Guru Grades

Bernie Schaeffer: The Schaeffer's Edge? (Last Updated 2/26/10)

As suggested by a reader, we evaluate here the stock market commentary since late 2000 of Bernie Schaeffer, Chairman of Schaeffer's Investment Research and Senior Editor of "Bernie Schaeffer's Option Advisor," via Business Week, MarketWatch.com, TheStreet.com and SchaeffersResearch.com. According to the latter, "Mr. Schaeffer is widely recognized as an expert on equity and index options, investor sentiment and market timing." The table below extracts those highlights from his commentary most indicative of the direction of the overall stock market 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 the market subsequently proves right (wrong). We conclude that:

• Bernie Schaeffer uses a combination of fundamental, technical and sentiment analysis to make judgments about future stock market direction.
• Mr. Schaeffer is a prolific market commentator, but his archive at SchaeffersResearch.com extends back only a few months. Coverage of his forecasts in the business media has some large gaps.
• His predictions for 2002-2007 yearly closes of the Dow Jones Industrial Average, as reported by Business Week, are off by a fairly large 16% average (see chart below).
• Based on subsequent stock market performance and our judgments about his forecasts for overall stock market direction, Bernie Schaeffer's overall stock market forecasting accuracy rate is about 46%, which is slightly below average. His forecast sample size is modest, as is our confidence in this conclusion.

Here are additional notes to augment the tabular summary:

From Peter Brimelow in MarketWatch (12/24/09): "...puzzling is the survival of letters like...Bernie Schaeffer's Option Advisor (down 12.17% over 10 years).... [Down 33.1% in 2009.]"

In his MarketWatch.com column of 12/23/07, Peter Brimelow records that "Bernie Schaeffer's Option Advisor" is among the ten worst performing newsletter portfolios for 2007, down 18.4% through 11/30/07.

From Chuck Jaffe in MarketWatch.com (4/1/05): "...Hulbert Financial Digest...has Schaeffer's Option Advisor as one of its worst performers. But Schaeffer Investment Research and Hulbert have long squabbled over methodology, which leaves an investor squarely in the middle trying to figure out whose numbers to trust."

From Aaron Task in TheStreet.com (12/30/03): "He's Timer Digest's No. 1 market-timer over the past three years and No. 5 for the past 10 years."

In his MarketWatch.com column of 12/13/02, Peter Brimelow records that "Bernie Schaeffer's Option Advisor" is the 5th best performing newsletter portfolio over the previous 12 months.

The following chart summarizes the accuracy of Bernie Schaeffer's Business Week forecasts for yearly 2002-2007 closes of the Dow Jones Industrial Average. His forecasts are substantially too low for each of 2003-2006 and moderately too high for 2002 and 2007. In fact, he has the worst recent stock market forecasting record of any of the experts in Business Week's annual survey.

In summary, Bernie Schaeffer's forecasting accuracy is slightly below average. Confidence in this conclusion is modest.

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.