” Stockpicker’s Market “

June 28-2012

Everytime I hear that expression, I almost laugh.

Do you personally know anyone , including yourself, who has the expertise to successfully and consistently find, analyse , select and manage a portfolio of  20 specific stocks ? (  5% exposure per investment rule  )  And,  if you should be so fortunate, what about knowing when to sell.  Have you ever heard of the expression ” Stockseller’s Market ” ?….. I haven’t !

If  , nevertheless, you want to buy individual stocks, then please understand you and your money are located dead smack in the center of Wall Street’s  information jungle. Here, ” Advisor Risk  ”  gets added to the entire spectrum of  risks including “Specific Risk”;  those unique risks relating to holding a specific stock.   Advisor risk includes fees for well intentioned but,  maybe,  not such good results.   You may emerge from the jungle, but chances are you’ll emerge  with a chunk of  your  money left behind.

Can you fault any advisor who suggested JPM  a month ago ?  When you woke up this morning and discovered that JPM’s derivitive hedge investment loss exposure is being re-estimated at  approximately $ 9 billion, who can you blame  ?  Was your advisor supposed to know what was going on at JPM London when he suggested JPM ?.   And,  by the way,  Advisor Risk includes  advice  to hold on to your  JPM  for the long  term .  Maybe in certain instances that could  be correct , but I abhor living with dead money, and, certainly,  I am not a collector of distinguished equities.  That ended with my mania for baseball cards in the 1950s .  Maybe that’s why no one ever  mentions stock selling when they talk about stock picking.

What situations like this remind me to do is to stay away,  as far away  as possible,   from stock picking and stock picking advisors.

My investment journey, which began when I began to turn over my company to SAATI, Italy  in 1987,  is now  25 years old.  I began sharing my journey with my first post, August 2010 ( see Archives ) and writing has helped me  find clarity and ground where, finally,  I feel safe.

Bottom line….I have come out of the jungle, almost  in one piece,  and, I’ve found the two lane highway!!  I’m going to be OK !!!  Check that . .. I believe I’m going to be a lot more than OK !!!!

With just one investment, SPY, ( the ETF symbol for a basket of 500 S&P stocks,{ the S&P 500 } ) I have diversified myself about as far away from the jungle of specific risks as you can get.   Instant diversification.  Do you know anyone who has priviledged information that suddenly can move all 500 stocks,  ( except maybe a terrorist or an insider leaking  a bombshell relating to the Euro ).  – I’ll accept the SPY risk because I know its temporary and transparent and that SPY will fully recover.

Am I a stock picker ?  Technically, yes….except that I am picking  500 stocks simultaneously !

So with SPY, the risk boils down to market risk.  Risk On / Risk Off .  Something  like black or red in Roulette except Roulette  is pure hunch and probability.  For me, investing in SPY is based on macro analysis,  technical analysis and timing mechanics, ….not  hunches.   For me  Black 29 is much more risky than just betting Black,  and the payoff certainly reflects it .  And,  AAPL is much more risky than SPY, but the SPY payoff , unlike Black, in my opinion, can still be compellingly attractive if you know how to track a medium term trend.

Can I still be temporarily wrong ? YES !  But, I have a lot more faith in being temporarily under water clutching  SPY than being under water clutching  an equity such as RIMM with bubbles of  bad news gradually escaping as the stock sinks inexorably deeper toward zero or the residual value of its patents. 

And, if it comes to that, I’d rather lose money because of my bad, but correctable,   timing mechanics  than by discovering that the counter party of my specific stock trade is smart…. I mean too smart….I mean smarter than anyone has a right to be. !

Richard Maurice Gore ( aka ) Richard, Rich, Dick, RMG, Richie from Throggs Neck and Smiley from Woodlawn.

