Fading the Pros: When going against consensus is the right call


One of my very favorite things about the market is how it so often confounds most everyone, even the so called Pros. Indeed, these individuals, when they gather in herds, are often times quite fascinating to observe, as they are subject to the vagaries of emotion.

Here’s an excerpt from my recent Street.com column on the subject:

“A new group of investors has joined the ranks of the perennially wrong: the Barron’s Big Money Poll participants, whose latest Picks and Pans were published in the most recent issue of the magazine. This group of investment professionals, who respond to Barron’s twice-yearly poll, has proved to be a very good one to bet against.

In addition to the biannual poll results, Barron’s also prints the track record of the pros’ Picks and Pans, as compiled by Carpenter Analytical Services. The results are nothing short of astounding: The professional money managers turn out to be abysmal stock pickers. Their Pans consistently outperformed the Picks, often by a wide margin. The exception came in the early stage of the bear market, when the pros’ Picks lost less money than their Pans.

Overall, though, they lost plenty. In the fall 2000 survey, the pros’ 10 favorites lost 48.4%, vs. their nine Pans, which lost 70.6%. While that does indicate outperformance, losing nearly half your capital hardly confers bragging rights.

That’s a pretty dismal track record. Its even more amusing when the so-called experts venture far afield from whatever their expertise is in (an apparently, it ain’t stock picking).

Pro What?
(chart courtesy of Barron’s)


Who will win the presidential election in November?

George W. Bush 78%
John Kerry 22%

Which candidate would be better for…

…the stock market?

Bush 78%
John Kerry 13%

…the economy?

Bush 73%
John Kerry 17

What is the key issue for the 2004 presidential election?

Unemployment/EconomicStagnation 48%
U.S. Involvement in Iraq 23%
Terrorism/Homeland Security 17%
Taxes 9%

Here’s their views on political matters, via Barrons:

“Political pollsters, out in full force in this presidential-election year, must have missed the Big Money crowd. Our respondents overwhelmingly expect George W. Bush to be reelected in the fall, though lately his public approval rating seems to be slipping.

Only 22% of the managers think John Kerry will snatch the keys to the Oval Office, but the managers never expected the Massachusetts senator to have a shot at the job. Last fall more than 60% thought either Gen. Wesley Clark or Gov. Howard Dean would be the Democrats’ nominee.

The Big Money pros believe Bush would be better than Kerry for the stock market and the economy. The most important campaign issues, they say, are the economy, U.S. involvement in Iraq, terrorism-homeland security and taxes, in that order.”

That’s a prediction which should be keeping Karl Rove up late at night: This group of savants has been so consistently awful in their soothsaying, they have been a reliable contrary tell since Fall 2001.

If these same poll participants continue to remain as uncannily inaccurate as they have been for the past few years, we could very possibly see a new president sworn into the White House next year.

Just Resting
Getting ready for the bull’s next run
By Jack Willoughby
Barron’s, Monday, May 3, 2004

Big Money Report Card

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