Some of you may have caught the article this week concerning stock picking vs. ETFs. In case you didn’t – here’s a brief snippet;
Man Vs. Machine: Stock-Pickers, A Dying Breed?
Bob Olstein is a stock-picker's stock picker. He has been at it for 42 years-picking stocks the old-fashioned way: by the numbers.
Still, there are times the mutual fund manager admits to feeling outgunned by the machines and the proliferation of exchange-traded funds. "I absolutely feel like Jonathan Livingston Seagull right now-Okay?"
This has been a tough, confusing time for serious stock pickers, whose investment strategies are based on the fundamentals of businesses.
As stocks get swept into various indexes by ETFs and are actively traded via algorithms and machines, there is genuine concern that these changes are leading to the death of stock-picking as we know it.
This article struck a cord with me because I have long pondered this exact question. First, I must admit that I’m no fan of the term stock picker. Many believe that equity fund managers are all considered to be stock pickers or indexers. As one who manages an equity portfolio, I consider myself to be an allocator of my partner’s capital into businesses that will produce above average returns – not a stock picker. There are many outstanding fund managers that have the proper mindset. Unfortunately, this is probably the minority.
Perhaps this is where the problem lies. One might think that it is a mere technicality to draw a distinction between stock picker and an investor. But, for me, the difference is huge. Maybe the art of stock picking should be dead. Far too many fund managers today fail to see their mission as one where they are searching for good businesses for the long-term. Rather they are hyper obsessed with quarter to quarter outperformance. This is not being a good steward of capital. It is playing a gambling game. It is true that these managers are under the institutional pressure and imperative to produce short-term outperformance – but this is no excuse. So is (as the article implies) stock picking a dying breed? Maybe so – and that may be a good thing after all. For those in the minority that are interested in allocating capital to superior businesses with a long time horizon, rewards may be substantial.
