Next year is the year for stock picking....

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
staybalanced
Posts: 321
Joined: Wed Jan 14, 2015 7:36 am

Next year is the year for stock picking....

Post by staybalanced » Wed Dec 23, 2015 2:47 pm

Just heard a "money manager" on fox business say that if you are in market indexes you will be in trouble next year. He said it will be a year for stock picking, buy stocks with earnings ( i know such a novel idea ).

I was curious if any one had the data on when the indexes go down what the odds are of a stock picker having a positive return, or even a less negative return? I would think this is an even lower odd than outperforming on an up year.

For me, I will hurry up and do nothing.

larryswedroe
Posts: 15711
Joined: Thu Feb 22, 2007 8:28 am
Location: St Louis MO

Re: Next year is the year for stock picking....

Post by larryswedroe » Wed Dec 23, 2015 2:50 pm

There are good studies on this including by Vanguard and they show that active managers do equally badly in bear as they do in bear markets, despite the supposed advantage of being able to go to cash. Some studies have shown they actually do worse in bear markets. If you have my books you can find the studies in some of them
Or search Vanguard's site
Larry

User avatar
cfs
Posts: 4154
Joined: Fri Feb 23, 2007 1:22 am
Location: ~ Mi Propio Camino ~

Re: Next year is the year for stock picking....

Post by cfs » Wed Dec 23, 2015 2:55 pm

InvestorAdam wrote:Just heard a "money manager" on fox business say that if you are in market indexes you will be in trouble next year. He said it will be a year for stock picking, buy stocks with earnings ( i know such a novel idea ).

I was curious if any one had the data on when the indexes go down what the odds are of a stock picker having a positive return, or even a less negative return? I would think this is an even lower odd than outperforming on an up year.

For me, I will hurry up and do nothing.
Bravo Sierra. Well, we can ask the American Funds team how they did in the 2008 financial markets debacle (not good), or we can check the Vanguard funds and compare how the active stock picking managers did against the passive index funds (not good). You can do a spot check by picking a prospectus for one of Vanguard's active managed funds.

Wishing everyone a productive Wall Street's Window Dressing Week and a Feliz Navidad.
~ Member of the Active Retired Force since 2014 ~

Tamales
Posts: 1315
Joined: Sat Jul 05, 2014 10:47 am

Re: Next year is the year for stock picking....

Post by Tamales » Wed Dec 23, 2015 2:57 pm

Every year is a stock picker's market. There are always a group of stocks that can be cherry-picked in retrospect, to do better than the market average. The problem is that few can successfully pick in advance which stocks will have returns better than market returns.
So it's a meaningless statement. That's why you hear it so often.

Active fund managers pick different individual stocks each year, AND they are experts with resources far beyond individual investors. How's it worked out for them over the long run?

I'm not even sure anyone can successfully pick which sectors or style will return better than market averages each year, let alone individual stocks. Which reminds me...we'll have an updated Callan chart in the not-too-distant future, to reinforce the point again.
Last edited by Tamales on Wed Dec 23, 2015 3:02 pm, edited 1 time in total.

User avatar
Epsilon Delta
Posts: 7477
Joined: Thu Apr 28, 2011 7:00 pm

Re: Next year is the year for stock picking....

Post by Epsilon Delta » Wed Dec 23, 2015 3:00 pm

Next year. Is that the year the Bills play the Rams in Superbowl LI?

User avatar
rob
Posts: 2991
Joined: Mon Feb 19, 2007 6:49 pm
Location: Here

Re: Next year is the year for stock picking....

Post by rob » Wed Dec 23, 2015 3:10 pm

“It's tough to make predictions, especially about the future.” - Yogi Berra

Active managers seem to have an answer for everything with hindsight.....
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

User avatar
jmndu99
Posts: 341
Joined: Sun Jul 14, 2013 4:18 pm

Re: Next year is the year for stock picking....

Post by jmndu99 » Wed Dec 23, 2015 3:44 pm

Ha, next year the Cubs will win the World Series

SamB
Posts: 822
Joined: Mon Mar 12, 2007 3:17 pm

Re: Next year is the year for stock picking....

Post by SamB » Wed Dec 23, 2015 4:59 pm

In any market, up or down, active investors (stock pickers) will collectively earn the market average return minus that group's collective expenses. If you are in the group indexing the entire market then you earn the market return with 100% certainty minus the expenses which ought to be substantially less than the average expenses for the stock pickers (active investors).

Pick whatever time span you want, or characterization of the market change during that time period, your chances of beating the passive group minus their expenses will be less than 50% because of the expenses of the active group. The greater the expense difference between passive and active the lower the probability that you will beat the so-called passive investment group, which invests in the market return.

