John Hussman talks about the performance of his funds, and the thinking behind the management activities. Reading through some of SO’s investment and money management books, there is a lot of talk about pullback and how much each individual investor is prepared to accept for what risk and returns. What is a good number? 5%? 20%?

It was interesting to see some discussion about pullback in this article. Hussman says “the Strategic Growth Fund has strongly outperformed the major indices since 2000 without experiencing even a 7% pullback, and it remains less than 2% from a fresh high. ” This is clearly something to be proud of. This suggests a good conservative acceptable pullback percentage is around 7%.

Taxes – November is distributions time and many people are trying to fiddle with their mutual fund ownerships to avoid distributions and taxes. There is a note at the beginning of the article about distributions and taxes, basically advising investors that there aren’t many situations where avoiding distributions is a tax saving.

In the same article Hussman talks about low interest rates and subsequent financial history.

Historically, the most powerful market returns have emerged from conditions of high risk premiums and yields (depressed stock prices and valuations) in an environment where there is clear downward pressure on those risk premiums and yields. That’s why, for example, you’ll find historically that the best long-term stock market returns have followed periods of high interest rates, not low ones. … Accordingly (but counter to common intuition) you’ll also find historically that the poorest long-term stock market returns have followed periods of depressed interest rates.

This may have important long-term implications. “Everyone” seems to be advocating that the Fed reduce rates as a fix for the current financial problems, but “they” are not likely to be thinking longer term beyond sorting out the current mortgage and credit mess. Be careful what you wish for. You might get it.

Hussman feels obliged to reiterate the objective of the Strategic Growth Fund. Sounds like there has been carping from the sidelines as the fund isn’t living up to the (erroneous) expectations of critics. However, as I learn more, I like the sound of this. Hussman characterises the current financial situation as “overvalued, overbought, overbullish” so it is necessary to proceed with caution. Suggesting that folks with these unreasonable expectations take their money elsewhere… that’s pretty gutsy.

the Strategic Growth Fund is intended for investors with the objective of achieving long-term returns in the stock market, with added emphasis on defending capital. It is a growth fund, not a bear fund, nor a market-neutral fund, and as such is managed with the intention of achieving total returns in excess of the S&P 500 Index over the long-term, measured over the complete bull-bear market cycle. However, the Fund is not appropriate for investors with investment horizons encompassing less than a full cycle…
Fund’s primary objective, which is to be an effective, risk-managed vehicle for disciplined long-term saving and investment.

I’m here for the long term, and this sounds good to me.

Learn more…

Pump It Up – November 5, 2007