Stock pickers' market?

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Bitzer
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Stock pickers' market?

Post by Bitzer » Mon Mar 10, 2014 4:00 pm

The Wall Street Journal has an article today wherein some market analysts suggest that we are now in a stock pickers' market. They point to statistics which suggest that the correlation between movements in the S&P 500 index and its' component stocks is declining and therefore actively managed mutual funds should be favored over indexing.

We've heard these arguments before and it has been proven that indexing is best. Has anything changed?

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Ged
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Re: Stock pickers' market?

Post by Ged » Mon Mar 10, 2014 4:08 pm

No. Correlation might be decreasing but that doesn't mean ability to predict the future is increasing.

Call_Me_Op
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Re: Stock pickers' market?

Post by Call_Me_Op » Mon Mar 10, 2014 4:10 pm

Bitzer wrote:
We've heard these arguments before and it has been proven that indexing is best. Has anything changed?
What do you think? The argument given is non-sequitur.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Taylor Larimore
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Re: Stock pickers' market?

Post by Taylor Larimore » Mon Mar 10, 2014 4:12 pm

The Wall Street Journal has an article today wherein some market analysts suggest that we are now in a stock pickers' market. They point to statistics which suggest that the correlation between movements in the S&P 500 index and its' component stocks is declining and therefore actively managed mutual funds should be favored over indexing.

We've heard these arguments before and it has been proven that indexing is best. Has anything changed?
Bitzer:

Nothing has changed. Indexers beat active managers. Nobel Laureate, William Sharpe explains:

THE ARITHMETIC OF ACTIVE MANAGEMENT

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Professor Emeritus
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Re: Stock pickers' market?

Post by Professor Emeritus » Mon Mar 10, 2014 5:39 pm

Friedrich von Schiller
“Mit der Dummheit kämpfen Götter selbst vergebens.”

Poetically translated "against stupidity the gods themselves contend in vain"

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Sbashore
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Re: Stock pickers' market?

Post by Sbashore » Mon Mar 10, 2014 6:35 pm

If I had a nickel for every time I've heard "it's a stock pickers market" over the last two decades I'd be able to increase my allocation to equities. :D
Steve | Semper Fi

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docneil88
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Re: Stock pickers' market?

Post by docneil88 » Mon Mar 10, 2014 7:42 pm

Bitzer wrote:The Wall Street Journal has an article today wherein some market analysts suggest that we are now in a stock pickers' market. They point to statistics which suggest that the correlation between movements in the S&P 500 index and its' component stocks is declining and therefore actively managed mutual funds should be favored over indexing.
The premise may be true, but it is not sufficient for the conclusion. No matter the degree of correlation between movements in the S&P 500 index and its' component stocks, active investors (whether fund managers or individual investors) will still face the uphill battle of overcoming trading, tax, and management costs that are significantly higher than the index investors face. In the long-run those increased costs are very difficult to overcome for any particular individual investor or fund manager, no matter one's skill or one's luck.

On the other hand, as the correlation declines between movements in the S&P 500 index and its component stocks, the performance gap between first- and fourth-quartile performing active managers is likely to increase. This gives anyone with luck or investing skill the opportunity to make more money, while giving those lacking in skill or luck (but full of courage or hubris) the opportunity to flame out in a more spectacular way. If only there was a way to reliably determine in advance who will fall into which category. There's little if any evidence to suggest there is a way to do that. Best, Neil

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nisiprius
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Re: Stock pickers' market?

Post by nisiprius » Mon Mar 10, 2014 8:20 pm

March 9, 2014: Stocks Are No Longer Moving in Tandem With Broad Market... After years of moving in lock step on the back of global economic shocks, individual stocks increasingly have been dancing to their own tune.

Oh yeah? They were moving in "lockstep" up until now? Then why did the WSJ publish these articles:

Jan 23, 2013: Correlations Drop; Stock Pickers Rejoice

Aug 14, 2013: Correlations Plummet; Stock Pickers Rejoice

September 11, 2012: Good news for stock pickers: correlations finally dropping

Jan 20, 2012: Stock Moves Disperse as Market Correlation Eases

September 11, 2009: The Return of the Stock Picker's Market!


