The New York Times headline noted above said it all. Zweig published the successful investment newsletter “The Zweig Forecast” and served as chairman of Zweig-DiMenna Associates LLC, a New York investment firm. He also published two books, Winning on Wall Street and Winning with New IRAs. However, he was most famous for calling the Crash of 1987.
As a guest on Wall Street Week with Louis Rukeyser on Friday, October 16, 1987, Zweig declared that he was expecting a market crash, but had resisted saying so publicly, because it would be too similar to shouting “fire” in a crowded theater. As if on cue, the following Monday, the Dow Jones Industrial Average fell by 29.2%, an even bigger dive than the combined losses from Black Monday and Black Tuesday in October 1929.
Zweig’s uncanny proclamation propelled his career forward, making him the father of market timing. Why? Because we would all like to believe that calling the market simply involves applying Zweig’s statistical timing tools. However, the numbers tell a far different story.
The annualized return for the Zweig Fund from inception in October 1986 through January 31, 2013 was 6.79% calculated from net asset value and 5.84% based on NYSE closing share prices. (The latter figure reflects the difference between the fund’s reported net asset value and the market price of the shares in NYSE trading.) Not bad, but over this same time period, the annualized return was 9.84% for the S&P 500 Index and 7.90% for a static mix allocated 30% to the S&P 500 Index and 70% to the Barclays Aggregate Bond Index. A tilt toward small cap or value stocks within these indices over this period would have produced even higher returns.
Yes, Zweig made a few great predictions, but to beat the market you need to be right over and over again, year in and year out. Zweig’s story is just additional evidence that a passive investment approach trumps an active approach.