I hate that term! It doesn't get much emptier than "stock picker's market." They were tossing that one around on Rukeyser this week like it was football.
All three panelists think the market will be up 8%-10%, right in line with the B-Week survey, and that it will come down to stock selection. As I remember 2004 was supposed to be a stock picker's market too. Someone else said 2004 turned out to be a sector picker's market. The point here is that too many people come on these shows and don't really share what they are thinking. Beth Dater, one of Lou's panelists picked Covance (CVD) on the show. Consuelo pointed out that Beth has mentioned that one before. The stock has done phenomenally well. Beth is clearly an excellent stock picker. There was no mention as to whether she would buy that name right now for a new clients at these levels which is important to know for a stock that is up 57% in 2004.
My ire over stock picker's market comes from my belief that individuals managing their own money will place too much emphasis on stock picking. Stock picking is very hard to do. If it were easy there would not have been 19 analysts rating Pfizer as a buy or strong buy two months ago before it all hit the Celebrex fan. Sometimes, stocks that should go up, don't. Over reliance or over confidence in stock picking ability has brought down plenty of pros and individuals alike.
Ed Brown, a regular panelist, said he thinks investors should be 100% invested all the time. If you have read this blog for any length of time you know I take a completely different view. The market gives clues, like the inverted yield curve or breaching the 200 DMA, when there may be a demand problem for equities. As you know I pay attention to these things and take defensive action when these indicators trigger. A lack of exit strategy hurt a lot of people four years ago. In my investing lifetime I expect there will be a couple of more bubbles followed by crashes. Why would anyone hire a manager who says he has no intention of trying to avoid some pain?
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1 comments:
I believe investors should adjust their portfolio compositions over time, as valuations become extended or, on the other side, exceedingly cheap. I certainly agree with taking a more defensive posture when the market starts looking a little frothy, but I have to agree with Ed Brown when it comes to remaining fully invested.
The difficulty with market timing is not so much in identifying when the market is over or undervalued, by whatever measure being used, but in knowing when to pull the trigger. Markets can stay relatively over or undervalued for long stretches of time.
Many studies have been conducted testing the viability of market timing strategies, using various measures of value and rules for shifting allocations. For the most part the conclusions of these studies suggest staying fully invested is the way to go. Generally, the relative gains from correctly reducing allocations prior to market declines, were outweighed by the underperformance resulting from being out of the market when it rallied.
The market of the mid-late nineties provide a good example of this. The market, by my calculations, was beginning to look pretty pricey by mid-1996, and by mid-1997 was extremely overvalued in my view. Had I reduced my equity exposure at that time, it likely would have proven far more damaging than remaining fully invested during 2001-2002.
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