Short Bets Proved Profitable for Heard Columnists in 2022

In Heard on the Street's annual stock-picking contest, a few pessimistic takes have been our columnists' saving grace. This is despite the fact that journalists are sometimes criticized for having a negative bias.

This year’s contest began on Aug. 8 and will run for a full year. Our team of columnists around the world each had to make two picks, which could be long bets or short ones. The latter opens an investor up to theoretically unlimited losses but a maximum gain of just 100%. Only a handful of columnists opted to take that risk, but it has paid off handsomely so far – they are leading the contest.

There were only five short picks out of 30 total picks. Four of the five shorts made money, and three were among the top four total picks. The best bet overall was against electric vehicle startup Arrival by Heard’s Europe editor and auto specialist Stephen Wilmot. Mr. Wilmot wrote at the time that “the odds are stacked against it arriving at the point of positive cash flows without a bigger influx of capital that would likely leave minority shareholders in the dust.”

Even a small amount of pessimism was enough for Heard's columnists to outperform the market at the end of the year, though not enough to generate a positive return. Our picks posted an average total return including dividends of negative 3.8% from early August through Dec. 31, compared with a 6.7% loss in the S&P 500 over the same period. Our long picks alone lost 13.2%.

The S&P 500 had its worst year since 2008, but the columnists’ picks so far weren’t just a matter of luck. The particular nature of this downturn, which has punished fanciful business models chasing far-distant future cash flows, seems to have been particularly well suited to Heard writers’ sensibilities. Other successful shorts included one against cash-burning orthodontic corrective maker SmileDirectClub and one against German “air taxi” startup Lilium, returning 78.3% and 54.% respectively.

Justin Lahart, a columnist for The Wall Street Journal, made a great long-term bet when he picked Manchester United’s U.S.-listed shares as his second-best pick overall. His reasoning was that the company could be sold, and he saw value in the legendary soccer club’s then-market value of around $2.8 billion. This turned out to be a great call, as Manchester United’s shares soared when the U.S. owners announced in November that they were exploring a sale.

The New Year could bring a change in luck for the market, and for Heard's investments that are currently underwater. This would align with historical trends: the last time stocks were down for two years in a row was two decades ago. However, it seems likely that the market's reassessment of unprofitable tech and other speculative bets will continue for a while. This is good news for some of our columnists' short bets through the contest's end in August.

It can be notoriously difficult to time the market, but calling out excessive exuberance can occasionally pay off. Remember that next time you read a negative Heard column.