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Newsletter Fails To See Bulls, Gets Trampled

October 23, 1995

This super year for mutual-fund investing has been a lousy one for Dan Sullivan and followers of his Chartist Mutual Fund Timer newsletter.

In yet another demonstration of the difficulty of accurately ``timing″ the stock market, Mr. Sullivan has recommended since April 1994 that investors hide from a coming bear market in the safety of money-market funds.

Rather than that big bad bear, though, recent months have seen a stunning bull market. Since the April 1994 ``sell″ signal, the stock funds tracked by Mr. Sullivan are up 29 percent on average, according to his most recent issue. The returns from money-market funds over that period? Only 7.4 percent.

``I’ve been in this business for 26 years, and I’ve never missed one like this before. It’s been miserable,″ Mr. Sullivan says. His proprietary ``trend-following″ model is supposed to get investors into the market for big moves. But this year, he says, ``it just never kicked in.″

The Chartist Mutual Fund Timer is the newer but more widely read of two letters run by Mr. Sullivan, a self-taught, 61-year-old, Seal Beach, Calif., investment adviser who once owned a liquor store. The original Chartist letter, which focuses on individual stocks and which has also lagged behind this year because of a hefty cash position, has been one of the top performers over both the past 10 and 15 years among newsletters tracked by the Hulbert Financial Digest, Alexandria, Va.

The Chartist Mutual Fund Timer has a far less impressive record _ largely because it has had fewer years of good calls to offset the recent underperformance. From 1989 through Aug. 31, investors who followed the Chartist Mutual Fund Timer’s advice would have done a tad worse than someone who bought and held a portfolio that mimicked the performance of the Wilshire 5000 index, according to Mark Hulbert of the Hulbert letter.

By contrast, at the time of the April 1994 sell signal, Mr. Hulbert says, ``they were well ahead of the market.″

Mr. Sullivan says he has lost out along with his subscribers, because he follows his own advice in the $240,000 personal mutual-fund portfolio whose holdings and performance he relates in the newsletter each month. A few issues ago, he calculated that he had missed out on about $39,000 in gains by spending the past 18 months in money funds.

Mr. Sullivan is suffering in another way. Subscribers are washing their hands of him. The circulation of the Chartist Mutual Fund Timer, which costs $100 a year, has tumbled to about 15,000 from 23,000 last November. Mr. Sullivan expects to be down to perhaps 9,000 within a few months, as many readers with expiring subscriptions don’t renew.

``We’re paid to be right,″ Mr. Sullivan says philosophically, ``and we’ve been wrong.″

Mr. Sullivan remains a firm believer in market timing. While a buy-and-hold approach looks great in bull markets, he noted in his most recent issue, ``It is in bear markets that market timing comes into its own.″

The recent drop in some hot technology stocks suggests that the bull run won’t last forever, he warned subscribers. The ``unraveling of the high techs could begin at anytime,″ he wrote, ``taking the rest of the market down with it.″

Meanwhile, Mr. Sullivan has done what you might expect. He has fiddled with his model, albeit just ``a little bit,″ he says. He says the new, improved version would have had subscribers in the stock market from Feb. 28 through July 21 of this year, a period when growth-stock funds gained 14 percent.

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