“It’s a stock picker’s market!” That’s what you can hear constantly from
overconfident pundits on the financial TV and radio channels. But is it really? When the market is volatile, they say it is a
stock picker’s market. When the market
is highly priced, they say it is a stock picker’s market. When the market is falling every day, they
say it is a stock picker’s market. If
you believe them, it is always a stock picker’s market even though they imply that
this time it is particularly true. But
if it is a stock picker’s market now and many other times, why is it that most
stock pickers perform worse than their benchmarks after fees over long periods
of time? The SPIVA Scorecard from
S&P Dow Jones Indices keeps track of how actively-managed mutual funds
perform against their unmanaged index benchmarks. Actively-managed mutual funds are the kings
of stock pickers. However, the SPIVA
Scorecard reveals that over 91% of large-cap stock managers performed WORSE
than their unmanaged benchmark over the past 10 years (as of 12/31/22). Why?
Because they couldn’t add just a small amount of extra value per year to
offset their high fees. If we are
constantly in a stock picker’s market, then why didn’t they pick the best stocks
and beat their benchmarks? Maybe they just
want to scare you into paying them 1% of assets when times are volatile even
though in actuality, they are unlikely to provide you with added performance. When they will collect $10,000 from you on each
$1 million in managed assets, even if they perform far worse than the market
overall, it is no wonder they want to convince you to pay big money for a false
promise. What to do? Keep your fees low, stick with your long-term
plan, and tune out the false hype being sold daily from speakers with a vested
interest in talking you into something that’s good for them but bad for you.
(Past performance may not be an indicator of what to expect in the
future and your individual circumstances should be considered in any investment
decision.)
Larry Pike, CFA
Client Priority
Financial Advisors LLC
www.clientpriority.com
Hourly, Fee-Only Financial Planning
and Advice.
No Commissions. No
automatic, annual fees.
