The Prudent Bear Fund: Too One-Sided, Even in This Market

I just finished listening to David Tice, the manager of the Prudent Bear Fund, on CNBC. Immediately following that commentary I had a comment from a member which compared The Prudent Bear fund to The Investment Rate. Please do NOT confuse the logic here.

He manages a fund which bets entirely on the appreciation of precious metals and the decline in individual stocks. This has been the objective of his fund for 10 years. His fund has a negative return over that timeframe with an extreme level of volatility. Through thick and thin, his fund has operated with the same objective. Nothing has changed now, other than Market conditions, he just happens to be on the right side of the curve this time; over time his fund will experience significant losses again because the Market indeed goes up over long periods of time.

The Prudent Bear Fund is managed to take advantage of market declines, and although the fund has a negative return over 10 years, it will probably perform well over the next few years if the market declines as I expect.

However, that fund will only take advantage of ½ of the potential Market returns. BEARX fails to participate in the up-swings and that creates extreme levels of volatility and occasional severe losses in the fund. This is what separates the Prudent Bear Fund from the Investment Rate Model that we use every day.

David Tice was asked why he believes the market will decline. This man is bearish on all stocks, but he did not have a confident answer. I am extremely disappointed. He should understand why stocks are poised to decline over time, yet he referenced the near term noise in our economy. The rationale for continued decline extends far beyond today's news as the Investment Rate tells us. We all understand why because we have read the Investment Rate, and I hope Mr. Tice takes the time to do the same.

Everyone knows that I am an extreme Bear. I believe the market is going to decline by 50 to 75% over the next five years. However, to be completely one-sided as Mr. Tice seems to be is imprudent from an investor's standpoint. First of all, the prudent bear fund does not normally participate in up markets. The only reason the prudent bear fund did not decline considerably during the most recent bull market was due to the heavy exposure to precious metals, gold in particular. Notwithstanding, the Prudent Bear Fund would have been down considerably.

In addition to poor performance, BEARX is extremely volatile. The risk reward offered by the Prudent Bear Fund is simply not worth it. While the volatility of this fund is extreme, the returns don't keep pace with the market over time.

Although I am a long-term Bear, and although I am confident that the market will indeed decline significantly over time, I have a concrete foundation, The Investment Rate, to prove my point of view. Further, I realize that we cannot afford to be one sided, long or short, over the next five years.

Yes, the market will decline significantly over this period of time, but there will also be significant turns higher like the one we are experiencing right now. Arguably, shorts are going to make a lot more money than longs, but because we play both sides of the curve the volatility in our portfolios is far less than that of the Prudent Bear Fund, with a significantly higher net return.

Please do not confuse our strategic plan and the Investment Rate with the objective of the prudent bear fund. We are not in the business of Doom and Gloom; I am NOT one-sided. We are in the business of proactive trading, on both sides of the curve, and this will be our approach forever. This time, it just so happens that the trend will be lower over time, so these strategies appear similar.

Please don't be one-sided because you will experience severe levels of volatility too. But, at the same time, take steps to protect your wealth from the significant declines that lie ahead because indeed they are coming according to my Model.

Comments

[Ames Tiedeman]

Tice is a shorts, short. One sided yes, not such a great long term performance, yes. But one of these years he will make 90% again. The tick is picking the right year!

[Ames Tiedeman]

Oh, also he is a fellow Texan. Never bet against a Texan!

[User 230393]

I have followed Mr. Tice for years, and I agree, he's a permabear. It is very difficult to stand firm in one position when our Government and regulators change the rules at will and unpredictably. This author is spot on, flexibility is a requirement for long term positive growth. Stand still long enough and you'll eventually get run over.

[adan]

i both agree with your stance to be willing to be long or short, and retain a great deal of respect for mr tice and the integrity his puts with his money re his convictions - thanks

[User 231488]

Maybe it's time to take a different look. How does Mr Tice earn his money? It's in the fees he collects, so I understand his Prudent Bear Fund as a service to the investor, if an investor believes the market will decline, you can invest in his fund and Mr Tice will go short in stocks and long in precious metals if overall market valuations are high, or if valuations are low, to preserve the fund from deteriorating too much, he will be long in stocks. So if you think the market is bullish, you withdraw your money and choose a different fund for that time period, very simple. Mr Tice offers a very reliable and predictable course of action, so it's up to the investor to decide WHEN to use his services and WHEN NOT. You are not at the whim of a fund manager and whether the fund manager believes that the market will be bullish or bearish now, most managers missing the right time to change anyways. I don't see it as a fund I buy when young and be rich when I retire, it's a fund to use in bearish times