Stock-picking advisors and over-leveraged billionaires

One of the well-known problems confronting advisors who attempt to market using social media is that it’s very easy to reach the wrong audience. You could be tweeting out jokes and memes that get widespread engagement, but that doesn’t mean you’re generating clients. It can feel like your ‘relentless marketing is paying off,’ but then when your ADV comes out, the world then learns that you haven’t actually brought any assets in the door.

Or, as Monument Wealth Management’s David Armstrong memorably put it in an August interview with Barron’s :

It’s really easy for a financial advisor to start getting hung up on your [number of] followers without really looking at A) What’s your social media strategy in terms of an audience?, and B) What is the net result of your effort? Because I feel like a lot of this social media activity that’s taking place with advisors that I see has become nothing more than this self-licking ice cream cone of advisors talking to each other. That’s great, but I don’t know if that’s generating any business.

Armstrong may have a point, insofar as he assumes that advisors are interested in advising. But quarterbacks are launching SPACs and TikTok dancers are dropping singles; why shouldn’t advisors find new ways to monetize their own modest slices of fame?

Ross Gerber, the unshy CEO of Santa Monica-based RIA Gerber Kawasaki, is attempting to do just that. After Citywire RIA learned that he is launching an active ETF with the help of AdvisorShares, Gerber told reporter Ian Wenik:

One of the things that hit me in the last six months from my own experiences on Twitter is how much engagement I get from individual investors who want to engage with somebody like me, but they’re not necessarily looking for financial planning services. We’re getting a ton of leads from people who want financial planning services, that’s all great. But it was like: What about all these other people?

The man has 140K followers, many of whom have strong opinions about him as a result of his public positions regarding Tesla shares, Dave Portnoy, and other financial hot topics. But how can Gerber monetize his perceived expertise among those who aren’t ready to fork over 1% of their money? Well, by charging 0.75% for access to his stock picks (although they’re not just his; Gerber says he will ‘crowdsource’ and ‘work with different independent analysts in each of our 10 themes,’ for what that’s worth).

We’ve seen this before. Portnoy himself is backing the VanEck ‘BUZZ’ ETF, which aims to hold stocks that are hot on social media. It’s worth pointing out that Portnoy’s giant social media platform can help create the ‘bullish sentiment’ that this ETF is scanning for, and one of the stocks held by Buzz indeed turns out to be Penn National Gaming – a stock that Portnoy is a significant holder of, thanks to the casino company’s acquisition of Portnoy’s Barstool Sports. Talk about a self-licking ice cream cone.

And we can’t conclude without mentioning Cathie Wood. Her multi-pronged content strategy has been described as ‘brilliantly devious’ by Ranjan Roy for its ability to capture investors’ imagination, keep the ARK Innovation ETF at the front of investors’ minds, and ‘hack the press’ by convincing reporters to treat stock-pumping statements as the reasoned output of disinterested analysts.

With Wood and Portnoy blazing the way, why shouldn’t Gerber have a taste? After all, he already has the name recognition and the notoriety – enough, incidentally, to get the reporters and editors of Citywire to spill our share of digital ink around his ETF’s coming launch.

Rich irony

We all know how stressful it is to live beyond our means. Which is why our hearts must go out to 50 of the richest people on earth.

Wait, what?

Bloomberg studied leveraged positions held by wealthy investors and found:

More than 10% of the world’s 500 richest people have committed stock for a combined $163 billion, according to an analysis by the Bloomberg Billionaires Index based on the latest disclosures available. That represents almost a fifth of their public holdings…

This is, of course, from an article about Bill Hwang, whose family office, Archegos Holdings, held leveraged positions that had to be liquidated to the tune of $20bn, leading to drops of more than 40% in some companies’ shares.

As Bloomberg also noted, Hwang is not the only billionaire to have run aground recently; ‘Luckin Coffee chairman Lu Zhengyao defaulted on $518m of margin loans.’

Hwang was a Julian Robertson-trained hedge fund manager, before pleading guilty to insider trading in 2012 and converting his fund to a family office. Even after the incredibly public collapse of his fund, supporters have pointed out that he ‘generated investment returns dwarfing other funds, using PUBLIC EQUITIES, no outside money, no venture/angel investments.’

But I guess the question is… why?

As Bloomberg noted in a separate article:

Bankers reckon that Archegos’s net capital – essentially Hwang’s wealth – had reached north of $10 billion…It evaporated in mere days.“I’ve never seen anything like this – how quiet it was, how concentrated, and how fast it disappeared,” said Mike Novogratz…

Why is someone with more money than nearly anyone else in the world still taking massive leveraged positions? Image throwing his portfolio into your financial planning software, and seeing if the risk – of massive losses, and of the global humiliation that might come with them – would be worth the reward.

To find his motivation, we obviously must step outside traditional financial planning concepts. The real answer seems to have something to do with Hwang’s deeply held religious convictions:

Hwang is a trustee of the Fuller Theology Seminary, and co-founder of the Grace and Mercy Foundation, whose mission is to serve the poor and oppressed. The foundation had assets approaching $500 million at the end of 2018, according to its latest filing.“It’s not all about the money, you know,” he said in a rare interview with a Fuller Institute executive in 2018, in which he spoke about his calling as an investor and his Christian faith. “It’s about the long term, and God certainly has a long-term view.”

In The Protestant Work Ethic and the Spirit of Capitalism, Max Weber famously theorized that if you want to show off the fact that you had been chosen for salvation, the best way to do so is to display worldly success.

It is in this context that I interpret statements that Hwang has made:

I invest with God’s perspective, according to His timing…I try to invest according to the Word of God and by the power of the Holy Spirit…I am able to see reality according to God’s time and perspective.

By this logic, we can assume that if Hwang’s investments are successful, then it shows that he has a direct line to God. Which would answer our question. Because no matter how much money you have amassed, how could you give up that opportunity to commune with God?

There’s a risk that I’m taking this too far. Perhaps Bill Hwang just didn’t feel like retiring.

This article originally appeared on CityWire.


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