2 Responses to “” Stockpicker’s Market “”

  1. Minny Says:

    Seventy-seven years ago, members of Congress ecreted a tariff wall aimed at protecting American business concerns. The result was a stock market crash followed by drastic retaliatory tariffs and a shutdown of the global trading system. The 1932 Revenue Act made matters worse by massively raising marginal tax rates on domestic incomes. These blunders set the stage for the Depression and world war that followed.Current members of Congress appear to have let their history books collect dust: A raft of anti-China currency and tariff legislation is now widely supported by both political parties as the exigencies of political grandstanding subvert the ideals of sound policy. At the same time, Chinese government officials have threatened to dump some of the government’s $1 trillion in U.S. Treasury securities if Congress continues its currency bashing and tariff threats.This fiscal folly couldn’t come at a worse time. Financial markets have been reeling over the last several weeks as hedge funds deleverage from wrong-way bets on mortgage products. It certainly doesn’t help matters that a tone-deaf Congress, led by a bi-partisan coalition of the economically obtuse, is attempting to advance legislation that would raise tax rates on investment companies as part of a “fix” for the alternative minimum tax (AMT).Has anyone in Congress ever stopped to contemplate why London has once again become the financial capital of the world? Perhaps it has something to do with the fact that the rest of the world is lowering corporate tax rates and trying to moderate regulations while the U.S. is stuffing Sarbanes-Oxley down the throat of its businesses.If that weren’t bad enough, the 2001-03 tax cuts on incomes and capital are essentially on the chopping block, set to expire in several years time unless Congress and the president act to extend them. The current Congress isn’t disposed to extending the tax cuts, while online futures trading points to a Democrat sweep in 2008. In other words, there’s a high probability that tax rates are going up.Some politicians argue that the current anti-trade sentiment has been driven by wage inequality and poor income growth, “tax cuts for the rich,” and high energy and food prices for the poor. But the data refute this. Personal income has grown at an average pace of 6.2 percent since 2004, despite large swings in reported GDP growth; personal income is up 6.1 percent year-over-year as of June, right in line with the average of the last few years. And thanks to a low unemployment rate and a tight labor market, real non-supervisory wages are growing faster today than they were at this stage of the last cycle (1.6 percent vs. 1.3 percent, year-over-year).In fact, low-end (non-supervisory) real wages have grown at about twice the pace for this cycle compared to the first 23 quarters of the last expansion. A broader measure of real non-financial compensation per hour also shows superior wage growth during this cycle (1 percent per annum average vs. a 0.3 percent per annum average at this stage of the last cycle). So to call this a “wage-less” expansion is utter nonsense, despite the fact real GDP growth has averaged 2.7 percent per annum this cycle versus a superior 3.3 percent average at this stage of the last cycle.Attention protectionist stooges: Since the implementation of NAFTA in 1994, real non-supervisory wages have grown at an average pace of 1.2 percent per annum, triple the 1971-2007 average of 0.4 percent per annum. Inflation-adjusted household net worth has jumped $22.2 trillion since NAFTA was implemented while non-farm payrolls have increased by 24.9 million. Manufacturing output, far from falling, actually stands at a record high, and is up 62 percent since 1994.Undoubtedly some have been left behind by the global economy. But free trade, China, and Wal-Mart for that matter have dramatically increased the standard of living for most people, just as protectionism, a trade war, tax hikes on investment and work, and the absence of Wal-Mart would sink living standards for most people.While the global boom continues on the back of pro-growth policies around the world, Congress is speeding down the road to ruin with trade protectionism and a raft of untimely tax hikes. It’s time to take a detour and think about the hugely anti-growth consequences of turning our backs on the global economy and pro-growth tax policy.

  2. admin Says:

    Agree with free trade – tax stimulants – infrastructure support – and generally a hands off private enterprise policy – EXCEPT where the playing field has been tilted to the favor of government,
    corporate and wall street insiders who through self serving greed and insider hijinks have dis-enfranchised the middle class. Its totally obvious to anyone except a Romanov, we need systemic REFORM in Congress, in the Board Room and on Wall Street. RMG

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