The game is still wide open


This year in markets cannot so far match the drama of 2020 — even in the wake of this week’s gyrations. As a test case of how fast risky asset prices can collapse and of the awe-inspiring power of central banks to drag them back up, last year was hard to beat.

But 2021 has provided its fair share of challenges both to professional fund managers and to the somewhat less serious pursuit that is the annual Financial Times stockpicking competition. Six months into this battle of cunning, wit and good old-fashioned luck, it is time to see how FT hacks and 700 or so of our considerably wiser readers are shaping up.

Now in its fifth year, the stockpicking contest is a simple fantasy exercise of selecting five stocks from the UK or US markets, and opting to go long (buy) or short (sell). Our data team — the real brains behind the entire FT operation — track how those shares perform over the course of the year, average them out, and use that to produce rankings of the make-believe portfolio managers.

For the sake of simplicity, the process ignores the effect of currency movements and dividend payments. Rather it is a blunt exercise: who picked stocks that went up, and who picked duds?

FT journalists were also invited — harassed even — to take part. Hacks operated under slightly different rules for internal reasons. But before you cry foul, do not assume the sages of Bracken House have outperformed external contestants.

At the end of the year, external winners are due, pandemic willing, to be rewarded with a tour of the FT offices near St Paul’s Cathedral in London. The true prize, however, is bragging rights, particularly in the (likely) event that the winner triumphs over the puny guesses of the FT insiders.

What market environment have contestants been dealing with?

Despite a generally more sedate start to this year than last, the dangers of running a concentrated portfolio — as this fictional exercise with just five stocks demands — have already been illustrated in style.

In March, Bill Hwang discovered the hard way that a tight focus on a small group of shares — in his case wrapped up in high-voltage derivatives — can leave you wiped out. The implosion of Archegos, his private investment group, was spectacular enough to bite multibillion dollar chunks out of his banks. Any contestant who avoids that fate will effectively beat an alumnus of Tiger Management, one of the best-respected hedge fund groups in history.

Stock pickers have also pitted their wits against a new and powerful force in US markets: retail traders. At the start of this year, have-a-go amateur traders jumped into previously unloved US stocks such as consoles retailer GameStop and cinema chain AMC Entertainment, with dramatic results.

So-called meme stocks, popularised online with coarse but often irresistibly funny jokes, ripped higher in late January, delivering a victory to the amateurs over a number of hedge funds that had been betting the other way. One hedge fund, Melvin Capital, was famously pushed into a bailout.

Line chart of Share price ($) showing AMC

The starting gun for this stockpicking contest was February 1. Since then, meme stocks have experienced wildly different fortunes. By extension, contestants jumping into the craze have too.

The bond market has provided the bulk of the market drama, with government debt sliding in price in the first quarter of the year on nerves about sweeping inflation, pulling so-called value stocks higher, before steadying.

But broadly, this has been a supportive environment for our plucky punters. The global vaccine rollout and chipping away of lockdowns generated an 11 per cent rally in the MSCI Global index of stocks from the start of February to the end of June, the period captured by the performance figures here. US indices crept slowly but determinedly to record high after record high, with only this week’s wobble later breaking the rhythm.

What were the popular stock picks among readers?

By a long distance, the most popular bet was Tesla, the electric vehicle maker run by the mercurial Elon Musk. Over one-third of contestants picked it for their portfolio; 28 per cent were short.

Betting against Tesla stocks has been a fool’s errand for several years. Many investors, professional and otherwise, are uneasy about Musk’s unpredictable nature and awkward relationship with securities regulators. Many doubt that Tesla can keep up with demand and believe that other carmakers will catch up. All of that may be fair, but the more than 1,000 per cent ascent in Tesla’s share price since 2019 is hard to dispute.

Nonetheless, the hive mind of stockpicking contestants has wagered that this time is different. The rationale: after a more than 600 per cent rally since early 2020, shares appear ripe for a drop, especially as Musk devotes more energy to what he describes as the “hustle” of dogecoin, the cryptocurrency designed as a joke.

“The price has simply gone too high,” reader Stephen Pavey told us in explaining his decision to bet against the company. “The valuation of Tesla is bonkers,” said StJohn Brown in East Grinstead. “Way overvalued, not much else to say,” agreed Will Francis in Birmingham.

Line chart of Share price ($) showing Tesla

The strategy has shown promise in the opening months of the contest. From February 1, when we started the clock, to the end of June, Tesla shorts delivered a return of 19 per cent.

Large numbers of contestants have also bravely taken on the new armies of US retail traders. 

After Tesla shorts, bets against GameStop — the original meme stock that found itself at the centre of a firestorm of retail buying in late January — are the second most popular pick of the competition. Nearly 18 per cent of contestants placed bets against the company, while just 1 per cent were long.

Among the shorts was Anthony Stamp from Bethnal Green in east London, who wagered that the retail trading frenzy at the start of this year would “burn itself out”.

“The possibility that GameStop is worth a fraction of its currently pumped-up valuation seems a lot higher than my chances of predicting the next tech unicorn or vaccine manufacturer,” he noted. Wise words.

The shorts have won the day so far, with a return of nearly 5 per cent. Before declaring victory over the real-life GameStop true believers, it is worth noting that shares are still a whacking 850 per cent above where they started the calendar year. 

But the real kingmaker or widow-maker trade so far this year is fellow meme stock AMC. Nearly 4 per cent of all bets among readers were shorts on the company. In fact, the shares have gained around 300 per cent as the company succeeded in pulling itself back from the brink of bankruptcy. Four of the five contestants leading at this point were brave, lucky or skillful enough to back the stock.

