging' Warren Buffett for free attention. Make sure to include a lot of fancy graphs. Hopefully you can get on tv or your post is discussed on the internet.

4. Get more AUM from gullible investors. Go back to step 1.

 

Call 1-800-HUSSMAN! Get in there! Expense ratio is only 1.20% and if you had invested $100 in his bear fund ten years ago, just before the greatest crisis of the century, you'd still have over $58 for your retirement in 2017!

 

And yeah, it's really his phone number ..

 

LOL! Nothing could've encapsulated the essence of that article as well as this post.

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Cynicism is cheap.

 

How many marketing hucksters share their reasoning like Hussman? Maintain intellectual consistency in face of redemptions?

 

How many marketing hucksters have earned a PhD and made meaningful contributions without renumeration?

 

http://fortune.com/2011/04/26/john-hussman-cracking-the-autism-code/

 

http://www.hussmanautism.org/

 

http://www.hussmanfoundation.org/

 

http://tunews.towson.edu/2013/11/07/hussman-stinars-among-those-honored-for-philanthropy/

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