It’s one of the hottest tickets on Wall Street. But if you’re dreaming of one day being able to occupy a seat in the auditorium at the annual Ira Sohn Investment Conference and watch, firsthand, as some of Wall Street’s best-known hedge fund managers tout what they describe as their best ideas, let me disillusion you. It’s actually a great way to lose money.  Please don’t misunderstand. The event is great entertainment. Following all the Twitter feeds, live blogs and general chatter, however detailed, can’t capture it, just as I’m sure no Academy Award telecast can capture the vibe at the Oscars. (Admittedly, it can get pretty detailed. My personal award for journalistic non sequitur of the year at Monday’s annual Ira Sohn shindig was a posting on Marketwatch’s liveblog at 4.11pm, which noted hedge fund manager David Einhorn wandering through the crowd, looking for his parents. Perhaps an attempt to remind us that hedge fund managers are human, too?)  If you’re a trader, you have to watch what happens at Ira Sohn. That’s because what these 800lb gorillas of the investment jungle say matters, at least in the very, very short term.  Consider what happened on Monday when Jeff Gundlach, the founder of Doubleline Capital, got up to talk. He took aim at what he argues is another bear market taking shape in the housing industry, thanks to a generation of potential home buyers that he argues are renting or – horrors – still living at home. It’s an interesting argument, one worthy of lots of debate. The problem? There was no debate. Instead, panicky traders didn’t just hit the “sell” button, they have spent much of the time since Gundlach delivered his spiel leaning on the damn thing. The S&P Homebuilders exchange-traded fund, a good bellwether for how housing stocks are performing, plunged nearly 4% in only two days.  Of course, it’s not all about stocks that the hedgies hate. Chris Shumway, founder of Shumway Capital, isn’t a household name, but as a protege of Wall Street star Julian Robertson and thus part of an elite group known as the “Tiger cubs”, after Robertson’s Tiger Management, he commands his own following. And so when he stood up in front of about 3,000 people to deliver his own 10-minute presentation at Lincoln Center’s Avery Fisher Hall, folks listened. And when, at 12.35pm he described bond rating agency Moody’s Investor Service as a a “great business”, with a strong competitive advantage and the potential to trade between $80 and $113 a share, the tweets and buy orders started flying. Within five minutes, the stock was trading 1.5% higher than it had been before the words had left his mouth. By the end of the following day, it was already trading north of $80 a share: a self-fulfilling prophecy.  Bill Ackman’s bullishness had an even more dramatic impact on Fannie Mae’s stock. There’s no way to replace the mortgage guarantee company, Ackman argued, so once the business is restructured, it’s probably worth $23 to $47 a share. Today? As I write the stock is trading at about $4.12, up some 3.5%. Looking at the chart for Fannie Mae’s stock price as Ackman was speaking is entertaining: traders, clearly trying to figure out whether the hedge fund manager was going to come down as a bull or a bear, were buying one minute and selling the next. Once it became clear that he was a lover and not a hater of the business idea – if not Fannie as it’s run today – the stock spiked five full percentage points in only a few minutes.  This isn’t investing. This is gambling. And most gamblers lose money. Indeed, investment analysis firm Birinyi Associates calculated, Sohn 2013 participants’ picks, as an equal-weighted portfolio, would have produced a loss of 3.8% in the year following that conference, while simply investing in the S&P 500 index would have earned 15.2%.  Short-term trading trends aren’t a reliable indicator of long-term investment returns. Last year, Jim Chanos of Kynikos Capital – almost the only guy out there who caught that Enron was cooking the books – suggested that investors should dump their holdings of disk drive makers like Seagate Technology PLC, and sell them short – betting that prices will fall. Traders jumped on the idea eagerly, just as they did with some of this year’s tips, and in the first two days after the conference Seagate’s shares plunged 4.3%.  If you’d followed the crowd like a lemming, you would have waltzed right over the cliff. In the year that elapsed between the two conferences, Seagate’s stock not only regained those losses but went on to rise nearly 20%. Ouch.  But it was Jeff Gundlach, this year’s housing bear, who ended up with the most egg on his face. He argued that Chipotle Mexican Grill’s business model was vulnerable to any rival with a food truck, and said it was one of his best short ideas. Not only did the stock actually rise (36.5% in the interval between the two conferences) but Gundlach actually never put his money where his mouth was.  Taken as a group, the Sohn conference presenters may offer great entertainment value, and even provide some valuable insight into how they research investment ideas: the analytical models they build, the evidence they consider most valuable in support of their investment thesis, and even how they come up with those ideas in the first place. And if you happen to be an exceptionally skilled professional trader, perhaps it’s fun to try to play games around all the Twitter feeds. But as a source of long-term investment returns? Fugheddaboutit.  The real value in the Ira Sohn conference? Named for a young Wall Streeter who died of cancer, in its 19 years it has raised millions of years for pediatric cancer research and treatment.
The Ira Sohn Conference features hedge fund stars making bold predictions, but it's mostly an exercise in losing money