Herb Morgan (CEO of Efficient Market Advisors, LLC) submits: Wall Street has its own vernacular to be sure. Occasionally even, some of it makes sense. More often than not the jargon we use has absolutely no practical meaning. One old saying that gets used over and over in an attempt to sell active money management is the phrase, “It’s a Stock Picker’s Market.”
While I have no metric to prove my thesis I am hopeful that the reader can grant me their suspension of disbelief when I say that 100% of the time an individual or firm publishes or espouses the Stock Picker’s Market doctrine he or she has fallen dreadfully behind their index in terms of relative performance and they are applying for the job of managing your money. The desperation of the pontificator of such drivel is akin to the lonely fellow in the singles bar going around the room asking any potential date “What’s Your Sign?” Unfortunately for many, the blather of the money manager has a higher success rate than that of the would be Romeo. Those who rely on these old lines are destined to failure.
Wall Streeters also use the phrase to distinguish flat to negative markets from those where all stocks go up indiscriminately. What they are essentially saying is “When the market goes up you can own bad companies and still make money, however when the market goes down or remains flat you have to buy good companies.” Yeah, well I’m a Virgo and I like movies and walks on the beach. Just once I’d like to see a CNBC Reporter reply to a manager by saying something to the effect of:
That’s an interesting comment; can you please distinguish between a stock pickers market and a non-stock pickers market? Further, would you clarify what that means to your customers? While you are at it how did the accounts or mutual funds you manage fare when compared to an index during the two most recent stock pickers and non-stock pickers markets. When it’s not a stock picker’s market do you invest your client’s money in an index?
One reporter, one time and the term will disappear from our lexicon forever.
Exchange Traded Index funds are an earth shattering wake up call which the mutual fund industry has largely chosen to ignore. Anytime a player enters your business with a faster, better, cheaper version of what you do, you ignore them at your own peril. Mutual Fund company executives have their head in the sand because of their unwillingness to accept the inevitable fact that their margins will shrink by cataclysmic proportions. Those executives in the mutual fund business that recognize the new paradigm and jump head first into the ETF manufacturing game have still got a fighting chance at survival.
Admittedly, nobody likes working for twenty basis points….but that’s what it costs guys. I bet Michael Dell would like to get $20,000 for a desktop PC but it’s not going to happen. Five years from now, those fund complexes that still don’t have an ETF strategy will undoubtedly be courting strategic buyers. Until then, It’s a Stock Pickers Market.
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