Guru Grades

Stock Picking Performance of Fast Money Experts (Last Updated 4/25/08)

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 the Fast Money Rapid Recap archive and weekly price data for those picks, we find that:

To construct a manageable sample, we select stock recommendations from Friday archive entries entitled "Your First Move for Monday…" (plus one "Your First Move for Tuesday…" when Monday is a holiday) over the period 8/10/07 (the first qualifying entry in the archive) through 4/21/08. There are no recommendations for Monday on some Fridays. This sampling method yields 97 picks encompassing 71 distinct stocks and funds. We analyze returns for these picks using the following assumptions:

• Each recommendation executes at the open on the designated Monday (in one case, Tuesday). The return for the first week is therefore from Monday open to Friday close. The returns for holding the position for the next 12 weeks are from Friday close to Friday close. We stop tracking returns after 13 weeks because they are not "fast money."
• When the experts pick a stock more than once, we include its returns multiple times.
• Weekly stock prices are from Yahoo!Finance, except for Hilton Hotels (HLT). Trading in HLT ceased in October 2007. Weekly prices for HLT are from an historical chart at MSN Money, covering only a 10-week holding period from the recommended buy date.
• To adjust for market returns, we subtract contemporaneous weekly returns for SPY.
• Averages weight each stock pick equally.
• Return calculations ignore the impacts of transaction costs/trading frictions, dividends and capital requirements (except for an anomalous $51 dividend paid by MO).

The following chart depicts the average cumulative performance of all picks in the sample based on both raw returns and market-adjusted returns for periods ranging from one week to 13 weeks after pick. Sample size generally declines with length of investment period (recent picks have not been held a full 13 weeks), from 93 picks for Week 1 to 53 picks for Week 13.

On a raw return basis (black line), the Fast Money experts offer no "fast money." Raw average cumulative returns are mostly a little negative for the Weeks 1-8, followed by notable deterioration thereafter during Weeks 9-13.

Market-adjusted performance (orange line) is more attractive, with the experts in aggregate beating contemporaneous investments in SPY by a mostly widening gap.

The market-adjusted performance could indicate good stock picking. Is there another possible explanation for the difference between raw and market-adjusted returns?

The next chart depicts the average raw cumulative returns for the 78 long and 15 short picks of the Fast Money experts. The short picks include four recommendations to buy inverse funds. Large declines in the broad stock market aided strong performance of short positions since October 2007.

If the experts were to recommend some short positions in a rising market, the short positions may underperform and cause the aggregate expert picks to underperform the market. The sample accumulated thus far does not support testing this hypothesis.

Can we compare the stock picking abilities of individual Fast Money experts?

The final chart shows the average raw cumulative returns for four of the individual Fast Money experts: Guy Adami, Karen Finerman, Jeff Macke and Pete Najarian. Results suggest that there could be differences in stock picking abilities. However, subsamples for individuals are small (17-23 for Week 1), and the variabilities of returns across their stock picks are large. Just a couple very good or very bad additional picks could therefore alter relative performance substantially. The standard deviations of weekly returns are larger than that of SPY for all experts except Jeff Macke.

The subsample for Tim Seymour is so small that we do not show individual results for him.

In summary, the Fast Money experts probably do not offer fast money with their stock picks, but they do as a group mostly outperform the broad stock market over the short term during recent months. The sample is not large enough to determine whether the outperformance is peculiar to recent market conditions.

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.