Why the top market-timing newsletters are bullish on stocks

MARK HULBERT
Following our heads -- or our guts ...
Why the top market-timing newsletters are bullish on stocks
By Mark Hulbert, MarketWatch
Last Update: 12:01 AM ET Aug 1, 2007

ANNANDALE, Va. (MarketWatch) -- One of the most crucial functions that a good investment adviser can play for us is preventing us from reacting emotionally to the markets' turmoil.
Which is why a good adviser is critically important right now.
The stock market's plunge in the last week of July triggered numerous predictions that the bull market had come to an end. And though anything is possible, those predictions had all the markings of being made in the emotional heat of the moment.

That is a big danger sign, since emotions are usually a very poor guide to our investments. In a contest between our intellect and our emotions, the latter all too often trumps the former.
If indeed it is time to get out of the stock market, such a decision should be made after a sober and objective assessment of the data rather than an impulsive reaction.
So for this column I pursued a studiously unemotional approach to the question of what the markets are likely to do over the next several weeks. I turned, as I often do, to the newsletters with the best long-term market timing records (defined as the 10 services with the best risk-adjusted market timing returns over the last decade in the HFD's rankings).
These are the services that have done the best job of resisting the emotional urges to buy after markets have performed well, and to sell after they have plunged. That's a recipe for losing money, of course, which is why most advisers fail to beat a buy-and-hold approach over the long term.
I eliminated one of the 10 top performers because it is a purely mechanical model based on the calendar. Good performance notwithstanding, its current posture tells us little about the market's near-term prospects.
That leaves nine newsletters in this group of top timers. What follows is a brief synopsis of what each of them is currently saying about the stock market. (The newsletters are listed alphabetically.)

* Blue Chip Investor: Bullish. Editor Steven Check's valuation model, which had been neutral as recently as a month ago, is now back to being bullish. Check's model portfolio is around 80% invested in equities.
* Bob Brinker's Marketimer: Bullish. In his most recent issue, which was published before the market's late-July turmoil, editor Bob Brinker was bullish, writing that "we do not expect to see a cyclical bear market anytime soon." In a terse bulletin he sent to subscribers in the wake of the market's late-July plunge, he reiterated that stance, writing that "Marketimer regards the current stock market weakness as a short-term correction." His timing model continues to call for equity portfolios being fully invested.
* Chartist and Chartist Mutual Fund Timer. Bullish. Editor Dan Sullivan also provided little commentary when communicating to his subscribers in the wake of the late-July market plunge. He simply wrote "Despite the damage, our models remain in positive territory. Continue to maintain all current positions." Sullivan's model stock portfolio is around 90% invested currently, and his model mutual fund portfolio is close to 100% invested.
* Investors Guide to Closed-End Funds: Moderately Bullish. Editor Thomas Herzfeld's "U.S. Equity Funds" model portfolio is around 53% invested.
* Medical Technology Stock Letter: Bullish. It may seem odd that I've included a newsletter which is oriented more towards the medical technology and biotech sectors than to the overall market. But I included this letter, edited by John McCamant, for the simple reason that its track record says I should. A hypothetical portfolio that mimicked this newsletter's suggested stocks-versus-cash allocation to invest in the Dow Jones Wilshire 5000 index 14,755.40, +72.74, +0.5% ) and 90-day Treasury bills would have been one of the best performers over the past decade. McCamant's model portfolio currently is close to being fully invested, while his "Trader's" portfolio is aggressively bullish, with 200% invested and 100% on margin.
* No Load Fund Investor: Moderately bullish. Editor Mark Salzinger continues to maintain the equity allocation that has been his newsletter's recommendation for some time. His so-called "Wealth Builder" portfolio, his letter's most aggressive, currently allocates 70% to U.S. equities and another 15% to international stocks.
* Timer Digest: Bullish. Editor Jim Schmidt bases this newsletter's market timing model on a consensus of the top market timers. His consensus of the top 10 based on performance over the last 52 weeks is bullish, with six bulls and four bears. His consensus of the top 10 for performance over the last two years is also bullish, with 10 bulls and no bears. The newsletter's model portfolios currently are about 73% invested in stocks on average.
* Vantage Point: Bullish. Editor John Harris currently has situated his model portfolios to be 90% invested on average.

The bottom line? None of these top timers is bearish. And the average equity allocation among all nine is a very healthy 90%.
In fact, this average allocation is markedly higher than the comparable average a month ago, when I did a similar review in this column. Then the average stood at 79%.
With that happy contrast in mind, here is a list of mutual funds that are recommended by more than one of these top market-timing newsletters:

* Dodge & Cox International (DODFX : DODFX47.68, -0.30, -0.6% )
* Fairholme (FAIRX : FAIRX31.13, -0.15, -0.5% )
* Vanguard Primecap Core (VPCCX : VPCCX13.45, +0.04, +0.3% )
* Vanguard Short-Term Investment (VFSTX : VFSTX10.55, +0.01, +0.1% )
* Vanguard Total Stock Market Index (VTSMX : VTSMX35.33, +0.21, +0.6% )

And here is a list of the stocks and exchange-traded funds that are recommended by more than one of these top market timing newsletters:

* DIAMONDS Trust (DIA : DIA133.41, +1.24, +0.9% )
* FedEx Corp. (FDX : FDX111.14, +0.40, +0.4% )
* iShares Mexico Free (EWW : EWW57.96, -0.83, -1.4% )
* Merck & Co. Inc. (MRK : MRK51.02, +1.37, +2.8% )
* SPDR S&P 500 ETF (SPY : SPY146.43, +0.71, +0.5% )
End of Story

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.