Guru Grades

Richard Band: Does the Skinflint Really Buy Cheap? (Last Updated 5/9/08)

As suggested by reader Greg Cudahy of Roswell GA, we evaluate here the market-related forecasts of Richard Band since late May 2002. Most of his predictions/recommendations come indirectly via MarketWatch columns, augmented by a few direct commentaries from The Money Show Digest. Mr. Band is editor of the Profitable Investing newsletter and author of the book Contrary Investing: The Insider's Guide to Buying Low and Selling High. He is a self-proclaimed "New Hampshire skinflint," presenting himself as "the newsletter world’s #1 authority on investing for low-risk growth." The table below extracts highlights from his commentary and shows the performance of the S&P 500 index over the 21, 63, 126 and 254 trading days after the publication date for each item. Red plus (minus) signs to the right of specific items indicate those that the market has subsequently proven right (wrong). We conclude that:

• Richard Band is mostly a long-term investor; hence we replace our usual 5-trading day test of his forecasts with a 6-month (126-trading day) test.
• He focuses on fundamental factors both for timing and stock selection. (Is it cheap?) His highlighted stock recommendations are generally large-capitalization, blue-chip companies.
• Based on subsequent stock market performance and our judgments about his forecasts for overall stock market direction, Richard Band's accuracy rate is about 40%, which is below average. His sample is small, as is our confidence in this conclusion.

Here are additional notes to augment the tabular summary:

From Peter Brimelow in MarketWatch (4/9/03): "His portfolios lost 22.1% on average over the past year through March 21, according to the Hulbert Financial Digest. But the Wilshire 5000 was down 24.0%. So Band beat the market. He also has beaten the stock market over the past five years..."

From Peter Brimelow in MarketWatch (11/27/06): "According to the Hulbert Financial Digest, [his] portfolios are up an average of 7.12% annualized over 10 years, slightly less than the dividend-reinvested...Wilshire 5000's 8.85% annualized gain."

From Peter Brimelow in MarketWatch (5/28/07): "Over the past 12 months, Profitable Investing is up 16.88% as monitored by the Hulbert Financial Digest, vs. 14.52% for the dividend-reinvested Dow Jones Wilshire 5000. Over the past three years, Profitable Investing has slightly underperformed the dividend-reinvested DJ Wilshire, 11.34% vs. 13.31% annualized. But it has done so while incurring about two-thirds of the risk."

From Mark Hulbert in MarketWatch (9/24/07): "Since [the beginning of 1991], ...his model portfolios have produced an average return of 9.3% annualized. Though that is below the 11.9% annualized return for the Dow Jones Wilshire 5000 index over this same period, Band's portfolios on average were 35% less risky than the overall stock market. On a risk-adjusted basis, Band's portfolios come out ahead of the stock market itself."

In summary, Richard Band is a below-average market timer and apparently achieves results more by holding for the long term than by successfully timing entry and exit points. Confidence in this conclusion is low.

Note that, in general, timing accuracy is less important for long-term investors than for short-term or intermediate-term traders. Over periods of years and decades, the secular uptrend of the market eventually dominates the effects of timing decisions.

See Guru Grades for a snapshot of the accuracy of various experts in predicting the direction of the U.S. stock market, including links to evaluations of the commentaries of other individual market pundits and gurus.