A Stock Picker's Market

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What the Heck Is a Stock-picker’s Market?

This Week’s Fortune Cookie

A Stock Picker’s Market

What the heck is a stock picker’s market? The Standard & Poors 500 Stock Index, known as the S&P to its friends, is one of the most-recognizable names in the stock market. The S&P—along with its slightly stodgier friend The Dow (the Dow Jones Industrial Average) and its tech-savvy sidekick the Nasdaq (sorry, no nickname), is at the core of millions of investment portfolios. These portfolios are heavily invested in the S&P because most financial advisors tell their clients to stash their retirement savings into an index fund and leave it there. Period. Let the broad market (or at least the 500 stocks with the largest market capitalizations, which is what the S&P represents) build your wealth over time. And it usually works. After all the long-term trend of the major indexes is historically up (with a few distressing episodes like the Tech Bubble and the Housing Bubble). And index buying certainly simplifies your decision making.

But you may not have noticed that the net advance of the S&P since before Christmas is just about zero. That’s right, for the last six months the S&P 500 Index has returned bupkus.

So when I say that we are now in a stock-picker’s market, what I’m saying is that the only people who are making any money in stocks over the past six months are the people who are researching, buying and selling individual stocks.

Note: I’m simplifying the available investing options severely, of course. Investors can also invest (via ETFs) in geographic regions, countries, market sectors and industries, both long and short, and on a straight or leveraged basis. But I’m trying to make a point here. Work with me.

Stock pickers are regarded in many investing circles (especially institutional investing firms) with the same high regard as dusty prospectors, their gold pan and pickax tied atop their trusty burro, off in pursuit of the Lost Dutchman Mine.

And for institutional types who need to find investments they can sink millions of dollars into, they may have a point. A Chinese e-commerce startup doesn’t have the market capitalization to interest the market’s whales.

But as someone who has been a stock picker his entire investing career, I feel the need to stand up for the prospector.

First, the stock picker has had the opportunity to make money since December, despite the S&P’s flat-as-a-pancake behavior. Even in a flat market, there will always be a few stocks flying up the charts.

Second, the stock picker can actually enjoy a period of market doldrums. While the savvy picker is very careful to take the general trend of the market into account—usually reducing exposure when the trend is down and investing more heavily when the market’s winds are at his back—there’s always a little buying to be done. Personally, I find the idea of shoveling my retirement money into an index bucket boring as heck. I’m like the buzzard sitting on a branch next to his buddy, saying, “Patience, hell, I’m going to go kill something!” You have to have a little of the dusty prospector in your personality to be a stock picker, but Cabot’s growth advisories—Cabot Growth Investor, Cabot China & Emerging Markets Report and Cabot Top Ten Trader—can teach you quickly.

If you’re ready to take up the pickax, click here.

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Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies by clicking here and all previous Contrary Opinion buttons by clicking here

“Human beings always do the most intelligent thing...after they’ve tried every stupid alternative and none of them have worked” -- R. Buckminster Fuller

Tim’s Comment: I find this too pessimistic, but it does bear on the investing world, where investors tend to learn best by making their own mistakes. One of Cabot’s perennial goals is to work to remedy that.
Paul’s Comment: This reminds me of Winston Churchull’s remark that democracy is the worst possible means of running a government, except for all the alternatives. but it’s certainly true that biographies of great people (at least the ones whose egos will let them admit it) are filled with accounts of huge mistakes, bad calls, errors in judgment and simple miscalculations, all on the way to ultimate success. I like to think, as Tim says, that Cabot can speed up the learning process.

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In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.

Cabot Wealth Advisory 6/1/15 — The Future of Automobiles

In this issue, Cabot Stock of the Month Chief Analyst, Tim Lutts, continues his report on his monumental car trip. Tim also speculates on the changes that might be coming to the auto industry. Stock discussed: MobilEye (MBLY). Cabot Wealth Advisory 6/2/15 — Options Market Making

In this issue, Cabot Options Trader Analyst Jacob Mintz shares his experiences on the trading floor of the Chicago Board of Options Exchange, the challenges of computerized market making, and the details of an unusual, high-profile trade.

Cabot Wealth Advisory 6/4/15 — Market Truisms With Powerful Meanings

In this issue, Mike Cintolo, Chief Analyst of Cabot Top Ten Trader and Cabot Growth Investor, tries to get to the heart of common market truisms on topics ranging from market timing to trading discipline. He’s slightly more bullish, and even recommends a promising software stock. Stock discussed: Tableau Software (DATA).

Sincerely,

Paul Goodwin
Chief Analyst Cabot China & Emerging Markets Report
And Editor of Cabot Wealth Advisory

Paul Goodwin

Paul Goodwin is a news writer for Cabot’s free e-newsletter, Wall Street’s Best Daily.

A Stock Picker’s Market

When I say that we are now in a stock-picker’s market, what I’m saying is that the only people who are making any money in stocks over the past six months are the people who are researching, buying and selling individual stocks.

A Stock Picker’s Market