Swedroe: ‘Gurus’ Without A Clue

July 31, 2015

Investors who shorted these stocks based on Faber’s recommendation would have experienced even larger losses, because the 18 percent average return figure doesn’t include transaction costs (bid/offer spreads plus the borrowing fee required to short the stock). And while Faber’s forecast was for 2014, extending the period through July 17, 2015 would have resulted in a much higher average gain and much greater investor losses.

3. The best longs for 2014 are gold, gold shares and Vietnamese stocks. The table below shows how these investments actually performed.

12/19/2013 12/31/2014 Change (%) 7/17/2015
Gold $1,196.00 $1,206.00 1 $1,132.80
Market Vectors Gold Miners ETF (GDX) $20.18 $18.38 -9 $15.43
Market Vectors Vietnam ETF (VNM) $17.86 $19.22 8 $19.17
Average 0

In short, while Faber’s best bets for 2014 managed (on average) to break even, the S&P 500 (which Faber predicted would experience a sharp drop) provided double-digit returns.

A 30 Percent Drop?
We now turn to another of Faber’s gloom and doom forecasts. On June 25, 2013, Faber predicted a 30 percent drop in the stock market. “It still has considerable downside risk everywhere,” he told CNBC. Faber’s other advice? Buy more gold.

Well, 2013 turned out to be one of the best years for the market in a long time, with the S&P 500 returning more than 32 percent. From June 25 through year-end, the S&P 500 rose from 1,588 to 1,848, a price-only return of about 16 percent. On the other hand, gold actually fell from $1,233 to $1,204, a drop of roughly 2 percent. It’s hard to have been more wrong.

Our trusty videotape provides us with another dire warning, from February 2010. Faber, along with another CNBC favorite, Jim Rogers, predicted that a full-scale global shakedown was inevitable.

They warned: “The UK Pound is on the brink of a collapse which will herald a downturn worse than 2008/9; it could well happen within weeks, and the British government is powerless to prevent it. And this in turn will foreshadow a global economic winter that could come before the end of 2010 and make the last two years seem like a mild spring day.”

Of course we are still waiting for that economic winter. And the pound, which was trading at about $1.52 at the time, never collapsed. It’s now trading a bit higher, at about $1.56.

 

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