Unfortunately, just because someone is on TV every day talking about the stock market or happens to run a billion dollar hedge fund does not mean that he or she is any good at picking stocks. In fact, with recent picks like Valeant Pharmaceuticals (VRX), Kohl’s Corporation (KSS) and Micron (MU), Bill Ackman, Jim Cramer and David Einhorn are struggling just to keep up with the S&P 500.
Ackman Crushed by Valeant Pharmaceuticals (VRX)
In his Q1 letter to Pershing Square investors, Bill Ackman revealed just how bad things have gotten. Ackman’s stubborn bull thesis on VRX has been highly-publicized, but VRX wasn’t the only stock that dragged Ackman down in Q1. Pershing also had a large stake in Mondelez International (MDLZ) and a massive short position in Herbalife (HLF). MDLZ fell 5.8% in Q1 and HLF rose 12.8%. Yikes.
Of course, VRX was the big loser, plummeting 71.5% in Q1. When the dust finally settled on the quarter, Ackman followed up on 2015’s 20.5% loss with a staggering 25.6% Q1 loss. Perhaps even more troubling for investors, when fees are factored in, the fund has now generated only a 0.2% return since its inception in late 2012.
In that same time, the S&P 500 is up more than 45%.
Kohls (KSS) Not Kind To Cramer
Last April, Cramer published “Jim Cramer’s Picks—Here are 49 Stocks to Buy Right Now,” and retired finance professor David England put his money where Cramer’s mouth was. In fact, England invested $1,000 in each of Cramer’s 49 stock picks and tracked their performance. After six months, the S&P 500 was down 3.8%. But thanks to duds like KSS (-41.1%), Qorvo (QRVO) (-37.8%) and Cypress Semiconductor (CY) (-33.6%), Cramer’s 49 stocks averaged a 7% loss.
But before Cramer apologists point out that Cramer gives investment advice for more longer-term investors, researchers at the Wharton School recently went back and looked at the performance of Cramer’s Action Alerts PLUS portfolio since its inception in August of 2001. The researchers found that Cramer’s portfolio had delivered a total return of 64.5% versus the 70.0% return of the S&P 500 since the portfolio’s inception.
Micron (MU) Shrinking Einhorn’s Returns
Greenlight Capital’s David Einhorn owned up to his fund’s abysmal 20.2% loss in 2015 in his January letter to shareholders. Einhorn specifically mentioned his blown calls on MU, CONSOL Energy (CNX), Amazon.com (AMZN) and Netflix (NFLX).
“We were short the top two performing stocks in the S&P 500 (Netflix (NFLX) and Amazon (AMZN)). We were long two of the ten worst performing stocks in the S&P 500 (CNX and MU),” Einhorn sheepishly admitted.
Even with Greenlight’s reported $3.2 billion in 2015 losses, investors have a bit more cause for long-term optimism when it comes to Einhorn’s track record. Unlike Cramer and Ackman’s funds, Greenligth Capital has delivered major outperformance since its 1996 inception. In fact, 2015 was only the second year Greenlight has ever booked an annual loss in 20 years.
Regardless, investors can only have so much patience, and years of outperformance can be erased quickly if a manager suddenly turns cold. Just ask Bill Ackman.
Disclosure: As of this writing, Wayne Duggan was long CNX.
