Guru Grades

Gary Shilling: A Dozen Reasons To Worry (Last Updated 12/13/08)

As suggested by reader Eric Tyson, we evaluate here the Forbes.com commentary of Gary Shilling regarding the broad U.S. stock market since the beginning of 2000. Gary Shilling is founder of A. Gary Shilling & Company, Inc., which uses a "top down" approach, "emphasizing the major themes, developed from our economic, financial, and political analysis, that will influence business and financial markets in the short and long runs. The themes are developed carefully, and we normally stick to them as they unfold, avoiding whipsawing our clients...by constant radical changes in our outlook." 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 subsequently proves right (wrong). We conclude that:

• Gary Shilling frequently addresses asset classes other than stocks, including Treasuries, housing and oil. This review focuses on his outlooks for the broad U.S. stock market.
• He sees the economic environment as largely "...a deflationary world of excess supply." This belief translates to a consistently favorable view of 30-year Treasury bonds.
• He is generally consistent in his views to an extent that defeats forecasting precision. For example, he has predicted the demise of housing and subprime lenders since 2002. See also below his early 2006 and early 2007 (and, from his web site, also 2008) forecasts that U.S. stocks would drop below 2002 lows.
• Though his column is approximately monthly, his forecasts tend toward the longer term. Unless otherwise indicated, we test his stock market forecasts primarily against results six months and one year hence. There are some fairly long periods during which he does not address U.S. stocks.
• Based on subsequent stock market performance and our judgments about his forecasts for overall stock market direction, Gary Shilling is right about 42% of the time, which is below average. The sample of his forecasts is small and unevenly distributed across a fairly long period, making confidence in this conclusion low.

In summary, Gary Shilling is below average with respect to timing U.S. stocks, consistent with an always-bearish outlook. Confidence in this conclusion is low.

Note that we use the Forbes.com magazine publication dates for the table entries, and they post-date their issues, meaning that Mr. Shilling actually prepares columns at least two weeks before the publication/entry date.

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.

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