Do celebrities pick stocks better than you? Or, a more alarming question, do they pick stocks better than the pros? Since 2003, Wayne Rogers, who played Trapper John on M*A*S*H, has been appearing on Fox News Channel's Cashin' In. Last September, Lenny Dykstra, the former outfielder for the New York Mets and Philadelphia Phillies, began writing a column for TheStreet.com. TheStreet.com has also signed up professional wrestler John Bradshaw Layfield to dispense investment advice. Playboy and Tradingmarkets.com are running a stock-picking contest in which 10 hot women pick five hot stocks apiece. Whoever is up the most at the end of the year gets $50,000 to donate to the charity of her choice. The leader so far is Amy McCarthy, the sister of Jenny McCarthy.
In general, these celebrity stock pickers take themselves seriously and offer sober advice. Rogers, a Princeton graduate, has a financial advisory firm, Wayne Rogers & Company. On Cashin' In, he offers levelheaded thoughts generally indistinguishable from those offered by journalists, money managers, and investors on the program. On Jan. 16, his three recommendations were very conservative: Conseco, an insurance company; Leucadia National, a conglomerate run by savvy value investors; and cash.
Lenny Dykstra made more than $36 million in his 12-year career in the major leagues, during which he won a World Series with the 1986 Mets and earned the nickname "Nails" for his hard-charging, Charlie-Hustle style of play. (His game wasn't the only thing Dykstra modeled after Pete Rose. Like Rose, as this piece notes, Dykstra lost money playing poker during the off-season.) When he started his column, Dykstra laid out his methodology: He looks for stocks whose return on equity is higher than the forward price-to-earnings ratio and that have lots of free cash flow and low debt. When the markets were tanking last Friday, he coolly recommended going deep on options of blue chips like General Electric.
The real, um, revelation has been McCarthy and her fellow Playmates. Last Saturday, the Wall Street Journal noted with astonishment that Amy McCarthy "was up more than 20%" through Thursday, Jan. 19, "beating every single one of the more than 6,000 mutual funds tracked by Morningstar" (my italics). McCarthy didn't do much research and chose five volatile small-cap stocks with very low prices. A couple of them—Law Enforcement Associates, and Terax Energy—are up big. Through yesterday's close, she's still up 13.5 percent for the year.
This is clearly a case of random choices beating the market. But McCarthy isn't the only of the 10 topless women who is topping the market. The Journal noted that through Friday, "the models have clocked a 3.41% average return, compared with 1.06% for the Standard & Poor's 500." Deanna Brooks is up more than 8 percent, for example. The thumbnail rationales Brooks gives for her stock picks aren't that much different from the thumbnail rationales offered every day in outlets like the Wall Street Journal and Barron's—although this says less about Brooks' stock-picking savvy than it says about the shallowness of the professionals' analyses. She likes Petroleos Brasileiro(Petrobras), because "oil is making money" and IBM because computers "aren't going away."
The competent celebrity results suggest how the markets have, in some ways, become more efficient as they've become more democratized. If you removed the bylines from the musings of Dykstra and Rogers and laid them alongside comments made by six random mutual-fund managers, you wouldn't notice much of a difference. The lingo and methodology surrounding mainstream stock management have diffused everywhere stocks are bought. Pros and amateurs have the same raps and the same investment theses. Which is one of the reasons it is increasingly difficult for professional money managers—even the putatively brilliant hedge-fund wizards—to beat the market.
Every day last year, thousands of professional money managers plugged into their trading turrets and furiously traded, calibrated, hedged, bought, and sold. At the end of the year, the average hedge-fund or mutual-fund manager had very little to show for it. Last year, the CSFB Tremont Hedge Fund index rose only 3.5 percent. And in 2005, as they do every year, most mutual-fund managers lagged the S&P 500, which was up only 3 percent in 2005. Last year, an investor could have done better than the vast majority of professional managers simply by collecting interest on a certificate of deposit. So, it's no surprise that a celebrity could match the pros.
Or maybe it's not just luck. Maybe working in performance-related industries like athletics and acting can be an advantage to managing money. Take Lenny Dykstra. In Michael Lewis' Moneyball,Oakland A's general manager Billy Beane mused about his former minor league teammate. "Lenny was so perfectly designed, emotionally, to play the game of baseball," said Billy. "He was able to instantly forget any failure and draw strength from every success. He had no concept of failure. And he had no idea of where he was." As a player, Dykstra was a hard-working guy who would thump his chest every time he scored and ignore every strikeout—in other words, he had the perfect mindset for trading.
I can't decide if the celebrity stock-picking trend is a dismal throwback or a refreshing tonic. On the one hand, one of the worst notions of the '90s boom was that you didn't have to be a professional, experienced, or informed investor in order to make market-beating stock picks. The celebrity pickers hearken back to that age of amateur folly. On the other hand, the pendulum may have swung too far in the other direction. The celebrities puncture one of the biggest canards of the current decade—that only highly paid investment professionals who spend their entire lives obsessing about the market's every move can easily beat it. But maybe a Playboy model can do just as good a job as they do. Come on, Miss October, show us your assets.