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Monday, June 24, 2013

"A Stock Pickers Market"

If there is one standard refrain that one hears from active managers and the brokers who promote their funds it is the claim that "it is becoming a stock picker's market" other words its time to abandon passive asset class investing and pay that active manager to show his stock picking skills.

But the refrain seems to be reminiscent of the early days of the NY Mets when by early summer with the team's chances for reaching the playoffs already a mathematical impossibility...when fans would exclaim wait till next year.

It seems current market conditions once again show that the forecast of a "stock pickers market" have proven wrong.

Current Account: Risks of Too Much Oneness

Talk of a return to the “normality” of fundamentals-based investing—when the business cycle, balance sheets and valuations really mattered—is becoming more prevalent.
Unfortunately, right now it is just talk. A look at the cold, hard numbers shows that markets retain their annoying penchant for moving in lock-step.
Take U.S. stocks. In the prestimulus era, investors bought financial stocks, auto companies and technology whenever they thought the Fed would cut rates; materials and industrials companies when rate rises were on the way; and utilities and health care whenever they wanted to be supersafe. Not so now.
Correlations for the 10 industry groups in the S&P 500 were 83% on average (100% would mean perfect synchronicity, 0% no relation) last month, according to Mr. Colas.
Over the past two months, those relations have actually gotten tighter. In the “normal” days of the 1980s and 1990s, they were around 50%. Foreign stocks and U.S. equities also are moving like a Broadway chorus line, with correlations well above 70%.

As for stock pickers...the article includes an interesting table of the five stocks most highly correlated to the S+P 500 . #2 on the list Berkshire Hathaway with a correlation of .96. Buffett and Munger as  closet indexers ?

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