Guru Grades

Richard Russell: Granddaddy of the Investment Newsletter Industry (Last Updated 3/18/10)

We evaluate here the stock market forecasts of Richard Russell, mostly since mid-2002. Evaluated predictions/recommendations come indirectly via MarketWatch columns, which have tracked his commentary closely in recent years. Richard Russell has since 1958 been editor-publisher of the Dow Theory Letters, which "cover the U.S. stock market, foreign markets, bonds, precious metals, commodities, economics -- plus Russell's widely-followed comments and observations and stock market philosophy." The table below presents 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:

• Richard Russell generally follows Dow Theory, as modified by a few critical indicators and his judgment.
• He was negative on stocks from 1999 until May 2007, expecting a bear market to drag on for years as penance for the Internet bubble. However, he identified some opportunities for speculators to exploit counter-trend rallies during that period. He was then briefly bullish through early 2008. This evaluation addresses the nuances of his commentary, as reported by MarketWatch, and not just one or two big market calls.
• Because Mr. Russell issues daily commentaries and sometimes changes his sentiment quickly , we include a 5-trading day test of his forecasts. However, we tune evaluations of specific comments to timeframes addressed, sensitive to the possibility that MarketWatch columns sometimes lag his forecasts. His comments are sometimes difficult to evaluate because of sweeping statements and multi-horizon components.
• One of his complex forecasts proved to be about equally right and wrong, so we evaluated it "0" and graded him both right and wrong.
• Based on subsequent stock market performance and our judgments about his forecasts for overall stock market direction, Richard Russell's accuracy rate is about 42%, which is below average. His forecast sample size is moderate, as is our confidence in this conclusion.

Here are additional notes to augment the tabular summary:

From Peter Brimelow in MarketWatch (8/6/07): "According to the Hulbert Financial Digest, Russell is tied for top place as a market timer on a risk-adjusted basis since 1980."

From Peter Brimelow in MarketWatch (7/20/06): "Over the period since the Hulbert Financial Digest began, in mid-1980, Russell has been the top-performing market timer on a risk-adjusted basis."

From Peter Brimelow in MarketWatch (7/22/05): "Russell is the top market timer on a risk-adjusted basis of all letters followed by the Hulbert Financial Digest since mid-1980. The last twelve months have been relatively difficult for Russell. A portfolio based on his timing gained only 1% through the end of June, vs. over 21% for the dividend-reinvested Wilshire 5000 Index. But the HFD takes no account of Russell's helpful hints -- And over the last three years ending in June, Russell's timing produced a 1.5% annualized gain, vs. a 0.8% gain for the Wilshire. Over the last five years, he gained at a 1.3% annualized rate, vs. a loss of 1% a year for the Wilshire." [Note that this assessment assumes 100% cash as Mr. Russell's position over the prior five years.]

Our evaluation generally squares with Mr. Russell's contemporaneous measurement of performance from the Hulbert Financial Digest (HFD). Why might his long-term HFD rating be so much more positive than our evaluation here? Possibilities are: (1) Mr. Russell was very lucky years ago, but his luck ran out; (2) Mr. Russell's timing approach used to work, but does not anymore; and, (3) differences in evaluation methodology regarding commentary nuance and penalties for off-target predictions make our grading tougher.

In summary, Richard Russell is below average in predicting stock market behavior. Confidence in this conclusion is moderate.

See our blog entry of 11/4/05 for a carefully analytic reconsideration of Dow Theory as a momentum timing strategy by Stephen Brown, William Goetzmann and Alok Kumar.

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. For methodologies comparable to Mr. Russell's, see especially Richard Moroney and Jack Schannep.