2013: tough year for stock pickers

Research from S&P Dow Jones reported in Pensions& Investments shows that 2013 was a tough year for stock pickers.

The average variance in returns between stocks in the S&P 500 was at its lowest in more than 20 years!  That means for people making a living trying to pick the winners and avoid the losers (like, well, me), 2013 looked like a fruitless year.

This is great news for passive, index investors, and bad news for active investors trying to beat the market–at least in hindsight.

This last point is important.  Either the average variance is low and staying there or headed lower, or it will regress to the mean and stock pickers will be able to add value by picking winners and avoiding losers.

My experience is that years like 2013, where most investors are focused on government action, Federal Reserve policy, and international macro-economics, are lousy for stock pickers.  Instead of focusing on sales, earnings, profit margins and returns on capital, investors were trading stocks en masse based on the latest government report.

But, stocks aren’t claims on future Federal Reserve policy or macro-economic output, they are claims on future earnings of specific businesses.  Unless you think all businesses are equal, then some will do better, some will do worse, and buying the ones that will do better will reward you as will avoiding their opposite.

I know what I’ll do as always: spend all day researching specific companies to figure out which ones will win in the years to come.  At some point in the not-too-distant future, this will be profitable again.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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2013: tough year for stock pickers