Top pundits' recommendations score less than 50%
Many investors affected by the latest bear markets have looked for a new stock-picking guru. But with funds now available that actively wager against these high-profile names, one advisory group has warned this could be a terrible plan, and almost as bad as following their advice in the first place.
The Inverse Cramer Tracker ETF, ticker code SJIM, which wagers against former hedge fund manager and star of CNBC's "Mad Money," Jim Cramer, was launched this month to a frenzy of interest. In late 2021, when Cathie Wood's ARK Innovation ETF was on its way to a 75% fall, another product wagering against it was introduced.
Both were conceptualized by Tuttle Capital Management's CEO and frequent financial commentator Matthew Tuttle. He recognizes that the popularity of his products is inversely related to their subjects’ reputations.
“Certainly, if we had done an inverse Cathie Wood fund when she was up a hundred and something percent (in 2020), there would have been less interest,” Tuttle said.
The best wager in the financial markets is reversion to the mean, which is why the brightest stars fall from grace in such dramatic ways. Yet, that should also serve as a warning given the potential for spectacular rebounds.
Instead of being something to purchase and hold, Tuttle advises using the fund as a "tactical trading vehicle" when such equities appear to be headed for a turnaround. SJIM, though, could have greater long-term promise.
The argument does have some merit. Between 2005 and 2012, CXO Advisory Group evaluated the accuracy of several pundits, with Cramer scoring only 46.8%. However, he edged out experts with institutional influence like former Goldman Sachs investment strategist Abby Joseph Cohen (35.1%) and fund manager Jeremy Grantham (44.2%) and finished almost neck-and-neck with New York Times writer James Stewart.
The CXO study demonstrates that those who provide recommendations might as well be choosing stocks at random, something true of even the greatest fund managers.
Is entrusting your money to an active manager like Wood worse than merely heeding the counsel of a guru from television or the internet in your own cheap brokerage account since it costs money in fees?
Tuttle thinks it is, hence his antagonistic products.