None of this suggests that there will not be active investors that beat the market and overcome their expenses to top the passive investors. However, the odds are always less than 50% that you will pick one of these active investors to manage your money. If you look at hedge fund managers and their expense ratios, it is easy to see that they are running one of the biggest scams in town. However, they still have plenty of takers with apparently deep pockets. Bogleheads owe these rich marks a debt of gratitude for sacrificing themselves to make the market.

staybalanced
Posts: 321
Joined: Wed Jan 14, 2015 7:36 am

Re: Next year is the year for stock picking....

Post by staybalanced » Wed Dec 23, 2015 5:32 pm

SamB wrote: However, they still have plenty of takers with apparently deep pockets. Bogleheads owe these rich marks a debt of gratitude for sacrificing themselves to make the market.

The fact that the evidence is so empirically proven over and over and there are still a majority of investors using an active approach, I can't think that we will ever lose our market maker friends. I mean the facts are the facts, you either accept that, or you follow the advice of dave ramsey and your local insurance/financial rep's advice and buy loaded funds.

jdb
Posts: 1490
Joined: Wed Dec 05, 2012 8:21 pm

Re: Next year is the year for stock picking....

Post by jdb » Wed Dec 23, 2015 9:27 pm

jmndu99 wrote:Ha, next year the Cubs will win the World Series
Very good. The stock pickers year will be the year that Cubs win the World Series. And not until then. And of course will not know until end of October.

User avatar
Phineas J. Whoopee
Posts: 7723
Joined: Sun Dec 18, 2011 6:18 pm

Re: Next year is the year for stock picking....

Post by Phineas J. Whoopee » Wed Dec 23, 2015 9:29 pm

With respect, next year is next year.
PJW

User avatar
triceratop
Moderator
Posts: 5757
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Next year is the year for stock picking....

Post by triceratop » Wed Dec 23, 2015 11:18 pm

I happen to agree, next year is the year for stock picking. And I have just the team of advisors and quants to do that for the intelligent investor. Consider investing part of your portfolio in Highland Bluff's Bedrock Capital Strategic Investment Fund. Sure to win the 2016 Boglehead hedge fund contest, sign up now and your front-load fee will be only 8% (ER 2.5%). Our team will be releasing our strategy soon, but smart money will invest before we release any details. :)
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

User avatar
Maynard F. Speer
Posts: 2139
Joined: Wed Mar 18, 2015 10:31 am

Re: Next year is the year for stock picking....

Post by Maynard F. Speer » Thu Dec 24, 2015 1:57 am

All cynicism aside, we've actually had this in the UK for a relatively long time

Our All Share index is full of mining and energy companies, and is only about 30% exposed to the UK economy ... So there are long periods when it does very well - but through periods like this one: materials going down, global growth stalling, strong UK economy .. it's terrible

This is evident in UK index valuations - which are high with poor estimated growth (incidentally very much in line with the US) ... I may sound very keen on active funds, but over here I haven't seen a UK active fund underperform an index for a long time - all you have to do is avoid energy and mining ... We also have a thing called the AIM index (which is not a million miles away from a liquid private equity sector) which is essentially inefficient and uninvestable, but many managers pick AIM stocks to boost portfolio returns, and it is the definition of a stock-picker's market (in that you get the highest return in the UK on active funds down here, and a zero return on the index) ... Of course we get all our news from the US, so everyone's buying index funds these days anyway
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

User avatar
Jerry55
Posts: 600
Joined: Tue Jan 27, 2015 1:56 am
Location: That Toddlin' Town

Re: Next year is the year for stock picking....

Post by Jerry55 » Thu Dec 24, 2015 2:20 am

Sure !!!

My Wellesley, Wellington and Dodge & Cox International funds "May" do better than my TSP C, S & I Funds. Maybe Not....

I also bet against the Bears as well here. I like 'em both, prefer to have both as well. Hindsight is 50/50 I guess. I'm good.... :D
Retired CSRS on 12/19/2012 @ age 57 w/39 years | Good Bye Tension, Hello Pension !!!

IPer
Posts: 1639
Joined: Sun Jul 28, 2013 8:51 pm

Re: Next year is the year for stock picking....

Post by IPer » Thu Dec 24, 2015 2:22 am

InvestorAdam wrote:Just heard a "money manager" on fox business say that if you are in market indexes you will be in trouble next year. He said it will be a year for stock picking, buy stocks with earnings ( i know such a novel idea ).

I was curious if any one had the data on when the indexes go down what the odds are of a stock picker having a positive return, or even a less negative return? I would think this is an even lower odd than outperforming on an up year.

For me, I will hurry up and do nothing.
Vanguard Total Stock Market Index Admiral Shares (VTSAX) is stocks with earnings, unless they changed that already...let me see...nope, it is stocks with earnings...I can split my dollar just nicely there. Newspeak, newspeak, news speak, blah blah blah. And bah humbug to it!
Read the Wiki Wiki !

