To be a successful investor, you need to focus on global macro for portfolio returns, Tyler Mordy, director of research at Hahn Investment said at an AIMA debate.
He provided these five reasons why you need to stop picking stocks, and focus on asset mix instead.
1. There’s a dismal track record among stockbrokers. Almost all active managers are underperforming with speculative guesses, especially in the bond market sector.
2. There are high correlations among securities. Correlations among individual securities versus S&P500 are at an 80-year high. How hard is it to pick stocks in this environment? Near impossible, he says.
3. There are low correlations among risk factors.
4. There’s heightened volatility. The market is heavily charged, swinging from over optimism to over pessimism.
5. There’s a rise in ETFs. People aren’t flocking just for the benefit of ETFs themselves (i.e. low cost; tax advantages). It’s because they recognize alpha is difficult to create, so the ETF wave will continue.
Mordy also added stock picking is a status quo, and people may be reluctant to move away from it.
On the flip side, Andrea Horan, portfolio manager, Agilith Capital Inc., argued stock picking as a strategy is not dead, but it’s not easy either—not everyone can be a winner.
“Critical to successfully investing in a stock picking strategy is you [must] have access to a broad spectrum of market capitalization, and have the ability to build a portfolio that’s significantly different from the index,” said Horan.
She added, “Stock picking is identifying when the prices of securities are wrong.”
Horan won the debate by a landslide, with attendees voting highly in her favour.
So what do you think? Provide your thoughts in the comments section below, or email firstname.lastname@example.org.