stephen
23-01-2007, 01:34 PM
http://thebusinessonline.com/djstory.aspx?djid=20070119000291
By Mark Hulbert
ANNANDALE, Va. (Dow Jones) -- The performance of the Closed-End Country Fund Report newsletter just keeps getting curiouser and curiouser.
As I have several times mentioned over the past 18 months, this newsletter has not been published since mid 2004, more than two-and-one-half years ago. But since James Libera, the newsletter's editor, did not formally kill the service, instead indicating that he might someday resume regular publication, the Hulbert Financial Digest has continued to track the newsletter's performance by keeping watch over the last-known sighting of its model portfolio.
And what a performance it has been.
Since that last-known sighting, the newsletter's model portfolio has gained a total of 139.2%, according to the Hulbert Financial Digest. The newsletter was not only one of the top performers for calendar 2006 (coming in fifth out of the nearly 200 newsletters the HFD tracks), it has now emerged as the top performer for the past five years.
If you prefer an alternate literary reference to "Alice in Wonderland," take fellow columnist Peter Brimelow's. He refers to Libera as the newsletter arena's El Cid, the Spanish crusader whose corpse, dressed in armor and lashed to his horse, won a battle by panicking the enemy.
Uncharitable observers might be quick to dismiss the performance of the Closed-End Country Fund Report as yet more evidence that the newsletter industry is not worth paying attention to, edited by a bunch of lunatic self-promoters. If a newsletter can go into a two-and-one-half year hibernation and still come out on top of the five-year rankings, doesn't that just go to show how weak the competition is from fellow newsletter editors?
No.
Try comparing the five-year return of the Closed-End Country Fund Report to those of mutual funds. According to the five-year ranking of several thousand mutual funds constructed by Morningstar, this newsletter's performance is better than all but 12 of them.
I think we as investors have to face squarely the many lessons to be drawn from this newsletter rather than try to wriggle out from under them.
One of the most profound of these lessons is that you don't always have to be doing something in your portfolio in order to make money. Indeed, I suspect, constant fine-tuning is done more for psychological reasons than rational investment reasons.
Consider the results of an exercise I periodically conduct for the several hundred newsletters I track: Compare their calendar-year results with how they would have performed had they undertaken no transactions that year - sticking with whatever they were recommending at the beginning of that year.
Believe it or not, in every year I have conducted this exercise, the average newsletter would have been better off doing nothing.
The past year was no exception. The average newsletter model portfolio in 2006 gained 11.35%, according to the HFD. If none of these model portfolios undertook any transaction in 2006, however, this average would have been 12.15%, or 80 basis points higher.
In terms of proportions, 53% of the newsletters would have done better by doing nothing.
Note carefully that the HFD's calculations don't take taxes into account; if they had been, this proportion would have been even more unfavorable to active management. If we assume that on an after-tax basis the average newsletter kept 8% of its pre-tax 11.35%, for example, then the percentage of newsletters that would have been better off doing nothing last year grows to 72%.
The implication of these results is hard to accept, but inescapable: The average transaction undertaken by newsletter editors lowers returns. You don't have to be a rocket scientist to draw the corollary: If the average transaction lowers returns, you ought to undertake as few of them as possible.
Once again to try to avoid the implication of such a conclusion for all of us; we're likely to dismiss the newsletter industry as unrepresentative
By Mark Hulbert
ANNANDALE, Va. (Dow Jones) -- The performance of the Closed-End Country Fund Report newsletter just keeps getting curiouser and curiouser.
As I have several times mentioned over the past 18 months, this newsletter has not been published since mid 2004, more than two-and-one-half years ago. But since James Libera, the newsletter's editor, did not formally kill the service, instead indicating that he might someday resume regular publication, the Hulbert Financial Digest has continued to track the newsletter's performance by keeping watch over the last-known sighting of its model portfolio.
And what a performance it has been.
Since that last-known sighting, the newsletter's model portfolio has gained a total of 139.2%, according to the Hulbert Financial Digest. The newsletter was not only one of the top performers for calendar 2006 (coming in fifth out of the nearly 200 newsletters the HFD tracks), it has now emerged as the top performer for the past five years.
If you prefer an alternate literary reference to "Alice in Wonderland," take fellow columnist Peter Brimelow's. He refers to Libera as the newsletter arena's El Cid, the Spanish crusader whose corpse, dressed in armor and lashed to his horse, won a battle by panicking the enemy.
Uncharitable observers might be quick to dismiss the performance of the Closed-End Country Fund Report as yet more evidence that the newsletter industry is not worth paying attention to, edited by a bunch of lunatic self-promoters. If a newsletter can go into a two-and-one-half year hibernation and still come out on top of the five-year rankings, doesn't that just go to show how weak the competition is from fellow newsletter editors?
No.
Try comparing the five-year return of the Closed-End Country Fund Report to those of mutual funds. According to the five-year ranking of several thousand mutual funds constructed by Morningstar, this newsletter's performance is better than all but 12 of them.
I think we as investors have to face squarely the many lessons to be drawn from this newsletter rather than try to wriggle out from under them.
One of the most profound of these lessons is that you don't always have to be doing something in your portfolio in order to make money. Indeed, I suspect, constant fine-tuning is done more for psychological reasons than rational investment reasons.
Consider the results of an exercise I periodically conduct for the several hundred newsletters I track: Compare their calendar-year results with how they would have performed had they undertaken no transactions that year - sticking with whatever they were recommending at the beginning of that year.
Believe it or not, in every year I have conducted this exercise, the average newsletter would have been better off doing nothing.
The past year was no exception. The average newsletter model portfolio in 2006 gained 11.35%, according to the HFD. If none of these model portfolios undertook any transaction in 2006, however, this average would have been 12.15%, or 80 basis points higher.
In terms of proportions, 53% of the newsletters would have done better by doing nothing.
Note carefully that the HFD's calculations don't take taxes into account; if they had been, this proportion would have been even more unfavorable to active management. If we assume that on an after-tax basis the average newsletter kept 8% of its pre-tax 11.35%, for example, then the percentage of newsletters that would have been better off doing nothing last year grows to 72%.
The implication of these results is hard to accept, but inescapable: The average transaction undertaken by newsletter editors lowers returns. You don't have to be a rocket scientist to draw the corollary: If the average transaction lowers returns, you ought to undertake as few of them as possible.
Once again to try to avoid the implication of such a conclusion for all of us; we're likely to dismiss the newsletter industry as unrepresentative