A Stockpicker’s Market?

That’s a phrase that you hear all the time. “It is a stockpicker’s market.” What are they trying to get at? What does that really mean?

The core message of “a stockpicker’s market” is that the market dynamics have now changed, and active investment will outperform passive investment. In a recent CNBC survey, 67% said that Active Management would outperform passive management. Passive management is when an investor puts their money into an index fund or some other broad-based form of mimicking the market as a whole. This has a number of positive effects on performance:

  • Lower capital gains (until you sell your fund)
  • Lower trading fees
  • Lower expenses
  • No emotion

On the other hand, since you or your wealth manager don’t have active control of your portfolio, you invest in stocks or industries that you KNOW are losers. Active managers actively find sectors that are on the upswing. They ferret out bad stocks that have gotten overvalued. And they find stocks that have good potential.

It should be noted that passive management is on a pretty long winning streak. They have beaten most active managers and individual investors for the past two decades.

But let’s return to the question at hand about a stockpicker’s market. Are times different now? Well, volatility has returned to the market, and there are definite trends that investors can exploit such as increased interest rates, trade issues, and increased spending on the military. A shrewd short term investor can ride the volatility and make sizeable gains. A long term investor can read the tea leaves and position their money in sectors that will do well.

I believe that there is a window right now in this market for active management to beat passive. But it will require a calm, objective and analytical process to put the right investments in place. Additionally, panic never wins – so when the market pulls back, investors need to have a plan.