If you have received a recent email from Dent Research warning of a stock market crash in the second half of 2013, do not panic. Here is an independent review of Harry Dent’s predictions that takes an objective look at this popular financial prophet. (Dent’s latest book is “The Great Crash Ahead: Strategies for a World Turned Upside Down.”
The email claims that Dent has predicted “nearly every major economic trend over the past 30 years,” then names a few of the many trends that have occurred over the past three decades. The message goes on to say that the Dow will crash to 3,300 within the next seven months.
All of this dire warning is intended to prompt you to abandon the stock market if you hope to “restore your retirement plans.” It then directs you to listen to a personal message from Harry Dent if “you have any hope of retiring,” citing Dent’s “near-perfect track record of predicting economic events decades before they occur.”
Independent Review of Harry Dent’s Predictions By Financial Planner Jeff Voudrie
Sounds convincing. What are the facts?
1. Dent has been spectacularly wrong in the past.
Although his emails won’t tell you that. He predicted in 2006 that the Dow would hit 40,000 by 2010, along with a “great boom”” that would run from 2007 until early 2010. He then predicted a market correction after this explosion, which anyone could have done. Of course the market would simmer down after hitting 40,000, which it never approached. Dent was far from reality on these predictions.
2. On the other end of the spectrum.
Dent also predicted that the S&P 500 would fall 30-50% in 2012, when in fact it ended up 13.4% in 2012. This should give us caution when we ruminate over Dent’s latest prediction that the Dow will drop to 3,300 within the next half-year.
3. Dent has had two exchange-traded funds shut down in the past several years.
Both of these funds were based on the hallmarks of Dent’s research: broad trends in the global economy combined with extensive demographic analysis. The DENT Tactical ETF (DENT) was closed in August 2012 after falling 12.9% over the nearly three years of its existence, in contrast to the Vanguard Total Stock Index Fund (VTI), which rose 42.7% during that period . Comparable funds gained between 5 and 43% during that same period. A mutual fund known as the AIM Dent Demographic Trends merged with another mutual fund and hit $2 billion in assets before losing 80% of those. Dent said the fund did not take all of his advice and suffered for it.
4. While Dent has been praised as a very smart man, intelligence alone does not guarantee accurate predictions regarding the stock market.
Lots of smart people are wrong when they begin making predictions in this area, particularly in today’s volatile economic climate. Just because Dent has two New York Times bestsellers does not mean that he has been correct more often than any other pundit.
5. Dent draws on mounds of data based on past performance of the market in light of demographic trends.
There is certainly some merit for this approach, but the past is so limited in the history of stock markets that it can be very difficult to predict the future from it. The sample size is limited, and almost all other financial experts believe that other variables should take precedence over demographic data when making predictions about the market.
The conclusions to draw from this independent review of Harry Dent? Here are a few:
- Great research does not mean that you can beat the market. Any guru who claims to be smarter than the market should not be trusted, no matter how logical s/he sounds.
- In today’s market more than ever before in history, recent past performance does not indicate future performance. A fund can thrive for a time then plummet. Even Dent’s have.
- Charts and graphs can be found to say just about anything that you want them to. Dent has used them masterfully to draw correlations between economic performance and demographic trends. Do those two always feed each other? No, no matter how many graphs are packed into each book.
- Any time one man says the Dow will go below 4,000 in the next seven months while the bulk of the financial advisor world says it should be around 10,300, beware. If you want to put that much stock in one outlying voice, that is your right.
Take a look around at other independent reviews of Harry Dent before you buy all of his books and sell all of your stock. Most financial experts see Dent as more of a master marketer who makes outlandish predictions to gain publicity, rather than someone you should trust for solid financial advice.
“There are many private money managers and financial planners that rely on systematic processes and hard work day-in and day-out that have a track record of success in both up and down markets,” says Jeff Voudrie.
In this business it seems that those that can, do whereas those that can’t write newsletters.