If you would like to see your wealth float out the window, take the recommendations of Wall Street's superstars. Barron's features an annual article providing its readers the opportunity to get sage advice from some of Wall Street's most revered advisors at the Sohn Investment Conference held in Manhattan for the last 20 years. Barron's dutifully reported on the most recent proceedings in its May 9, 2016 issue.
My question: why should we care? Last year Barron's annual article carried the title: "Wall Street's Superstars Share Their Best Bets." Sure, it's my hang-up to be offended when a respected publication uses the term "bets" when dealing with investments. But then maybe that term is accurate when describing the stock or bond tips it gives.
So who are these superstars? They are leaders of are some of biggest and most prominent investment management firms, hedge funds, and mutual funds. The superstars in Barron's May 11, 2015 article represented seven firms with assets under management ranging from a low of about $8 billion to a high of about $80 billion. Some are the proverbial "household names" in the securities industry - such luminaries as David Einhorn, William Ackman, and Jeffrey Gundach.
Before we turn to the results from the past year, let's look back at the prior year and see how the 12 experts featured in the May 2014 issue did. The outcomes of their predictions were published for each of the 12, but no overall results were given. (It's left to us to do the embarrassing math.) The only comment Barron's offered on the prior year's performance was that "Humana and Anthem were the best pick from last year's gathering; shorting oil was a big winner, too." All well and good, as those three selections increased by an average of about 48% over the year while the S&P 500 index increased by about 12%. But cherry picking the three best selections does not tell us how the entire group of the 12 superstars performed.
The selections of the group as a whole returned an average of about 7%, while as just noted the S&P 500 Index returned about 12%. And the superstars' average includes the three highly successful selections just discussed. If we take out of the mix the two managers who suggested those three choices, the remaining 10 superstars best bets resulting in an average gain of just 1.5%.
So now let's roll forward to this most recent year. The markets were much tougher for investors, and the S&P 500 Index declined about 3% for the period from May 2015 to May 2016. And the superstars' best bets declined on average 19%. Barron's concluded that "last year's investment ideas left much to be desired." We cannot quarrel with that analysis. The results: in the first year the S&P 500 Index outperformed the superstars by 5%, and in the second year it outperformed by 16%. The experts have a lot of catching up to do.
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Leland Faust is a financial expert, author, speaker and triathlete. He is the founder of CSI Capital Management and served as Chief Investment Officer for 33 years, 1978 to 2011, and managed over 1.5 billion. He is one of only two investment advisors to be included in the list of 100 most powerful people in sports by the Sporting News. Barron's has named him four times to its annual list of top 100 independent investment advisors in the country. He is first book is scheduled to be released in fall, 2016. Follow Leland on twitter @LelandFaust and facebook.com/LelandFaust.