Stock Pickers: This Market’s Not for You – S&P/ASX 200 VIX INDEX (XVI)

As we head into tomorrow morning’s U.S. employment report for the month of February, the Dow Jones Industrial Average managed to put up at a third straight all-time (nominal) high, gaining 0.2%. The broader, market-cap weighted S&P 500 also rose 0.2%.

Somewhat surprisingly, perhaps, for the eve of a nonfarm payroll Friday, the S&P/ASX 200 VIX INDEX (INDEXASX:XVI), Wall Street’s fear gauge, fell just 3.5%, to close just above 13 — we are back down at ultra-low levels, once more. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming thirty days.)

Dow Jones Industrial Average 2 Minute (INDEXDJX:^DJI)Stock pickers can’t catch a break
CNBC.com’s NetNet blog ran a piece yesterday afternoon titled
Sorry Stockpickers — You’re Still Getting Crushed. The thesis is that, despite the drop in correlation between stocks, stockpickers are still finding it hard to separate themselves from the herd (read: the index) and earn an excess return. The reason? Although correlations have fallen, so has volatility. As a result:

Just 37 percent [of active fund managers] are faring better than the basic indexes they compete against, according to data from JPMorgan Chase, while 63 percent are missing. A mere 7 percent are topping benchmarks by more than 2.5 percentage points.

If professionals are struggling, what are the odds of success for individual investors? Should they just take themselves out of the game and buy index mutual funds or ETFs instead? Here are a few things to think about, in any market:

First, unless you believe you have an edge that you can identify, you have absolutely no business picking stocks.

Second, individual investors do have at least one automatic advantage over professional investors (assuming they have the right temperament): their time horizon. Fund managers are scrutinized by investors on a quarterly, if not monthly basis, which is not an equity-appropriate time frame for assessing investment results. Consequently, fund managers behave in ways that are less-than-optimal to achieving long-term outperformance. That provides individuals who adopt the right time horizon with a massive advantage. Keep in mind, however, that professionals have one major advantage: Picking stocks is their full-time occupation. As such, I can’t recommend doing battle with them if you’re a pure hobbyist.

Getting back to the current market, is it bad for stock pickers? I would point to my second comment: It depends on your timeframe. For fund managers, who are assessed every quarter, the answer is “yes.” For (proficient) individual investors, when stocks trade on factors other than their fundamentals, it represents an opportunity. Value — and excess returns — win out … eventually.

The article Stock Pickers: This Market’s Not for You originally appeared on Fool.com.

Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on LinkedIn. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!