Hulbert Financial Digest Definition
The Hulbert Financial Digest was a newsletter that tracked the market performance of other investment newsletters (assuming a hypothetical investor followed each one to the letter). Interestingly, the long-term findings of this newsletter was that few investors will beat the return on the market by active investing. Most investors are better off investing in an index fund and holding it long term. Hubert stopped publishing the newsletter in 2016.
A Little More on What is Hulbert’s Financial Digest
Hubert rated over 125 separate newsletters on clarity of recommendation and risk-adjusted performance. He echoed the recommendation of other major investors (such as Warren Buffet) that active traders will not be able to beat the market in the long-run. He used the Wilshire 5000 index as a proxy for the market return. He did add that investors generally will not hold an index in a down market. Thus, the future potential returns are sacrificed by selling low and changing to alternative investment vehicles. So, many investors do better by following their financial newsletter recommendation (actively trading) because they will stick to it — even though statistically this is a poor choice in comparison to holding an index fund.
Hubert still publishes Hulbert Stock Newsletter Sentiment Index (HSNSI), which “reflects the average recommended stock market exposure among a subset of short-term market timers tracked”.
Imagine that you’re publishing an investment newsletter. How do you attract attention and get people excited enough to subscribe? You certainly don’t do that by recommending buying index funds and holding onto them.
References for Hulbert’s Financial Digest
Academic Research on Hulbert Financial Digest
The performance of investment newsletters, Jaffe, J. F., & Mahoney, J. M. (1999). The performance of investment newsletters. Journal of Financial Economics, 53(2), 289-307. This paper analyzes the recommendations of common stocks made by the investment newsletters followed by the Hulbert Financial Digest. The paper concludes that, taken as a whole, the securities that newsletters recommend do not outperform appropriate benchmarks. The paper shows that newsletters tend to recommend securities that have performed well in the recent past. Finally, it suggests that newsletters with poor past performance are more likely to go out of business.
Herding among investment newsletters: Theory and evidence, Graham, J. R. (1999). Herding among investment newsletters: Theory and evidence. The Journal of Finance, 54(1), 237-268. In this study, a model is developed which implies that if an analyst has high reputation or low ability, or if there is strong public information that is inconsistent with the analyst’s private information, she is likely to herd. The model is tested using data from analysts who publish investment newsletters. Using results from this test, the paper aims to show that a newsletter analyst is likely to herd on Value Line’s recommendation if her reputation is high, if her ability is low, or if signal correlation is high.
Market timing ability and volatility implied in investment newsletters’ asset allocation recommendations, Graham, J. R., & Harvey, C. R. (1996). Market timing ability and volatility implied in investment newsletters’ asset allocation recommendations. Journal of Financial Economics, 42(3), 397-421. This paper analyzes the advice contained in a sample of 237 investment strategies over the 1980-1992 period. Using this data, the paper shows that the newsletters offer unimpressive asset allocation advice.
Stock market efficiency withstands another challenge: Solving the” sell in May/buy after Halloween” puzzle, Maberly, E. D., & Pierce, R. M. (2004). Stock market efficiency withstands another challenge: Solving the” sell in May/buy after Halloween” puzzle. Econ Journal Watch, 1(1), 29. Examining the years 1970 to 1998, Bouman and Jacobsen (2002) document unusually high monthly returns during the November-April periods for both United States (U.S.) and foreign stock markets and label this phenomenon the Halloween effect. Re-examining Bouman and Jacobsen empirical results for the U.S. reveals that their results are driven by two outliers, the Crash of October 1987 and the collapse of the hedge fund Long-Term Capital Management in August 1998. This paper extends the research to the S&P 500 futures contract and find no evidence of an exploitable Halloween effect over the period April 1982-April 2003.
Dow Theory for the 21st Century, Schannep, J. (2008). Dow Theory for the 21st Century. Technical Indicators for Improving Your Investment Results, 4.
The performance of investment newsletters, Jaffe, J. F., & Mahoney, J. M. (1998). The performance of investment newsletters. This paper analyzes the recommendations of common stocks made by the investment newsletters followed by the Hulbert Financial Digest. The paper concludes that, taken as a whole, the securities that newsletters recommend do not outperform appropriate benchmarks. The paper shows that newsletters tend to recommend securities that have performed well in the recent past. Finally, it suggests that newsletters with poor past performance are more likely to go out of business.
Behavior and performance of investment newsletter analysts, Kumar, A., & Pons, V. (2002, November). Behavior and performance of investment newsletter analysts. In European Finance Association Annual Meeting, Berlin, materiały konferencyjne. This study analyzes the behavior and performance of 353 investment newsletters that make asset allocation recommendations during a period covering more than 21 years (June 1980 – November 2001).
Performance evaluation with transactions data: The stock selection of investment newsletters, Metrick, A. (1999). Performance evaluation with transactions data: The stock selection of investment newsletters. The Journal of Finance, 54(5), 1743-1775. This paper analyzes the equity-portfolio recommendations made by investment newsletters. database also allows for insights into the precision of performance evaluation. Using a measure of precision defined in the paper, a transactions-based approach yields a median improvement of 10 percent over a corresponding factor model. This compares favorably with the precision gained by adding factors to the CAPM.
Comparison of Three Investment Strategies for Financial Independence, Spaht, C., & Rubin, H. (2014). Comparison of Three Investment Strategies for Financial Independence. The Journal of Applied Business and Economics, 16(6), 44.
Examining an online investment research service: the motley fool, Giacomino, D., & Akers, M. (2011). Examining an online investment research service: the motley fool. Journal of Business and Economics Research. This article examines the performance of the investment services/advice provided by The Motley Fool (TMF) because of its notoriety. The paper uses investment publications, information posted on the company‟s website, and academic research for this analysis. Findings show that, despite the popularity of TMF, investors need to critically evaluate TMF financial recommendations.