Saturday, March 25, 2023

Being Smart With $$ -- It's Never a Stock Picker's Market


 

“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.


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