Ayodeji Awolaja from Guildford is one of them, ranking a spectacular third in the competition so far, thanks in no small part to a positive bet on AMC stemming from the poetic and shrewd observation that “cinema will not die”.

The 25 worst performers in the competition so far, however, were all short.

Line chart of Share price ($) showing GameStop

One of them, Brian Mullens in Chicago, called GameStop right, but said AMC was “fundamentally and dramatically overvalued” and heading for a “precipitous decline”. Not yet, Brian, sorry.

Popular longs are largely clustered on the so-called reopening trade — stocks likely to do well as the world emerged from enforced hibernation. Airline EasyJet, travel accommodation group Airbnb and cruise operator Carnival all ranked among the most frequent picks. Performance has been mixed; EasyJet longs were up 19 per cent, and Carnival was up by a tasty 42 per cent at competition half-way cut-off time (it is now, dramatically, almost flat on the calendar year — you need good sea legs to stomach the waves of cruise stocks, it seems), while Airbnb was down 15 per cent.

Our contestants have not given up on the lockdown heroes — stocks that rocketed higher during global lockdowns while we were all stuck at home. Apple, one of the most popular longs, has gained 2 per cent since the close of February 1, while Amazon has gained 3 per cent. 

Who is top of the pops among readers at the halfway point?

Take a bow Jonathan Northfield from London, whose average return of — wait for it — 213 per cent is many multiples beyond what the finest hedge funds have achieved this year. The average equity hedge fund placing positive and negative bets on stocks is up by around 13 per cent so far in 2021.

How has he done it? The Tesla short was deliberate. But dedicated investment professionals who spend hours poring over earnings reports and scouring smart data for tips will be excited to hear the rest of the portfolio selection was, he says, “random”. 

Most of the gains came from a long bet on Moxian, a Nasdaq-listed Chinese technology company involved in online gaming and retail that has never even been mentioned in the FT before, judging from an online search. That stock is up by 1,159 per cent. Even a disastrous bet against MV Oil Trust, whose stock has more than doubled, has not been enough to blow him off course.

Shorts on cinema chain AMC Entertainment have proved disastrous. The shares have gained around 300 per cent as the company succeeded in pulling itself back from the brink of bankruptcy
Shorts on cinema chain AMC Entertainment have proved disastrous. The shares have gained around 300 per cent as the company succeeded in pulling itself back from the brink of bankruptcy © TNS/ABACA/Reuters

Second-placed Zhiwei Xiao, from Chongqing in China, is thus far sitting on an average return of over 100 per cent, flying high on gains by AMC and Tetra Technologies, an oil and gas services company that joined the Russell 3000 index this year after what the chief executive described as a “significant increase in our market capitalisation”. 

Tesla shorts have helped to support the performance of a number of contestants with portfolio returns clustered around 20 per cent — a highly respectable job.

How are the FT journalists doing?

For practical reasons, the FT hacks’ entries were compiled using a different system that permitted them to choose any stock in the world, not just those in the US and UK. But, as in previous contests, they continue to trail behind the readers when it comes to market predictions.

The truly terrible performances are, once again, dominated by bets against AMC. 

Dan McCrum, the prize-winning FT journalist whose forensic and thrilling reporting on the Wirecard fraud has rightly earned him the respect of peers and readers alike, was just one of the hacks to bomb with this bet. Despite decent performances in his shorts on Tesla and Nikola, other shorts on Warren Buffett’s Berkshire Hathaway and on AMC proved disastrous.

His average return of minus 60 per cent places him at the bottom of the pile, and also makes him one of the worst contestants in the whole competition, inside or outside the FT. I guess you can’t win them all, although McCrum, who is so far laughing off this humbling performance, does have time to turn it around.

Our leisure industries reporter Alice Hancock is also nursing a 58 per cent loss, again thanks largely to AMC, as is Miles Johnson, our man in Rome, who won the contest among FT journalists in the previous two years. The second half of 2021 will have to deliver something stunning to get him back on track to reclaim his crown.

Johnson cited a well-known financial adage to describe his position: “Markets can remain irrational longer than you can remain solvent.”

GameStop — the original meme stock that found itself at the centre of a firestorm of retail buying in late January — is the second most popular pick of the competition after Tesla
GameStop — the original meme stock that found itself at the centre of a firestorm of retail buying in late January — is the second most popular pick of the competition after Tesla © Patrick T. Fallon/Bloomberg

Laying early claims to the FT in-house bragging rights are Simeon Kerr in Dubai, with an average return of 33 per cent, Anna Gross in Paris on 29 per cent, Leo Lewis in Tokyo on 22 per cent and London-based Arash Massoudi, whose short-only portfolio has returned 21 per cent. None of them went near dreaded AMC shorts.

I confess I did not enter the competition this year. This is partly a matter of timing. Like every upstanding journalist, I file on deadline (that is, I leave everything to the last minute). This year that meant coming up with chosen stocks at the end of January — precisely the time when the GameStop story was blowing up and the workload was, let’s say, intense. This was the task that got away. 

On some level, though, my pride is still bruised from the 2018 competition, when I figured the situation for construction company Carillion surely could not get much worse, and slapped it in my list of longs. It declared bankruptcy two weeks later. I won’t lie: that hurt my overall performance, and spoiled the fun of this challenge somewhat, though if I recall, a short on Carpetright, whose shares collapsed also that January and which later ended up being taken private, softened the blow to my portfolio. 

Friends, relatives and newfound acquaintances frequently ask financial journalists for investment tips, and write off our shrugging insistence that we have no idea as false modesty. My unprofessional advice to you all is: we genuinely have no idea. Even the best competitors among us struggle to repeat a winning result.

Of course, I may turn out to be wrong about that too — but you will have to join us again early next year to find out. Good luck!


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Autore dell'articolo: Redazione

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