Mark Hulbert: The best vs. the worst

[HenryTo]

A must-read, IMHO. Doesn't bode well for tech stocks going forward. Does anyone subscriber to Hulbert Interactive on this board? Thanks.
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The best vs. the worst

By Mark Hulbert, MarketWatch
Last Update: 11:11 AM ET June 15, 2005


EDITOR'S NOTE: This is a free edition of exclusive commentary for subscribers of Hulbert Interactive. Through Friday, we are granting free access to all of our subscription products in a special Open House. Don't miss it!

ANNANDALE, Va. (MarketWatch) -- I have both good and bad news for investors who think now is the time to load up on technology stocks in anticipation of a summer rally.

The good news is that the 10 best newsletters for long-term performance are far more bullish than the 10 with the worst records. This bodes well for the market as a whole on the theory that the best performers are more likely to be right than the worst ones.

At the same time, however, these 10 best newsletters are decidedly cool on the technology sector. Even more ominously, stocks in this sector are at the top of the list of the 10 worst performers' most recommended.

To be sure, these contrasts between the best and worst performers won't last forever. The information I report here was current as of Tuesday evening, June 14.

But as a Hulbert Interactive user, a few clicks of your mouse are all you need to find out when and if this situation changes.

The steps I took to prepare for this column started with the "Advanced Screener" section of Hulbert Interactive. Using the tools available there, I customized a subset of newsletters containing the 10 with the best risk-adjusted performances over the last 10 years.

By next navigating over to the Asset Allocation tab, I discovered that, on average, these 10 top performers are currently recommending that subscribers allocate 72 percent of their portfolios to the U.S. equity market.

To place this 72 percent in perspective, I then went back into the Advanced Screener and changed my criteria so that my customized subset would now include just the 10 newsletters with the worst long-term performances.

On average, these 10 worst are recommending an exposure to the U.S. equity market of just 39 percent -- or barely more than half the average among the 10 best.

In other words, the best performers are almost twice as bullish as the worst performers.

Does this guarantee that the market will go up from here? Of course not. But my research into investment newsletter performances has shown that the top performers are more likely to be right.

Now let's turn our "at10tion" to the kind of stocks that these two groups of newsletters like the most. This information is provided in the Securities tab within Hulbert Interactive.

Consider first the three stocks that are tied for most popular among the 10 best performers. All three are blue chips, closer to being value than growth stocks, and thus are relatively conservative.

Ticker Stock
BAC Bank of America
JNJ Johnson & Johnson
MRK Merck

Contrast the issues on this list with those that are tied for most popular among the 10 worst performing newsletters. Now there is no blue chip in sight, and instead the list is dominated by the Internet and telecommunications industries.

Ticker Stock
CSCO Cisco Systems
NXTP Nextel Partners
QCOM QUALCOMM
YHOO Yahoo!

The contrast between these two lists puts technology investors in an uncomfortable position. They implicitly have to believe that, despite these advisers being among the very worst over the last decade, their advice all of a sudden is now going to be profitable.

That strikes me as an awfully hard sell.

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

[HenryTo]

Reid,

I would second that motion! Was running around too much earlier this morning to write more, but Mark Hulbert's writings are objective, concise, and easy to understand. The wealth of information that he has with his database of newsletter picks and pans are invaluable, IMHO. Also willing to be on the bull's side as well as on the bear's side.

Henry

[reidbrownfield]

Mark, Thanks for the free open house. I enjoyed all the different articles. I recommend that everyone here at Marketthoughts check it out at cbs marketwatch. Reid