When I was a wee lad in ages past, on Saturdays, after my early morning paper route, yard chores, and catechism class, I was detailed by my parents to meet my ancient aunt at her "beauty parlor" to walk her home. If this sounds like Bill Bryson's lookback, "A Lost Continent: Travels in Small-Town America", you're spot on. Of all those Saturday morning happenings, my favorite event was waiting for Aunt Nelly while her hair was tortured into something resembling a "hair-do". This was because the parlor had all the Hollywood movie magazines including "True Confessions". Also I could sit down and cool out for the first time all day.
Later on I graduated to Esquire and later to Playboy and Village Voice, but True Confessions was my first exposure to "show and tell" in the media. True confessions were uncomfortable at catechism but far better at the beauty parlor awaiting Aunt Nelly.
John Hussman has been a regular read for me since the late 1990's, even before he started his mutual funds. I remmember him raging against the light of the DotCom boom which he saw, correctly, as an abomination. Not being an Evangelical by nature or indocrination, I had a hard time with Hussman then and now. But even though he was an adjunct economics professor at University of Michigan, and my sweet and loving wife was taught to throw a spiral pass at age 11 by Woody Hays of The Ohio State University, a coach and friend of her father, I've always enjoyed Hussman's rigorous investment analysis.
If you've been with me a while you know that I consider Hussman's HSGFX (Hussman Strategic Growth) to be a bear fund during bear markets and a money market fund during bull markets. This is because Hussman is generally fully hedged but never net short of stocks. He naturally started off small in 2000 at the start of the great small and mid cap US stock rally; so he could and did pick the good stuff to buy and shorted the Russell 2000 and SPX average stuff against the good stuff. Was that good timing or what?
Hussman did extremely well during the Nasdaq meltdown from 2000 to 2002 at least partly through the benefit of the mid and small cap renaissance. He also sensed the bottom in 2002 and lifted some of his short hedges to benefit from the great 2003 raging bull. Then he froze as the bond and stock mini-bear of 2004 hit, and he became cautious as he has been ever since. Most perma-bears didn't do as well as Hussman since they refused to lighten up shorts in 2002-2003. But even so, Hussman has greatly underperformed nearly all competent long funds since early 2004. All that said, for safety and determined prudence, I think that HSGFX is worth it.
7 year chart:
Hussman's mostly hedged position for the past four years hasn't worked ideally as designed. Good stocks trumped bad stocks during the bear market, but traditional fundamentals (book values, p/e ratios, balance sheet strengths) have not given that certain "ooomph" toward exalted expected returns since 2004.
4 year chart: 
As Hussman writes this week: http://www.hussman.net/wmc/wmc080114.htm "Since 12/31/03, the S&P 500 itself has only beat Treasury bills by about 4% annually (which is a very slim margin for a bull market period). That gap of about 4% represents the foregone returns that have resulted from hedging the Fund's holdings against market fluctuations since then. The S&P 500 would have to decline by a bit less than 14%, holding the Fund unchanged, for the Fund's total return to match that of the S&P 500 since the end of 2003. That said, our primary disappointment in recent years has not been hedging or overall investment strategy. For us, the difficulty has been in gaining enough traction from our stock selection to significantly outperform the indices we use to hedge, mostly during the past two years."
Let's be frank: since 2004 HSGFX has only slightly beat the Vanguard Prime Money Market Fund with its gain largely due to the short hedge finance interest rate return. So for seven years HSGFX is way ahead of the SPX total return (measured against Vanguard's SP 500 Admiral fund (VFIAX), but for the last four years it is substandard. So it works "over the cycle" from top to top, but mainly by reducing losses during the bear markets.
This is quite a reasonable approach, but how does it fit into a portfolio and for whom? Also, was Hussman just lucky that generic mid and small caps bloomed after 2000 as the tech crash unfolded? Can or could he do it again?
I think HSGFX works best for a retirement portfolio or for others who are rationally averse to downside volatility because they are within sight of retirement and can't weather a downside blowout. It will probably always beat a short term bond fund, and could bloom and boom during a bear market as values get appreciated and appreciate amidst the shorted carnage.
Another way is to supplement this fund with Hussman's HSTRX (Strategic Income Fund) which I have discussed recently. HSTRX is an income fund "on steroids", as it attempts to trade both TIPS and gold stocks to track or beat inflation while holding a low duration bond portfolio with a modest dividend rate.
This is definitely not a go-go package, but if we are headed into recession and/or worse, as Hussman and many other financial conservatives believe, it would very likely be a safe port in almost any storm.
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