My colleague Spencer Jakab wrote last week about why investors seem to forgive fallen investing stars. A question that intrigues me is why investors fall for these shooting stars in the first place. Leopold Aschenbrenner’s hedge fund Situational Awareness was up 270% this year through May and had amassed $45 billion at its peak. Cathie Wood’s ARK Innovation ETF skyrocketed 153% in 2020, helping to attract $20 billion in new money to her firm by year end. At the end of 1999, then 29-year-old Ryan Jacob launched the Jacob Internet Fund. Lured by the 216% annual return at his previous fund, investors showered nearly $300 million at him in the opening weeks of 2000.

Big numbers! But, as Benjamin Graham warned in his classic book The Intelligent Investor: And so it goes. Aschenbrenner’s fund lost 67% in July. ARK Innovation has trailed the S&P 500 by an average of nearly 23 percentage points annually since the end of 2020. Jacob Internet lost 70% in 2000 and 56% in 2001—and, since its launch, has lagged behind the S&P 500 by nearly 14 percentage points annualized.