Article by Investment U
On the way out of Barnes & Noble the other day, I noticed Harry Dent’s book, The Great Depression Ahead, sitting on the remainder pile. It was fetching $4.95 a copy in hardback if, indeed, anyone was buying it at all.
With less than auspicious timing, Dent – a self-styled “economic futurist” – brought the book out in January 2009, just three months before the current bull market began. The S&P 500 has doubled since then. Yet Dent warned readers away from stocks and favored cash and money markets instead.
Of course, anyone can make a bad call. But then, rarely has anyone gone so wrong so often – or made so much doing it.
Earlier this month, however, the Dent Tactical ETF (Nasdaq: DENT) – the brainchild of Dent – announced it’s shutting down. It had $20 million in assets in May 2011, but today is has roughly a quarter of that.
Dent made out okay, though. The fund charged an annual management fee of 1.65%, far more than most ETFs, which are designed to be cost-effective.
Putting a DENT in Shareholders’ Portfolios
The poor performance must be particularly hard for shareholders to swallow since the prospectus granted the fund near total flexibility. It could invest in domestic or foreign stocks or bonds or cash at any time. Yet instead it put a DENT in shareholders’ portfolios.
I draw special attention to this investment approach because it’s the polar opposite of our own. We regularly remind Investment U readers that no one can accurately and regularly predict economic growth, business cycles, interest rates, currency values, commodity prices, or the near-term direction of the stock market. So long-term investors should quit guessing and, instead, asset allocate and rebalance. Short-term traders should seek to identify individual companies that are likely to beat near-term earnings forecasts. That’s the primary driver of short-term stock movements.
Our approach has something to recommend it: It works. Dent’s approach? Well, you be the judge.
In 1999, near the tail end of the longest and most powerful bull market in U.S. history, Dent brought out his book The Roaring 2000s Investor, confidently predicting that the Dow would hit 44,000 by 2008. He was off by 35,000 points.
He also argued forcefully at the time for Nasdaq stocks – the worst investment you could make in the New Era bubble – and predicted, “the technology revolution will favor internet-oriented companies.” Within three years, the Nasdaq lost three quarters of its value and the leading index of internet stocks plummeted 89%.
Ouch.
In retrospect, it’s obvious just how wrong Dent was. But during the tech-stock mania, plenty of brokers and investors agreed with him. He sold thousands of books and raked in big bucks as an advisor to top Wall Street firms, including Morgan Stanley.
“The Next Great Bubble Boom”
Five years later, using his same “demographic trends theory,” Dent published The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2006-2010.
Well, no. That period encapsulated a full-blown financial crisis and the biggest stock market bust since the Great Depression. In the book, he argued again that the Dow would hit 40,000, this time by 2009. The benchmark plummeted to less than 6,500 in the spring of that year instead.
With a track record like this, you might imagine Mr. Dent would get out of the economic prognostication game and think about flipping pancakes or running a daycare center. But no, near the market bottom three and a half years ago, he unleashed The Great Depression Ahead.
Within weeks of the book’s publication, the financial crisis began to ebb, the economy moved out of recession and the Dow began one of its most powerful rallies of the last 100 years. Corporate profits – and profit margins – hit an all-time record. Three years later, the S&P 500, with dividends reinvested, had doubled.
Bloodied but unbowed, Dent next published The Great Crash Ahead. Since then, all the major indexes have surged higher than almost anyone expected – and remain in a primary uptrend.
You have to admire Dent’s pluck, if not his luck. Of course, if you make enough predictions, you can always point to some successes. But this is a man with a penchant for getting the big picture spectacularly wrong. And – giving hope and comfort to equity investors everywhere – he now says a stock market crash lies dead ahead.
As contrarian indicators go, it doesn’t get much better than this. So stay long stocks for now and keep an eye out for Dent’s next book. If he recommends getting fully invested, we may need to reconsider.
Good Investing,
Alex
Article by Investment U
