It has been a while since I wrote about my disdain for the term stock picker's market. Do you remember at the beginning of 2005 and all of 2004 how many people said it was a stock picker's market.
Newer readers can use the search function at the top of the page to see how consistently I have derided that term. Look at this last rally. Stock picker's? I say not. 2004 and most of 2005 was about picking the right sectors or themes. The rally of the last few weeks might even be broader than that.
Top down management says that 90% of your return comes from asset allocation and sector weighting. I would say that given the action today in ALXN and RIMM, an arguement could be made against stock picking. I have been writing for a long time about the market not rewarding single stock risk taking and these two names today offer more anecdotal evidence.
This does not mean only use index funds, not at all. But overweighting a great story, from the bottom up, is a type of risk that just is not being rewarded. This is a headwind that stock pickers should be aware if.
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2 comments:
As one who got creamed today by ALXN (see http://www.solitairetrader.com/2005/11/sold_alxn.html ), I hear you. But I still prefer stock picking over indexes, while there is more downside there is also more upside too.
Diversification is key for stock picking, if you had only 5 stocks and ALXN was one of them, that would really be a bad hit. But 1 out of 30 is not so bad.
still can't leave a comment on your site.
Your point belief about bottoms up stock picking is the best path for a lot of investors. Its not my approach but it works for a lot of people.
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