NO Theories in Investment
Why Ira Sohn heavy hitters keep missing
Opinion: Those who talk about stocks the most gain the least
By Jonathan Burton, MarketWatch
The annual Ira Sohn Investment Conference, which raises money for kids with cancer, is a see-and-be-seen event for A-list hedge-fund managers and all things “B” – as in stocks to buy.
But beware of investment pros bearing gift-wrapped stock tips.
The Sohn conference offers a good example of why investors should avoid the herd. Sure, many stocks mentioned at the conference on Monday did well. Mortgage lenders Freddie Mac FMCC +6.28% , Fannie Mae FNMA +3.02% rose on favorable comments from Pershing Square-founder and Herbalife HLF +0.77% -foe Bill Ackman. Media company Liberty GlobalLBTYA +0.05% rallied after Philippe Laffont of Coatue Management said nice things about it.
But as they say in sports, the ball don’t lie. Market research firm Birinyi Associates issued a cautionary warning to investors glued to these hedge-fund oracles’ words of market wisdom.
A year ago, for instance, Jeff Gundlach of DoubleLine Capital recommended shorting Chipotle Mexican Grill CMG +0.50% . That bet would have lost 29% over the past 12 months as the stock rose. Meanwhile, investors who followed Kyle Bass of Hayman Capital into Dex Media DXM -1.29% would have lost 54%.
Last year’s stock picks , in aggregate, underperformed the S&P 500 SPX +0.19% by 19.1%, Birinyi noted. Moreover, only three of 10 recommendations beat the market. In the same vein, historically stocks deleted from the Dow Jones Industrial AverageDJIA +0.11% have far outperformed their replacements.
The problem is not that these hedge-fund managers are bereft of good ideas. It’s that the ideas they talk about are probably not their best. So listen to the Sohn speakers with eyes and ears open. If you want to be really bold, don’t do as they say –—do the opposite.
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