Methinks it takes a lot of data to get a good estimate of correlation and that these people are just looking at sampling error. That correlations, measured over short periods of time, are just wildly unstable and fluctuate--and whenever they happen to fluctuate downward, the WSJ gets an opportunity to announce the return of the stock picker's market.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

kontango
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Re: Stock pickers' market?

Post by kontango » Mon Mar 10, 2014 9:11 pm

It's not clear to me why lower correlation implies greater predictability in stock returns. It seems a poor interpretation of simple statistics.

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cfs
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Re: Stock pickers' market?

Post by cfs » Mon Mar 10, 2014 9:22 pm

Quick definition:

De-fine Stock Picker's Market = I don't have a clue what the market is going to do.

Thanks for reading.
~ Member of the Active Retired Force since 2014 ~

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ERMD
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Re: Stock pickers' market?

Post by ERMD » Mon Mar 10, 2014 9:26 pm

if they want to actively manage your fund at 0.09%, then by all means.
between scotch and nothing, i'll take scotch. -- faulkner

larryswedroe
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Re: Stock pickers' market?

Post by larryswedroe » Mon Mar 10, 2014 9:27 pm

Simply put, it's TOTAL CRAP
Try this, amazing the crap the media continues to put out over and over again

http://www.cbsnews.com/news/a-stock-pickers-market-not/

Larry

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Raymond
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Re: Stock pickers' market?

Post by Raymond » Mon Mar 10, 2014 9:33 pm

Sbashore wrote:If I had a nickel for every time I've heard "it's a stock pickers market" over the last two decades I'd be able to increase my allocation to equities. :D
If I'd vomited every time I've heard "it's a stock picker's market" over the last two decades I'd be really, really dehydrated :)
"Ritter, Tod und Teufel"

John3754
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Re: Stock pickers' market?

Post by John3754 » Mon Mar 10, 2014 9:51 pm

Ignore the noise.

ASUGrad
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Re: Stock pickers' market?

Post by ASUGrad » Mon Mar 10, 2014 10:44 pm

All this states is that the 'possibility' of active managers to outperform an index has increased because stocks aren't moving in lockstep with the index so some with outperform and some will under perform. Technically they are right. The possibility for managers to outperform has improved. However the reverse is also true....

For every guess that is right there is someone on the other end of that transaction who got it wrong.

Caduceus
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Re: Stock pickers' market?

Post by Caduceus » Tue Mar 11, 2014 5:04 am

I would have thought stock pickers could do well in all kinds of markets, not just in stock pickers' markets. :) What good is a stock picker who can only do well in certain conditions?

pkcrafter
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Re: Stock pickers' market?

Post by pkcrafter » Tue Mar 11, 2014 12:32 pm

Hey, don't knock the stocks-pickers market, it is my favorite. However, I do wonder what the stock-pickers are doing when it isn't a stock-pickers market. :shock:

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: Stock pickers' market?

Post by Professor Emeritus » Tue Mar 11, 2014 12:42 pm

pkcrafter wrote:Hey, don't knock the stocks-pickers market, it is my favorite. However, I do wonder what the stock-pickers are doing when it isn't a stock-pickers market. :shock:

Paul
They go to the stockyards to 'PICK" more "material" to send to the suckers.

BuckyBadger
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Re: Stock pickers' market?

Post by BuckyBadger » Tue Mar 11, 2014 12:55 pm

What's that saying?

"A rising tide floats all ships?"

I would imagine that when practically everything is rising, practically everything you "pick" would be rising, too.

These are dangerous times we live in.

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Random Musings
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Re: Stock pickers' market?

Post by Random Musings » Tue Mar 11, 2014 3:21 pm

It's always a stock pickers market, however, it is up to the individual investor on whether to play that game or not.

Most people on this board do not, or do to a limited extent.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ

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