Guru Grades

John Mauldin's Thoughts (Last Updated 2/26/10)

As suggested by a reader, we evaluate here the weekly commentary of John Mauldin "Thoughts from the Frontline" via 2000wave.com since January 2001 (the earliest available). John Mauldin is president of Millennium Wave Investments and author of the book Bulls-Eye Investing, which "explain[s] to investors why we are in a secular bear market, and then show[s] them how to find absolute returns in a variety of funds and investments, including, but not limited to hedge funds." He claims 1,500,000 newsletter readers. The table below extracts highlights from his commentary and shows the performance of the S&P 500 index over the 5, 21, 63 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:

• John Mauldin has been mostly negative about the U.S. economy and U.S. equities since early 2001. He maintains that stocks are in the early part of a secular bear market, with lower lows to come with future recessions over the next decade.
• He addresses many economic issues and quotes others liberally in his long commentaries (so long that we sometimes resorted to key word searches to find mentions of stocks). He comments frequently on bonds, housing, gold and other markets.
• One of his multi-step forecasts proved to be about equally right and wrong, so we evaluate it "0" and grade it both right and wrong.
• Based on subsequent stock market performance and our judgments about the accuracy of John Mauldin's forecasts, his bottom-line advice about market direction was correct 42% of the time, below average. His forecast sample size is fairly large, as is our confidence in this conclusion.
• It is relatively difficult to assess the accuracy of Mr. Mauldin's market projections because of equivocation and because he often uses distant forecast horizons (which reduce effective sample size). Even while offering some short-term and intermediate-term forecasts, he occasionally denies the feasibility of forecasting stock market behavior over periods as short as a year.

In summary, John Mauldin's accuracy in forecasting stock market behavior is below average. Confidence in this conclusion is fairly high.

We infer, especially from his more recent commentaries, that John Mauldin would agree to evaluation of his forecasts only over very long periods, such as a decade. For example, in his 8/6/04 commentary, he states: "You cannot time the market on a year to year basis, at least I can't." Such a stance appears to represent avoidance of accountability with respect to the many comments in which he has provided an outlook for U.S. equities. To construct even a marginal sample (say 20-30) of independent observations each a decade long would take 200-300 years. No investor can hope to obtain out-of-sample confidence that such long-cycle views of a guru have validity.

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.