Hussman Weekly Market Comment: Chumps, Champs, and Bamboo

“The seed of a bamboo tree is planted, fertilized and watered. Nothing happens for the first year. There´s no sign of growth. Not even a hint. The same thing happens – or doesn´t happen – the second year. And then the third year. The tree is carefully watered and fertilized each year, but nothing shows. No growth. No anything. Then the bamboo tree suddenly sprouts and grows thirty feet in three months.”

 ― Zig Ziglar

This story is more than a quote about persistence – it’s actually a reasonable description of risk-managed investing. Over the years, I’ve observed that numerous simple risk-managed investment strategies have substantially outperformed the market over the complete market cycle – particularly those that accept market risk in proportion to the estimated return/risk profile associated with prevailing conditions at each point in time. What I may not have done sufficiently is to describe the profile of how that outperformance is typically achieved over the market cycle.