The Wizard
Posts: 12456
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Next year is the year for stock picking....

Post by The Wizard » Thu Dec 24, 2015 3:57 am

Phineas J. Whoopee wrote:With respect, next year is next year.
PJW
A truer statement has seldom been said...
Attempted new signature...

EarlyStart
Posts: 258
Joined: Thu Nov 20, 2014 9:36 pm

Re: Next year is the year for stock picking....

Post by EarlyStart » Thu Dec 24, 2015 4:40 am

Notice the pundits never say that this is not a stock pickers market. It's a silly phrase, but 2015 has been an "indexers market" if anything. The U.S. market is essentially flat over the last twelve months, and that's really only because of a few large cap companies outperforming in a big way. In that kind of environment (which we can only identify after the fact), indexers have the real statistical edge.

As a reference point, consider that the S&P 500 index is down about 0.80% over the last twelve months while those same companies equally weighted are down about 8.50% over the same period.

User avatar
Maynard F. Speer
Posts: 2139
Joined: Wed Mar 18, 2015 10:31 am

Re: Next year is the year for stock picking....

Post by Maynard F. Speer » Thu Dec 24, 2015 5:18 am

I wouldn't say 2015 has been an indexers' year .. It has been a shorter's year

There's been some interesting suggestion that while US fund managers have increasingly struggled to pick winning stocks, there's still quite a bit of skilled shorting going on

Image
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

User avatar
Toons
Posts: 13068
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: Next year is the year for stock picking....

Post by Toons » Thu Dec 24, 2015 5:38 am

I will probably,,,,
Yawn :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

dkturner
Posts: 1366
Joined: Sun Feb 25, 2007 7:58 pm

Re: Next year is the year for stock picking....

Post by dkturner » Thu Dec 24, 2015 8:31 am

Reminds me of my favorite sign in a local watering hole: "Free beer tomorrow" :D

peppers
Posts: 1354
Joined: Tue Oct 25, 2011 7:05 pm

Re: Next year is the year for stock picking....

Post by peppers » Thu Dec 24, 2015 8:35 am

Jerry55 wrote:


I also bet against the Bears as well here.
The Bears are currently 5 and 9. This strategy has worked well this season. :)
"..the cavalry ain't comin' kid, you're on your own..."

EarlyStart
Posts: 258
Joined: Thu Nov 20, 2014 9:36 pm

Re: Next year is the year for stock picking....

Post by EarlyStart » Thu Dec 24, 2015 4:06 pm

Maynard F. Speer wrote:I wouldn't say 2015 has been an indexers' year .. It has been a shorter's year

There's been some interesting suggestion that while US fund managers have increasingly struggled to pick winning stocks, there's still quite a bit of skilled shorting going on

Image

Well, yeah. We can almost always find some other strategy that has worked better than indexing and "stock picking", but these two are a dichotomy so comparing them exclusively makes sense in the context of the conversation.

User avatar
Maynard F. Speer
Posts: 2139
Joined: Wed Mar 18, 2015 10:31 am

Re: Next year is the year for stock picking....

Post by Maynard F. Speer » Thu Dec 24, 2015 4:58 pm

EarlyStart wrote:Well, yeah. We can almost always find some other strategy that has worked better than indexing and "stock picking", but these two are a dichotomy so comparing them exclusively makes sense in the context of the conversation.
You could say long/short is stock-picking laid bare

You don't just have to know what's going up, but what's going down too
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

selters
Posts: 621
Joined: Thu Feb 27, 2014 9:26 am

Re: Next year is the year for stock picking....

Post by selters » Fri Dec 25, 2015 1:20 pm

Every year next year is the year of the stock picker.

Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 8:41 pm
Location: Nowhere

Re: Next year is the year for stock picking....

Post by Leeraar » Fri Dec 25, 2015 2:29 pm

I predict that next year is the year of the stock indexer.

How come this will not make any headlines nor generate income for me?

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

selftalk
Posts: 1096
Joined: Thu Mar 08, 2012 10:08 am

Re: Next year is the year for stock picking....

Post by selftalk » Fri Dec 25, 2015 2:48 pm

If all these stock picking money managers know so much then why didn`t they beat the market in the past, present and most probably won`t in the future ? Some do but cannot do it with any consistency except that 3 or so percent and go find that needle in a haystack.

User avatar
Phineas J. Whoopee
Posts: 7723
Joined: Sun Dec 18, 2011 6:18 pm

Re: Next year is the year for stock picking....

Post by Phineas J. Whoopee » Sun Jan 03, 2016 5:16 pm

The Wizard wrote:
Phineas J. Whoopee wrote:With respect, next year is next year.
PJW
A truer statement has seldom been said...
OK, in context, smartypants, now this year is next year.
PJW

Post Reply