What-ever happened to the "guru" market predictors

 “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.” - Warren Buffett


The hallmark of the most famous prediction on market was made by the investor Roger Babson on September 5th, 1929, on the eve of the Great Crash.
“Sooner or later a crash is coming, and it may be terrific.” Babson said. Later that day the stock market declined by about 3%. This became known as the "Babson Break". The Wall Street Crash of 1929 and the Great Depression soon followed and, three years later, they bottomed nearly 80% below their peak. With a prediction like that, it’s not surprising that history has lionized Babson’s forecast. What has been forgotten is that Babson had been saying the same thing for years. And during those years - the last, glorious years of the Great Bull Market of the 1920s - Babson looked like (and probably was considered) an idiot.

Elaine Garzarelli was an obscure number-cruncher when, on October 12th, 1987, she predicted “an imminent collapse in the stock market.” That was just one week before October’s “Black Monday.” Suddenly, she became a media celebrity. And within a few years, she had turned her celebrity status into a fortune. By following her own advice? No. She became one of the highest-paid “gurus” in America, with a salary estimated between $1.5 and $2.0 million a year. And money poured into her newly-created mutual fund, reaching $700 million in less than a year. With a management fee of 3%, that’s $21 million smackeroos per year. Not bad - though the fee went to Shearson Lehman Brothers, her employer and the manager of the fund, rather than Garzarelli herself. In 1996, she started an investment newsletter that quickly grew to 82,000 subscribers. The business benefits of guru-status made plenty of money for Shearson and for Elaine Garzarelli - but what about her followers? By 1994, the mutual fund’s asset base was eroding as it continued to under-perform the market. The fund’s managers quietly folded it into another of their funds. Average return over the life of the fund: 4.7% per annum, vs. 5.8% for the S&P 500. Garzarelli’s first newsletter was closed down in 1997, the year after it was launched, in the midst of a well-publicized fall-out with her publisher. The publisher claimed the newsletter had lost about 30,000 subscribers and worried about her long-term ability to attract and retain subscribers. Garzarelli said only 15,000 subscribers had been lost and put some of the blame for that on her publisher, which she also said hadn’t marketed the newsletter properly. Her subsequent forays into fund management proved no more successful than her first. For example, the Forward Fund group hired her to manage its U.S. Equity fund in 2000. In the expectation that her name would bring investors flooding in, it was reincarnated as the Forward Garzarelli U.S. Equity Fund. When she took over its management, the fund had assets of $35 million. When it was recast as the Sierra Club Stock Fund three years later, sans Garzarelli, its asset base had declined to $20 million. Garzarelli has even admitted: “I’ve learned that market timing can ruin you,” she says. “If you’re holding too much cash when the market moves, you’re behind the eightball.” Nevertheless, twenty eight years after she first rocketed to the investing public’s attention, Elaine Garzarelli still maintains her guru/media celebrity status. She is just one of a long line of such celebrity gurus whose star no longer shines so brightly.

Remember Joe Granville? He was the darling of the media in the early 1980s - until, when the Dow was around 800 in 1982, he advised his followers to sell everything and short the market. Well, 1982 was the year the great bull market of the 1980s began. Nevertheless, Granville continued to urge people to short the market…all the way up to 1200. Granville was replaced by Robert Prechter who - unlike Granville - had predicted a bull market in the 1980s. But after the crash of 1987 Prechter declared the bull market finished and predicted that the Dow would plunge to 400 in the early 1990s. That’s like missing the side of a barn with a double-barreled shotgun. The dot.com boom of the 1990s produced another set of media “heroes,” most of whom disappeared from view soon after the NASDAQ began tanking in March 2000.

"I can't recall ever once having seen the name of a market timer on Forbes' annual list of the richest people in the world. If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it." - Peter Lynch
The point I am trying to make is, instead of worrying about what the market is going to do, over which both you and me has no control, to focus our attention on the things we can control, such as the amount of risk we’re willing to take, diversifying those risks as much as possible, keeping costs low and keeping tax efficiency high. In short, investing in an index fund.

That’s playing the winner’s game!


Full Disclaimer: I am not a financial planner. The views expressed in this post are all mine and they may or may not suit your needs. Please do you own due diligence. I do not make money on any of the products suggested in this post.

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