Most Billionaires Are Bearish on Stocks — Should You Be?

Hundred dollar billsMany of investing’s elite have made very bearish calls on stocks recently, but their motives and interests aren’t at all aligned with everyday investors’.

Stan Druckenmiller. George Soros. Carl Icahn. Jeff Gundlach. Bill Gross. Donald Trump.

What do they all have in common? They’ve all made it very clear that they do not like stocks right now.

With the exception of Trump, the remaining names in the list above know far more about the markets than the average mom-and-pop investor. But that doesn’t mean we should listen to them.

As Barry Ritholz writes:

Maybe you shouldn’t follow the trading advice of billionaires if you aren’t one.

Finance history is replete with terrible market calls by very wealthy people (e.g. Tony Robbins channeling Paul Tudor Jones). Merely pointing that out would be anecdotal and outcome-focused — two of my least favorite ways to think about markets. Instead, I urge you to instead consider your own goals and motivations, which are probably very different from those of billionaires.

Consider the obvious: Most investors have very specific financial objectives. Typically, they’re along the lines of saving for retirement, buying a home or paying for their kids’ college education. The average trader is not especially concerned with promoting a particular company, cementing their legacy or making an adversary’s life miserable, as Icahn did to Bill Ackman over Herbalife. Yet those are very real examples of what motivates some billionaire investors. Rest assured, at the very least, they are not using their 401(k)s to effect those goals.

Investing’s elite have a very different conception of investing altogether: they have massive wealth they’re looking to grow, usually to deliver alpha to clients. In contrast, mom-and-pop investors mostly want to grow their nest egg slowly over time without taking on too much risk.

Billionaires can also afford to make bad calls and still be billionaires. History is littered with such moves by normally very smart people, it’s just that over the long run, they make so much money that it doesn’t matter. Everyday people don’t have the same cushion to fall back on.

Add in the fact that the ultra rich are sometimes simply manipulating markets for their own gain, and you have a real recipe for everyday folks to get hurt. Back to Barry:

The bottom line is that billionaires can and do make specific investments for reasons that have nothing whatsoever to do with saving for a house, putting together a college fund for their children, or making sure they have a financially secure retirement. At times they are propping up a weakened company, creating a personal legacy or stroking their own egos. Their different objectives likely mean that following their trade recommendations may not work out well for you.

The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) rose $0.46 (+0.25%) to $185.75 per share in Tuesday morning trading. The DIA, which is the largest ETF that tracks the DJIA, has gained 6.7% year-to-date.

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