Dorothy Mantooth Is A Saint!

Maybe this means nothing but I was very surprised that there was not a flurry of nasty comments either here or on the Seeking Alpha version of the post for my critical comments about the Hussman Strategic Growth Fund (HSGFX).

A couple of years ago when the market was puking down there were comments from people asking whether they should put all their money into the fund; Hussman was lauded as having the answer.

So everyone was afraid and he was revered, could do no wrong. Now the market is up a lot, fear has receded, no one has any need for the fund (there are some big assumptions there but bear with me) and the only question is whether the market will be up a lot in 2011 or an awful lot.

I'm not too interested in trying to game this but when a champion of bear market investing has no defenders, or very few defenders, it contributes to the argument for some sort of correction that is big enough to scare some people into doing the wrong trades. Part of the equation here is human behavior. It is a good bet that the next time the market goes down a lot that the Hussman fund will again shine and he will again be revered.

Funds like this one have a small place in a diversified portfolio but it is important to realize that they will probably lag a big bull market and hopefully be way ahead of a bear market decline; although there were many absolute return funds that did poorly during the worst of the financial crisis. Zooming out a little bit it is important to understand that stocks go up most of the time. Even in the last decade, yes the US market went down (not unprecedented) but there were many markets were up. Economies tend to prosper and grow, many public companies tend to prosper and grow subject to their respective cycles and this will continue to happen, it can continue to happen even if the US is a less compelling investment destination as I believe has been a long term theme for many years now.

Back in 2008 when people were wondering if they should put all their money into absolute return funds my answers tended to be along the lines of some exposure making sense but that what was going on was a combination of consequences of not having a objective trigger point for defensive action along with people finding out the hard way they had too much exposure to equities. I was also consistent in saying that anyone planning to shun some sort of normal equity exposure should plan to save a lot more money to compensate the opportunity cost of equity price appreciation.

Before taking drastic action, and whenever the next large equity decline comes people will consider sell equities low and staying out forever, it is crucial to understand the reasonable consequences and mitigate accordingly. There is nothing wrong with concluding stocks are not for you but if you are not well ahead of where you need to be when you make that decision then you must save more money--this is very simple to see and understand.