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John Buckingham’s Prudent Speculations?

| Last Updated: September 2, 2011 | Posted in: Individual Gurus

Guru Accuracy Rating
This is above average. Current guru average is 47%

As suggested by a reader, we evaluate here stock market forecasts of John Buckingham, Chief Investment Officer of Al Frank Asset Management, who emphasizes careful stock selection, broad diversification and a long investing horizon. He is editor of the Prudent Speculator and author of The Buckingham Report (as much promotional as informative). The few forecasts found, starting in May 2002, come directly from The Buckingham Report and indirectly from articles at Forbes.com, MarketWatch, TheStreet.com and CNNMoney.com. The table below quotes forecast highlights from the cited source and shows the performance of the S&P 500 Index over various numbers of trading days after the publication date for each item. Grading takes into account more detailed market behavior when appropriate. Red plus (minus) signs to the right of specific forecasts indicate those graded right (wrong) based on subsequent market behavior, while red zeros denote any complex forecasts graded both right and wrong. We conclude that:

  • Despite his general disavowal of market timing, John Buckingham occasionally makes comments about the overall U.S. stock market that translate to gradable forecasts.
  • He also occasionally comments on the outlooks for U.S. stock market sectors (most often housing). We do not include those comments here.
  • A unique indicator that he sometimes cites is the length of his buy list, with a long list suggesting that the overall market is undervalued.
  • John Buckingham’s forecast sample is too small for reliable inference about his accuracy.

Here are a few additional notes to augment the short tabular summary:

From Jonathan Burton in MarketWatch (9/2/11): “The Prudent Speculator returned 8.8% annualized for the decade through July 2010, compared to a 3.7% average gain for the Wilshire 5000 Total Market Index, according to the Hulbert Financial Digest… The Prudent Speculator’s one-year gain of 22.1% tops its benchmark’s 20.7% return.

From Peter Brimelow in MarketWatch (5/8/08): “Over the past 12 months according to the HFD, Prudent Speculator is down 12.8% vs. negative 4.9% for the dividend-reinvested Dow Jones Wilshire 5000. …Over the past three years, Prudent Speculator beat the market, gaining 10.1% annualized vs. 8.9% annualized for the total return DJ-Wilshire 5000. Over the past five years, the letter has achieved an even higher 23% annualized gain, vs. 11.8% annualized for the total return DJW. Since the HFD began following Prudent Speculator in 1980, the letter has achieved a 17.7% annualized gain, vs. 12.2% annualized for the total return DJ-Wilshire 5000.”

Mark Hulbert investigates in MarketWatch (8/23/06) timing an investment with the Prudent Speculator based on the size of the newsletter’s buy list, finding “a statistically significant relationship between the size of the newsletter’s buy list and its subsequent performance. That is, the newsletter performed significantly better following periods in which its buy list was particularly large.”

From Mark Hulbert in MarketWatch (12/19/02): “Consider the Prudent Speculator, edited by John Buckingham. It produced the highest raw return over the last 12 1/2 years of any newsletter the HFD monitors – 18 percent annualized, vs. 10 percent for the stock market as a whole. Once we dissect this newsletter’s stellar return into its up and down market components, however, we can see just how wild a roller coaster ride its subscribers have had to endure. During those months since May 31, 1990, in which the Wilshire 5000 rose, for example, the Prudent Speculator produced a stunning return of 119.5 percent annualized. Its grade for up-market performance is an-almost-perfect score of 98.3. But during those months in which the Wilshire declined, in contrast, the newsletter’s average portfolios produced an annualized loss of 58.4 percent. Its down-market grade is just 7.0.”

From Peter Brimelow in Forbes.com (11/28/01): “…you could have made more money than Frank [Prudent Speculator] over the last 21 years, without additional risk, by buying a stock index fund on margin.”

The latter two comments indicate that a straight index is an inappropriate benchmark for Prudent Speculator portfolios. They also suggest that the amount of margin carried in certain of these portfolios may be a good indication of John Buckingham’s outlook for the overall stock market, although margin interest rates are probably also a factor in margin level.

