Pick a Stock. Any Stock.
Friday, August 27, 2010 at 05:26PM If you watch any of the business news networks during the day, you will invariably hear someone come on and describe the current environment as a stock picker's market. Usually the people saying this are saying it because that's what they do for a living. In reality, though, the current landscape isn't even anything close to resembling a stock picker's market. Friday, for example, the DJIA finished the day with a gain of 1.65%, and the S&P 500 and Nasdaq each finished up 1.66%. Even though each of these three indices contain different stocks and are weighted differently, they were all up virtually the same amount. In fact, over the last forty years, there have only been three other days where the one-day returns of all three major indices were so close together. So much for a stock picker's market.
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Reader Comments (4)
Not surprising given the robots/HFT shops and their Pavlov's Dog buying on any scrap of news/correlation.
Just because the averages run close together that has little to do with an individual stock. Of course there are "up" days where most stocks move up, and "down" days where there is a broad sell-off. But even on Friday, with the three differently weighted indices moving in unison, I had individual stocks movements that ranged from +5.29% to -0.49%. And if you look at the performance since the beginning of 2010, the range is much broader, from +20.57% to -51.77%. Clearly, if I had originally "picked" the high performance stocks, and chose not to buy the laggards (or at least waited until they were much cheaper), then my stock pickers portfolio would be performing quite a bit differently than it has. The problem with calling it a stock pickers market has little to do with the averages. It is always a stock pickers market. However, the problem has to do with knowing which stocks to pick. Unfortunately, most people don't and can't know which are the stocks that will outperform. And when you diversify, to avoid having all your money in a stock that might experience a catastrophe, you tend to end up with something close to the average. My 30 position portfolio, including some individual stocks and etfs, basically runs about the the same as the S&P 500. Sometimes I am a little ahead, and sometimes a little behind. If I only held two individual stock positions, I am pretty sure that my performance would be quite different from any of the three indices.
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