ALBERT HERTER

‘CLOUDY CRYSTAL BALLS,’ by Mark Hulbert at MarketWatch via fidelity.com. What various newsletter writers think is coming down the pike.

In Uncategorized on December 17, 2009 at 14:55

ANNANDALE, Va. (MarketWatch) — Confused about where the stock market is headed?

Welcome to the club. The investment advisory industry has an extraordinarily cloudy crystal ball too.

As one indication of that cloudiness, consider that there is today virtually no difference in the consensus stock market forecasts among the best stock market timers and among the worst. That is, the market timers who have successfully timed the market in the past are neither more bullish on balance than the worst timers, nor more bearish.

This suggests that investors may not want to bet all or nothing on the stock market going up or down over the coming months.

Consider the data in the accompanying table, which lists the average recommended equity exposures that currently exist among various groupings of market timing services tracked by the Hulbert Financial Digest.

Performance compared over this

many years through Nov. 30,

2009… Average equity exposure among

market timers that beat a buy-

and-hold Average equity exposure among

market timers that lagged a buy-

and-hold

5 years 65% 63%

10 years 63% 59%

15 years 67% 56%

20 years 63% 72%

Average of above four time periods 65% 63%

Notice that there is a difference of just two percentage points between the average recommended exposures of the market beaters and market laggards.

Notice also that, when performance is judged over the longest period in the table (20 years), the worst performers on balance are actually more bullish than the best performers. Statistically speaking, beating the market over a longer period of time is more meaningful than beating it over a shorter period.

For both reasons, I judge there to be no difference in the consensus forecasts of the market-beating and market-lagging advisers.

When I last devoted a column to contrasting the market forecasts of the best and worst timers, in early November, I interpreted the situation to be slightly bullish. Over no time period surveyed then were the market-lagging timers more bullish than the market-beating timers. And, averaging across all four time periods, the market beaters were six percentage points more bullish than the market laggards. (Read my Nov. 11 column.)

So the slightly bullish picture that the contrast between best and worst was painting six weeks ago has faded to one that is almost completely cloudy.

This doesn’t mean that the stock market itself must go nowhere, needless to say. But it does mean that, if the market does rise or fall markedly from here, it will have been predicted by just as many losers as winners.

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