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.

    S&P 500 Index  
Date Comments re:  John Buckingham at Forbes.com, MarketWatch, CNN/Money, TheStreet.com and buckinghamreport.squarespace.com/issues/ 21-Day Return 63-Day Return 126-Day Return 254-Day Return  
9/2/11 …he’s holding more cash nowadays, between 4% and 7% of assets, to take advantage of any lower prices during what he expects will be a volatile and seasonally weak September-October stretch for stocks. -4.3% 6.0% 16.2% 22.0% +
5/28/09 …we never forget the timeless advice to be greedy when others are fearful and fearful when others are greedy. And with…most pros expecting a summer selloff, we believe that there is a big wall of worry for stocks to continue to climb. 1.3% 13.4% 22.0% 18.1% +
7/22/08 …there are more stocks worth buying today than his newsletter has seen in its 31-year history. “It’s a tremendous opportunity for most investors, but you need to have a strong stomach and a long time horizon.” -0.2% -22.8% -36.9% -23.3%
5/8/08 “Now is one of the best times to be buying U.S. stocks, and not just because our buy list is unusually long. The reason for this is that the stock market is forward-looking. By the time negative economic news actually shows up in the stats, stocks are likely to have already sold off. Works the other way, too, as markets tend to rally long before the data improves.” -1.9% -7.1% -27.6% -34.6%
11/30/07 …a terrific time for long-term-oriented investors to be adding to their equity portfolios. -2.3% -10.1% -6.4% -41.2%
9/25/07 “Still, stocks generally remain inexpensive…” -0.1% -2.2% -11.6% -20.0%
4/20/07 Buckingham…warned a short term correction could be due. “Historically, poor market breadth is a sign that the market is growing tired.” 2.7% 4.6% 3.8% -7.0%
9/18/06 “…unless demand for equities were to drop dramatically – and there is no reason to expect that to happen – simple economic forces point to stock prices rising in the not-too-distant future at a pace in excess of the historical norm of 10% to 12% per annum.” 3.2% 7.9% 6.8% 15.5% +
8/23/06 “…when our buy list becomes lengthy, it is likely a very good time for long-term oriented investors to be picking up undervalued stocks. And such is certainly the case today, with the number of purchase candidates standing at more than 180 as of this morning, close to an all-time high.” 1.7% 8.4% 12.2% 10.8% +
5/19/06 “It has been a long time since we had a 10% correction. So it wouldn’t surprise me if there were more selling.” -2.1% 2.4% 10.2% 19.0% +
10/3/05 “It would not surprise me, given that investors have itchy trigger fingers, that we see some downside activity in October. …”It would not surprise me, given that investors have itchy trigger fingers, that we see some downside activity in October.” -2.0% 1.8% 5.8% 10.3% +
3/31/05 …long-term-oriented investors should be taking advantage of the opportunities afforded by the recent sell-off. …it is time to strike! -3.2% 0.8% 2.9% 9.6%
12/18/03 “…continued low rates…are likely to provide excellent fuel to continue this year’s stock market rally into 2004.” 5.4% 1.9% 3.8% 11.1% +
8/15/03 …the major market averages will be higher at the end of the year than where they are today…we can’t help but be bullish today! 3.9% 6.8% 15.7% 10.2% +
10/15/02 Investors should be accumulating stocks now…a “decent” market in 2003 and 2004, with the Dow up to 9,000 as long as the war on terrorism doesn’t take a terrible turn. “…it’s a good return from here.” 0.1% 5.7% 1.1% 17.9% +
8/5/02 “Things bottomed out on July 23. A lot of investors have sobered up. The stock market should be in relatively decent shape for the next few years.” 7.0% 6.1% 3.1% 16.7% +
5/27/02 Prudent Speculator’s bullish tradition is so entrenched that Buckingham recently brushed off the current terrorist scare… -9.4% -12.4% -13.1% -10.3%

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