Investing in S&P 500 companies run by their founders used to be a smart bet. Not this year: It's cost you $2.7 trillion.
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Shares of 20 stocks in the Global X Founder-Run Companies ETF (BOSS), including Carvana (CVNA), Meta Platforms (META) and Affirm Holdings (AFRM), are down a devastating 60% or more this year so far, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
So much for a "founder's advantage" — challenging one of investors' longest-standing beliefs. Even Elon Musk's Tesla (TSLA), while not down 60% this year, is off 54% this year costing him the title Tuesday as the world's richest person.
Founders Fall Flat
And it's not just a case of a few unlucky founders.
More than 80% of the 100 stocks in the Founder-Run Companies ETF are down this year, collectively wiping out $2.7 trillion in companies' market value. The money lost on companies led by their founders is roughly a third of the $8 trillion lost on all stocks this year, Wilshire Associates says.
And the founder ETF's value itself is down 31% this year That's even worse than the 28% drop of the tech-tracking Invesco QQQ Trust (QQQ). And well below the S&P 500's nearly 16% decline.
Seeing founder-run companies struggle is another sign of how the S&P 500's declines are stress-testing many of the promising companies that thrived when money was easy. Everyone is a genius when interest rates are low. For investors now, big ideas don't matter. Execution does. Even founder-led Tesla has erased half a trillion dollars in market value this year.
"With the bond market calling for recession, analysts are marking down their profit expectations," said Jack Ablin, strategist at Cresset Capital Management.
Founder Implosion Of The Year: Carvana
It's hard to find a bigger disaster among founder-run companies than car seller Carvana.
Shares of the company, co-founded in 2012 by 39-year-old Ernest Garcia, are down a mind-numbing 98% this year. That drop wiped out nearly $20 billion in shareholder wealth. The company, worth nearly $20 billion in January, is only valued at $521 million now. Garcia, who owns 2.4% of the company, has seen the value of his current stake alone drop by $583 million this year.
Why the implosion? The company on Nov. 3 reported a much-larger quarterly loss than expected of $2.67 a share. Analysts thought it was only going to lose $1.97 a share. And now, the company's $666 million in cash and short-term investments is running out fast. Cash will run out in about nine months if it continues to burn $188 million a quarter.
Meta Still The Most Expensive Founder Disaster
Carvana is a class of its own in terms of founder stock drops on a percentage basis. But on sheer dollars lost, founder Mark Zuckerberg's Meta disaster is unrivaled.
Shares of the social media turned virtual reality company are down 64% this year. That might not sound bad compared with Carvana. But keep in mind a drop that big erased $617 billion in market value, or nearly a quarter the amount lost by all founder-led companies this year. That's even more than the $556 billion lost on Tesla, another founder-led company that's lost more than half its value this year.
Founders Get Pummeled
Stocks that were must-owns a year ago are getting trashed, too. Even Affirm, a pioneer in the digital buy-now-pay-later phenomenon has seen shares crater nearly 90% this year. The company, founded in 2013 by 46-year-old Max Roth Levchin, watched as $25 billion in market value went up in smoke this year. And the value of his 5.8% stake in the company is down nearly $2 billion.
Again, S&P 500 investors are fed up with widening losses. Affirm is expected to lose $3.25 a share in 2023, even more than the $2.51 a share it lost this year. And it's burning through cash fast. The company's $1.8 billion in cash and short-term investments would run out in just a handful of years if it continues to burn through $82.4 million like it did in the September quarter.
Not all founder-led companies are struggling. But for most, 2022 was the year they'd rather not repeat.
Founder Freefall
Stocks in the Global X Founder-Run Companies ETF down the most this year
| Company | Ticker | Market value lost this year ($ billions) | Sector | YTD ch. | CEO |
|---|---|---|---|---|---|
| Carvana | (CVNA) | -$19.3 | Consumer Discretionary | -97.9% | Garcia, Ernest |
| AppLovin | (APP) | -$31.3 | Information Technology | -88.8% | Foroughi, Adam |
| Upstart Holdings | (UPST) | -$11.0 | Financials | -88.7% | Girouard, David |
| Affirm Holdings | (AFRM) | -$24.8 | Information Technology | -88.2% | Levchin, Max |
| Coinbase Global | (COIN) | -$45.3 | Financials | -84.3% | Armstrong, Brian |
| Twilio | (TWLO) | -$37.8 | Information Technology | -81.1% | Lawson, Jeffrey |
| Snap | (SNAP) | -$60.2 | Communication Services | -79.6% | Spiegel, Evan |
| Wayfair | (W) | -$15.7 | Consumer Discretionary | -79.4% | Shah, Niraj |
| RingCentral | (RNG) | -$13.8 | Information Technology | -79.1% | Shmunis, Vladimir |
| Roku | (ROKU) | -$23.3 | Communication Services | -76.7% | Wood, Anthony |
| Rivian Automotive | (RIVN) | -$70.1 | Consumer Discretionary | -75.6% | Scaringe, Robert |
| Lyft | (LYFT) | -$10.3 | Industrials | -72.6% | Green, Logan |
| Roblox | (RBLX) | -$40.2 | Communication Services | -68.6% | Baszucki, David |
| Okta | (OKTA) | -$23.6 | Information Technology | -68.5% | McKinnon, Todd |
| QuantumScape | (QS) | -$6.3 | Consumer Discretionary | -67.8% | Singh, Jagdeep |
| Meta Platforms | (META) | -$617.9 | Communication Services | -64.4% | Zuckerberg, Mark |
| Signature Bank | (SBNY) | -$11.9 | Financials | -62.7% | DePaolo, Joseph |
| Zscaler | (ZS) | -$27.2 | Information Technology | -61.5% | Chaudhry, Jagtar |
| DoorDash | (DASH) | -$28.5 | Consumer Discretionary | -60.9% | Xu, Tony |
| Cloudflare | (NET) | -$25.2 | Information Technology | -60.5% | Prince, Matthew |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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