Study Finds that Stock Picking Probably Won’t Make Investors Rich

While some stock pickers can successful, investors should keep in mind that the odds are against them, according to a recent article inThe New York Times. “It’s not just that bull markets like this one eventually come to an end,” the article says, “It’s that over the long run, while the total stock market has prospered, most individual stocks have not.” It offers findings from finance professor Hendrik Bessembinder (of Arizona State University) showing that, “A very small percentage of winning stocks have done splendidly, but when gains and losses are tallied up over their lifetimes, most stocks haven’t earned […]

Ritholtz Says Stock-Picking is Still Alive if Not Kicking

Active fund management has been losing followers but isn’t going away entirely, writes Barry Ritholtz in a recent Bloomberg article. While stock-picking has seen a host of changes, he offers several insights as to “how we got here” including the following: Beating the market is tougher than most people thought, a notion that Ritholtz says has become “widely accepted among both professional investors and individuals.” We have a much greater understanding of investor psychology, and this “makes the case for low-cost index investing even more compelling.” Quantitative studies, writes Ritholtz, suggest that much of active investing performance is attributable to […]

Stock-Picking Strategies from Barron’s Veteran

Advocating a flexible approach to stock-picking, a recent article by Barron’s veteran Andrew Bary offers some guidance that incorporate the ever-successful strategies of Warren Buffett while emphasizing the importance of creating a “well-diversified portfolio before trying to pick individual stocks.” He writes that Barron’s tends to favor both value stocks (those with low price-to-earnings or price-to-book ratios) and growth companies (those with rapid earnings and revenue growth) and outlines the following guidelines: Paying for growth—when buying growth companies, “look for dominant businesses and don’t overpay”—he suggests no more than 25 or 30 times projected earnings for the next year. “Be […]

Are the Markets Really Efficient?

Warren Buffett has always been open about his approach to investing, singing the praises of focusing on business fundamentals to find strong stocks at good prices. However, in a recent BloombergView article, columnist Noah Smith outlines some reasons why the Buffett philosophy actually contradicts the efficient market hypothesis (EMH), an investment theory that says it’s impossible to beat the market because existing share prices reflect all relevant information. A recent debate between University of Chicago finance professors Eugene Fama and Richard Thaler addressed the issue of whether markets are in fact efficient. Smith admits to agreeing more with Fama, who argued […]

Are Index Funds Passive Aggressive?

“The index provider is becoming more of a stock picker,” said Rodney Comegys, head of investments for Asia Pacific at Vanguard Group (which oversees more than $3 trillion in primarily passive funds). “In some ways,” he says, “they’re replacing the active manager.” In a WealthManagement.com article from earlier this month, Bloomberg’s Andrea Tan delved into the surging presence of index funds. The article characterizes New York-based index compiler MSCI and others (including FTSE Russell and S&P Dow Jones) as becoming “the most important arbiters of where the world’s stock investment flows.” The power of these indices is underscored by the […]

Forget Asset Allocation, says Glenmede’s CEO

Stock-picking is still in vogue with Gordon Fowler, CEO of the $24 billion Glenmede Trust fund. A recent Barron’s article describes the process employed by his team. “Every morning, Fowler assembles his wealth advisory group simply to brainstorm about individual stocks and come up with smart client moves.” According to Fowler, deep analysis of equities makes more sense than picking broad asset allocations. “In this environment,” he says, “stock mispricings are bound to arise, and trying to make money through asset allocation becomes progressively more difficult.” His team looks for stocks with “reasonable” valuations, a strong chance for further profits […]

Is the Next Peter Lynch or Warren Buffett Waiting in the Wings as Value Emerges

Bloomberg reports on the market shifts toward value as “returning to an era when stock pickers reigned,” drawing on comments by Bank of Montreal’s Brian Belski, who said “it’s a Warren Buffet or Peter Lynch-type world where you buy good companies and stick with them.” As Bloomberg puts it, Belski’s comments reflect that “the current climate recalls the 1980s” when Lynch’s record with Fidelity and Buffet’s success “rose to fame.” The article notes, “an index of value stocks in the [S&P 500] has seen a jump of more than three times that of its growth-oriented counterpart since the start of […]