Is there a more reliable fade than Donald Luskin?
Exactly one year ago this week (May 4, 2012), Luskin exhorted WSJ readers to dump equities because The 2013 Fiscal Cliff Could Crush Stocks. “Do the math on dividend taxes” he advised, warning that dividend yields would be lower, and stock prices would be considerably lower — “maybe by 30%.”
Over the ensuing year, we have seen a torrent of dividend increases. This was both in anticipation of, and since the implementation, of the dividend tax rate going up.
And equities? Since May 2012, the S&P500 is up about 17%, while the Dow climbed 13%, tacking on over 1,500 points. Both indices are in record territory.
So much for a 30% collapse caused by rising dividend tax rates.
This is not the first time The Donald has been so completely and utterly wrong. In November 2007, he told us there were 11 Reasons to Buy Stocks Now. That was a month after the market peak, and the start of a nauseating 18 month slide in equities. If you followed Luskin’s advice, it took you 6 years to merely get back to break even. (He liked Citigroup then, which has since fallen 90%).
In a 2008 Washington Post column, Quit Doling Out That Bad-Economy Line, he explained how things were just peachy in the economy. Those fools warning about derivatives and subprime and the recession know nothings. It was — literally — the day before the collapse of Lehman, AIG, Fannie May et. al. He failed to see we were 10 months into a recession and in the midst of a 57% market collapse. Oh, well, C’est la vie.
If you suspect this guy is a money loser, just wait til you see his next call: In March 6 2009, in Even Worse Than the Great Depression, he said we were halfway through the Selloff. Hilariously wrong — the market hit bottom that very day, tagging 666 — launching into a 139% rally.
The next year (May 10th, 2010), Luskin advised readers to “become cautious” on Equities, while telling them “where I have my bets placed. Gold. Buy Gold.” Stocks Slide — It’s About Time. After rallying and collapsing, GLD is up about $20 since then (about 14%). The S&P500, flash crash and all, gained 43% — as the Spyders tacked on $50 since then.
Is it any wonder Luskin’s mutual fund closed after disastrous losses in 2001?
I suspect Luskin has fallen prey to a classic cognitive error — he has allowed his personal politics to influence his market analysis. He is mostly bullish when a Republican is in the White House and mostly bearish when a Democrat occupies that office. As I have shown in the Brain on Stocks presentation, allowing politics from either side of the partisan aisle to drive portfolios is a recipe for disaster.
These consistent forecasting errors makes me wonder if something else is at play; might it be the opposite at work? I wonder if its more accurate to hypothesize that his market analyses — and I use those terms loosely — work in the service of his politics? That makes much more sense, as I cannot imagine who would pay this stumblebum to manages their assets on a professional basis. If he is giving the same advice to clients that he gives to his readers, he won’t keep them very long. One simply cannot stay in business of asset management for very long with a track record like his.
Is it any wonder Money Magazine went under? If its readers followed Luskin’s advice, they could no longer afford the $5 need to buy a copy.
The lesson for investors is clear: Avoid those who are “ministers without portfolios.” Those commentators who are on the sidelines, not responsible for client assets — and don’t have to answer for their radical under-performance — may have priorities and agendas besides investing.
As an investor, your first priority should be managing risk and deploying capital — not pushing some ideological agenda. Keeping your own politics out of your investing — and avoiding those who fail to do the same — will do wonders for your returns.
The 2013 Fiscal Cliff Could Crush Stocks
Do the math on dividend taxes. Yields lower, stock prices lower—maybe by 30%.
WSJ, May 4, 2012
This piece is cross-posted from The Big Picture with permission.