Making Monkeys Out of the Sohn Investing Gurus
Randomly selected stocks beat the picks made by last year’s Sohn Conference headliners
No animals were harmed in this financial experiment, but some human egos were bruised.
Burton Malkiel famously wrote in “A Random Walk Down Wall Street” that “a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by the experts.” A year ago the journalists at Heard on the Street decided to see if they could beat the crème de la crème—fund managers presenting their stock picks at the annual Sohn Conference in New York.
The results were brutal. Heard columnists, not monkeys, threw the darts at newspaper stock listings, but Mr. Malkiel would still approve. The columnists’ eight long and two short picks beat the pros’ selections by a stinging 27 percentage points in the year through April 22. Only 3 of 12 of the Sohn picks even outperformed the S&P 500.
Glen Kacher of Light Street Capital had the best pick among Sohn speakers with Palo Alto Networks . PANW 1.64% Li Ran of Half Sky Capital had the single worst one with Grubhub , but Jeffrey Gundlach of DoubleLine whiffed more in absolute terms. He recommended a pair trade—selling Facebook short while buying a fund of oil producers. They rose and fell, respectively.
The best of the dart-derived picks was a long on payroll processor Paychex , while the worst was Barrett Business Services , but we chalk our rare miss up to sweaty palms.
Masters of the universe and their fans might consider it unfair being measured by the raw performance of a handful of stocks for just one year. They have a point, but unfair to whom?
These days, even those in the right tax bracket to gain entry into a hedge fund run by the likes of David Einhorn might choose a low-cost index fund instead. The darts contest didn’t consider the hefty management and performance fees such stars command, but Warren Buffett did in a 10-year contest ending in 2017 that suggested even more strongly that active management is for chumps. Fund manager Ted Seides “invested” a notional sum in five hedge funds of his choice while Mr. Buffett chose an S&P 500 index fund. The Oracle of Omaha prevailed in nine years out of 10, racking up a return of 126% compared to just 36% for the funds after fees.
The good news for investors looking for a leg up is that there is no reason to pay $5,000 for a seat at Monday’s Sohn Conference—though of course the money goes to a good, charitable cause. The even better news is that Heard’s columnists will be throwing darts again this week and publishing the results for the $4.00 cover price of the newspaper—just 40 cents per pick. You even get the rest of the newspaper free.