Guru Grades

Steve Todd's Intermediate-Term Market Calls, A Forward Test (Last Updated 12/4/08)

At the suggestion of a reader, we began tracking on 5/4/06 the intermediate-term stock market outlooks of Steve Todd. Steve Todd is founder of the Todd Market Forecast, which states: "For the years 2003, 2004 and 2005, The Todd Market Forecast was rated # 1 for the preceding ten years [by Timer Digest]. For the year 2006, we slipped to # 3 and in 2007, we were ranked # 5." His short-term and intermediate-term stock market outlooks are available on a weekly basis at Decision Point. His outlooks are clear and binary, bullish (buy) or bearish (sell). Because Decision Point offers no historical archives, accumulation of recorded switches between these two outlooks is very slow. Since 5/4/06, he has changed his intermediate-term outlook 16 times. Before that, according to the May 2006 commentaries, he had not changed this outlook since April 2005. In reviewing these calls, we find that:

The following chart depicts the behavior of the S&P 500 index since the beginning of May 2006, identifying the points at which Steve Todd indicated buying (selling) opportunities based on switches from bearish to bullish (bullish to bearish) intermediate term outlooks. It is difficult to infer timing effectiveness from this visualization, but sell-to-buy intervals indicate some missed gains and buy-to-sell intervals indicate some realized losses.

For a closer look, we construct a simple transaction-by-transaction model of his changes in outlook.

The following table lists the dates on which Steve Todd switched his intermediate-term investment outlook, along with the closing level of the S&P 500 index on those dates. It also shows the returns he missed (sell-to-buy intervals) or realized (buy-to-sell intervals), with respect to the index, for each switch. Finally, it shows the cumulative value of a $1.00 initial investment traded in and out of the index according to his buy and sell recommendations, assuming return on cash while out of the market offsets trading costs/frictions.

Over the entire test period of 5/4/06-12/3/08, Steve Todd's outlooks suggest being in the stock market 69% of the time. The cumulative return from trading the S&P 500 index based on his intermediate-term calls is -57.6%. For comparison, an investor who bought and held the S&P 500 index over this same period has a return of -33.3%.

In summary, a trader using Steve Todd's intermediate-term stock market calls as made public via Decision Point since 5/4/06 would have underperformed the market substantially.

Steve Todd may be providing more timely advice to his subscribers than that he offers publicly on a weekly basis via Decision Point. Also, the test period may not be representative of his performance over the very long term.

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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