Plenty of Wall Street Journal readers felt like stock-market geniuses until recently.
Even after their recent tumble, shares of investor favorite Nvidia were up by a whopping 145% in the 12 months ended last week. But you didn’t have to make highly coveted AI chips to post triple-digit returns—you could have been selling sweaters and khakis. The best performer in Heard on the Street’s seventh annual stock-picking series was Gap with a total return of 119%, picked by retail industry-watcher Jinjoo Lee.
It was a bold call: Lee noted that the retailer’s shares, then in the dumps, had declined by 5.4% over the preceding 21 years. But, with a creative new leader at the helm, she said Gap’s discount was just too enticing to ignore.
Our columnists’ second-best pick was born out of skepticism instead of a leap of faith. Europe editor and automotive-industry follower Stephen Wilmot looked at the red-hot shares of Vietnamese EV maker VinFast and saw a crash coming. Though its share price had retreated somewhat by publication time last August, the company still was worth more than General Motors. His short bet on the stock returned 87%.
But what one pessimistic wager gave, another took away—and then some. SBB, a Swedish property company “hooked on the crack of cheap debt,” according to one critic, looked to columnist Carol Ryan like it was teetering. While the company is hardly back to its heyday, it has defied the pessimists. And its performance highlights a key difference between newspaper columnists touting stocks on paper and hedge-fund traders doing so in real life: The bet lost 104%, which would be stinging enough for almost any professional to have cut their losses before it got that bad.
Almost as tricky as picking short candidates, which can have theoretically unlimited downside, is trying to find a winner in the world of drug development. That is why professional healthcare investors spread their bets across multiple companies with a few big winners making up for duds. Heard’s columnists get only two picks and the team’s healthcare watcher, David Wainer, struck out on both of his stocks—a company developing a treatment for bladder cancer and another working on skin ailments. Both UroGen Pharma and MoonLake Immunotherapeutics lost 27% of their value.
That was hard to predict. An even bigger loser should have been a lot more obvious. Heard editor Spencer Jakab thought that beaten-down timeshare-seller Marriott Vacations Worldwide could get past high rates and consumers’ financial jitters with its new and improved business model. So far, so bad—it is getting harder to get their typically middle-class clientele to sign on the dotted line during one of those notorious 90-minute sales pitches, despite the usual freebies like discounted stays at a sunny resort. Its shares lost 28%, making them the second-worst pick over the past year after SBB.
That stock and other losers were enough to outweigh the seven columnist picks that beat the S&P 500 during the contest. While Heard’s picks would have made money, an equally weighted basket of them gained only 8.6% through last Friday compared with a nearly 21% total return for the S&P 500 index.
As Heard gears up for its eighth annual stock-picking series starting on Aug. 19 and running for two weeks, is it all an exercise in futility? Yes and no. While we would be middling mutual-fund managers, beating the market some years and lagging behind it in others, the columns themselves shed an unconflicted light on companies that are rarely written about outside of short recaps of their earnings or when there is news such as a change in the C-suite.
The contest also highlights the difficulty of stock picking. That long-term line that one sees representing a major stock index over the years consists of surprisingly few winners. Last year, for example, nearly two-thirds of the S&P 500’s 26% gain came from the so-called Magnificent Seven stocks. Without them the index had a gain shy of 10%, according to calculations by BlackRock.
Performance is even more lopsided when measured in decades. A long-term study by Hendrik Bessembinder shows that half of all excess returns for American stocks over risk-free Treasury securities were created by just 83 companies from 1926 to 2019. Most haven’t been worth owning. An investor could have been very lucky, or smart, and made a substantial long-term investment in a top performer such as Altria, formerly Philip Morris, which compounded at 16.5% for a 2,655,289% return through 2023. Or they could buy an index fund and probably still see their nest egg grow nicely, propelled by a handful of tomorrow’s winners.
Will Heard’s columnists pick one of them later this month? Getting rich quickly sure beats doing it slowly, but the goal of the series is to be analytical and informative, not to promise readers a ticket to an early retirement.
Write to Spencer Jakab at Spencer.Jakab@wsj.com
