03/31/13 The Glass House

Hussman's latest:

http://www.hussmanfunds.com/wmc/wmc130401.htm

The relevant paragraph:

A word of caution – I chose the above set of criteria for expositional purposes, because it has the strength of identifying historical peaks prior to steep losses, but also because it has the weakness of often being frustratingly early. Several of the other syndromes we observe at present have typically had shorter lags, so it is probably dangerous to rely on the recent signals being early – particularly since some of these indications have been in place since March 2012. The more important point is that we see a strong likelihood of precipitous market losses over the completion of the present market cycle, but day-to-day market fluctuations are likely to discourage long-term discipline in favor of impatience and second-guessing of defensive evidence – keeping speculators in the market until a “good exit” is only available in hindsight.

If I had to pinpoint the reason for Hussman's marked underperformance over the past two years, it would be that he's been early. He will likely find redemption when the market gives back much of its gains over that period. What puzzles me is why he's adopted a defensive stance- why not sit in cash until the indexes begin to break down? As it is, any stock market plunge may simply take him back to breakeven! To the degree he's 'bet' on historical patterns, he's guilty of the same 'impatience and second-guessing' he denounces.