Regardless of the market cycle, financial pundits are constantly proclaiming a “stock picker's market,” one in which active managers will shine. On the surface, this seems to make sense because no matter the direction of the broad market, there are usually certain stocks outperforming to the upside. Even in my personal experience, I have been witness to the significant rewards afforded to those who can identify and own a portfolio of great companies. There are, however, some alarming crosscurrents taking place in US public equities. Here are my observations.
A Lesson From Warren Buffett on Buying Fear
Today I thought it would be valuable to take a lesson on fear from legendary investor Warren Buffett. After an epic run in 2013, stocks have taken a breather to start the new year. After reaching a new high on January 15th, the S&P 500 has corrected by 6%. If you read the recent headlines, you'd probably be scared stiff. It's no wonder that some people end up in the hospital. Just check some of these headlines out:
2013 in review: US Stocks win the race
Equities reign supreme
As we look back on 2013, investors will smile wide at the US stock market indices hitting historic highs. Not only did US markets have an outstanding year but they doubled the return of international indices. The once popular BRIC investing theme actually finished with 3 of the 4 BRIC countries in the red. The countries that went bankrupt in the financial crisis rose from the ashes as Greece, Ireland and Iceland were all up over 29%. Volatility was crushed by the running bulls as the VIX was down over 30%.
Equity Management More Important Than Ever Before
In the years 2010-2012, investors around the world poured nearly $700 billion into bond funds, while taking nearly $300 billion out of stock funds. That was then, this is now. Today, more investors view the bond market as abnormally risky and are concerned that recent bond losses could deepen if interest rates continue to rise. ZIRP (zero interest rate policy) has come at the expense of savers and conservative investors, among them are retirees and captive insurance companies. Without an ability to find a risk-free return, much less a low-risk return, many investors have moved and continue to move into riskier assets in order to generate some returns.