Objective research and reviews to aid investing decisions
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As suggested by a reader, this entry examines the stock picking performance of experts featured on CNBC's Fast Money. According to CNBC, these experts "give you the information normally reserved for the Wall Street trading floor, enabling you to make decisions that can make you money." Do their stock picks actually make money fast? Do they outperform the broad stock market? Using stock picks recorded in entries entitled "Your First Move for Monday…" (or Tuesday when Monday is a holiday) in the Fast Money Rapid Recap archive and weekly price data for those picks over the period 8/10/07 through 8/1/08, we find that:
This sampling method yields 134 picks encompassing 93 distinct stocks and funds. We analyze returns for these picks using the following assumptions:
The following chart compares the average cumulative performance of all expert picks in the sample to that of the overall market (SPY) for periods ranging from one week to 13 weeks after pick. Sample size generally declines with length of investment horizon (recent picks have not been held a full 13 weeks), from 134 picks for Week 1 to 108 picks for Week 13. As the sample has grown, the aggregate performance of the experts (before trading frictions) has become more and more like that of SPY. Note that:
The Fast Money experts have on average offered no "fast money." Average raw cumulative returns for expert picks (black line) are negative for all weeks over the 13-week test horizon (before trading frictions).
The experts as a group beat contemporaneous investments in SPY (green line) on a cumulative return basis during less than half the 13-week test horizon.
Is there a way, other than just the volatility of expert picks, to explain the difference between expert and market cumulative returns?
The next chart depicts the average raw cumulative returns for the 115 long and 19 short picks of the Fast Money experts. The short picks include five recommendations to buy inverse funds. Declines in the broad stock market over parts of the test period tend to aid the performance of short positions. The use of short positions appears to account for some, but not all, of the difference between the aggregate cumulative return of the experts and the return of the market benchmark. The long positions by themselves have generally underperformed SPY and indicate no stock picking ability.
Can we compare the stock picking abilities of individual Fast Money experts?
The final chart shows the average raw cumulative returns over a 13-week horizon for five individual Fast Money experts: Guy Adami, Karen Finerman, Jeff Macke, Pete Najarian and Tim Seymour. Results suggest that there could be differences in stock picking abilities. However, subsamples for individuals are small (12-32 for Week 1), and the variabilities of returns across stock picks are very large. Just a couple very good or very bad additional picks could therefore alter relative performance noticeably.
None of the experts have generated attractive returns.
In summary, the Fast Money experts as a group probably do not offer fast money with their stock picks, and their stock-picking ability as a group is unimpressive.
Note that SPY is value-weighted, while the expert results are equally-weighted across picks. Some equally-weighted portfolio may be more appropriate than SPY as a benchmark for the performance of the experts.
See Guru Grades for a snapshot of the accuracy of various experts in predicting the direction of the U.S. stock market, including links to evaluations of their individual commentaries. See also Blog Synthesis: The Wisdom of Analysts, Experts and Gurus for more general research on the performance of expert investors.
