Wall Street is notorious for putting analysts (or any individual) on a pedestal when they make a prediction that happens to be correct. As quickly as their ‘celebrity status’ is awarded it is often just as quickly taken away! The recent downfall of Meredith Whitney offers a lesson that everyone can learn from.
Whitney was awarded her ‘star status’ the fall of 2007 when she made a bearish prediction on Citigroup (C) as an analyst at Oppenheimer. Shortly after she made her call the stock tumbled and the CEO, Charles Swift, resigned. She was credited with predicting the financial crisis that followed in 2008 and became a regular with the business media. With her ‘celebrity status’ she resigned from Oppenheimer in 2009 to form her own firm focused on research and hedge fund management.
It did not take long for her shining star to become tarnished as she missed on several predictions that Wall Street followed her on. She called for municipal bonds around the country to default in 2010 and then in 2013 for the central U.S. to flourish economically while both coasts would struggle. Neither came anywhere close to becoming a reality and Whitney found herself struggling to regain the notoriety that she once enjoyed. Most recently she launched a hedge fund in 2013 that she shut down just last month.
Whitney’s hedge fund, Kenbelle Capital, returned what was left of investor’s money just last month. She faced a $46 million dollar lawsuit from her top investor, which according to court documents has since been settled. Whitney recently stated, “This whole experience has been highly unfortunate and I’m putting it behind me.” That is certainly easy for her to say but the same can’t be said for investors that suffered negative returns.
We’ve heard this story many times before in entertainment, sports and politics. It is essentially like the band that is known as a ‘one hit wonder’. While these names may live in pop culture history it has a much more profound impact when it involves your finances!
What lesson can investors learn from this?
There will always be a hot name or trend whether it be an individual equity, ETF, mutual fund or strategy. The question to ask is does it warrant a position in my portfolio? We’ve discussed this topic numerous times over the last few years– at the end of this article we will feature some of the more applicable ones. The lesson to be learned with the rise and fall of Meredith Whitney is that one prediction, that happens to be correct, does not warrant your investments. Recently we posted a quote on our Facebook (LINK, like us!) page from Credit Suisse, “We’re not in a ‘bubble’ but chances are 60-70% that one is coming.” While this quote is almost comical it is a perfect illustration that analysts and research companies will make correct calls but they will also completely miss the target. If you are chasing returns or looking for who has the next hot investment strategy, the chances are you will be also be pushing back your financial goals!
The next time you read or see a story touting an expert and their ensuing prediction, be very careful if their credibility is based on a famous market call. Any person or firm that claims to be able to time the market or attempts to have you link previous market calls to current ones….is likely pure rubbish (no matter how big the name/firm).
Rather than rolling the dice and looking for the next great idea consider having a real plan and always remain disciplined throughout inevitable periods of market and media noise. If you have questions we encourage you to check out the other articles attached below or contact us on the form below.