The Three Most Overrated Investors on Wall Street

Joe Goldman |

Their investments and predictions still make headlines, but their word should no longer carry much weight.

There are many investors in the business world who make headlines when they simply make a stock prediction or forecast the direction of the economy. Many individual traders not only listen to what they have to say, but determine their investment strategies based on the commentary of those people.

These three particular investors have lost so much credibility in recent years that they should be removed from this elite group. Here are the three most important investors that the general public should no longer listen to.

Bill Ackman

Bill Ackman, founder of CEO of the hedge fund Pershing Square Capital Management, has made two epic blunders over the previous twelve months. Ackman made a bullish bet on JC Penney (JCP) at close to $25 per share. In August 2013, Ackman sold all of his fund’s shares to Citigroup (C) at $12.90 per share, costing his fund around $500 million.

In December 2012, Ackman unveiled a $1 billion short position against Herbalife (HLF) , which he argued in a 342-slide presentation that the company is a pyramid scheme. Herbalife has since refuted these allegations, reported strong quarterly reports, and earned the backing of famous investors like Carl Icahn. Ackman refuses to concede defeat and he still insists that the stock is headed to zero. In the meantime, Ackman’s fund has lost hundreds of millions on the trade.

Ackman’s public losing streak came to an end when Beam Inc. (BEAM) was purchased at $83.50 per share, a 25 percent premium. With around 13 percent ownership, Pershing Square was Beam’s largest shareholder. However, Ackman was dead wrong on two of his biggest investments, and it cost his firm and its investors close to a billion dollars as well as many important clients. Errors this big are unforgiveable in the investment world, especially given Ackman’s conviction of his correctness.

John Paulson

In what many consider the greatest trade of all-time, John Paulson made almost $5 billion by using credit default swaps to bet against the housing market before the recession. The move made Paulson and his firm Paulson & Co. enormously famous in the business community.

Although Paulson gained credibility by calling the housing crash, it looks like he is a one-trade wonder. Some of Paulson’s funds recorded double-digit losses in 2011 and 2012 by investing in Bank of America (BAC) , Citigroup, gold, and Sino-Forest, and a Chinese forest plantation operator that was investigated for fraud in 2011 and filed for bankruptcy protection in 2012. Paulson estimated his firm lost $700 million on Sino-Forest, prompting Citigroup to withdraw $410 million from Paulson’s funds.

Marc Faber

Faber has been nicknamed “Dr. Doom,” for his perpetually gloomy, sometimes apocalyptic outlook on equities and the economy. Faber is currently an investment advisor and fund manager. He is also a frequent guest on CNBC and other media outlets.

Faber was right about the October 1987 crash and called the massive market correction prior to the Great Recession. He also correctly called the stock market bottom in March 2009, a feat which not many can claim. However, as the saying goes, a broken clock is right twice a day. Faber is almost always bearish on the economy, and even suggested in 2010 that the Dow could reach 1,000. To this day, he still insists that most financial assets are in a bubble and has remained bearish throughout this spectacular bull market where traders are making money hand over fist. The fact that his word still carriers weight is surprising. 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
HLF Herbalife Ltd. 47.99 -0.24 -0.50 1,176,576
C Citigroup Inc. 56.02 -1.25 -2.18 25,108,061
BAC Bank of America Corporation 21.23 -0.27 -1.26 128,455,654
JCP J.C. Penney Company Inc. Holding Company 9.81 0.28 2.94 20,254,295
NEWC New Colombia Res Inc 0.01 0.00 3.02 3,454,752

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