Stock Picking – Who’s Keeping Score?

By SJS Founder & CEO Scott Savage

Today’s financial media – where TV personalities and financial professionals alike freely offer their investment “picks of the day.” They might present well-founded arguments or emotional appeals when they recommend a buy or a sale to their audience. But you can bet they’ll always have some pick or prediction to make. What’s rare, though, is when those individuals are held accountable for how well their picks performed.

An exception to this is Barron’s – which we believe is a respected weekly financial publication – which takes the time to follow up on how their “Roundtable” has performed. Barron’s 2019 Roundtable is made up of what Barron’s refers to as “Wall Street’s smartest investors.”[1] Each year, Barron’s asks these experts for their opinions about the economy and the direction of the markets, and also invites them to provide a number of stock picks for the upcoming year.[2] At the beginning of the following year, Barron’s publishes what they call their “Roundtable Report Card,” and lets their readers be the judge of how well the industry experts fared.

In January 2018, nine of Barron’s experts – including Merrill Lynch’s Abby Joseph Cohen and Chairman and CEO of Gamco Investors, Mario Gabelli – looked into their respective crystal balls and made their picks. Each expert recommended anywhere from four to ten stocks for the year. How do you think their picks performed?

We took each Roundtable panelist’s picks and did a simple calculation to average their total return on the year, and then averaged those returns to come up with an overall average (mean). 

We found those results interesting – the average manager’s stock picks actually declined more than 12% from January 15 to December 31, 2018. In fact, we found that only three of the nine Roundtable members’ picks had an average return that beat the -8.6% return of S&P 500 Index for the year.[2] While we respect the experience and collective knowledge of the group interviewed by Barron’s, the results of their 2018 stock selections support our long-held belief that picking stocks is a very difficult game, even for the most seasoned professionals.

We believe that diversification is the best way to manage the risk of investing in global stock markets. While diversification doesn’t mitigate all risks, it is a foundational component of MarketPlus Investing®, in which we carefully evaluate your exposure to risk.

In addition to broad diversification, we incorporate intentional biases toward small-cap, value, and profitable companies in your portfolios, which we’ve designed to efficiently capture market returns where they have historically occurred and where market indicators imply they will continue.[3] And we support the notion of accountability – letting you know how your portfolio has performed compared to an index invested in a similar mix of stocks and bonds.

While your portfolio might not always beat the index year in and year out, over time, your assets are diversified and allocated to best capture the returns of the market – and the goal is to do so with a smoother ride than if you held just a handful of stocks. We’ll remain true to our time-tested and disciplined process and remain accountable to you. And we’ll leave the stock picking to the experts.

---

Sources:

[1] “What’s Next for the Stock Market and the Economy, According to the Experts,” Barrons.com, January 14, 2019.

[2] “How Stock Picks from Our Experts Fared in 2018 – Roundtable Report Card,” Barrons.com, January 14, 2019. 

[3] Past performance does not guarantee future results.

---

Suggested Reading

---