More Opinions about Last Year’s Market Performance

Last week I presented some opinions about last year’s market performance. Here are some more comments where I use illustrations from three articles that appeared in Barron’s.

I read Barron’s weekly, enjoy reading it and find valuable news and information in it and highly recommend it to anyone interested in keeping up with what is going on in the stock and bond markets. I don’t always agree with what is written, but always want to know what that is. I also agree with a lot more than I disagree with. However, my learning would be limited and curtailed if I agreed with everything they write. I continuously need new ideas, new vantage points, and to have my beliefs challenged, otherwise what’s in it for me other than feeding my ego, which purpose I am long past.

The first article was published on November 15, 2021, titled “The Little Stocks That Could: How Barron’s Picks Have Fared.” This dealt with small-cap stocks. The article said that the 35 companies they profiled were four percentage points ahead of the market. That’s great. They also highlighted seven winners and three losers. The best performing stock had a total return during the period covered of 48.4% compared to the index’s return of 5.0%. In fact, the top 7 winners ranged from being up 33.2% to 48.4%, all way ahead of the indexes used for comparison. However, the three losers ranged from losses of 22.6% to 36.1%, way below the indexes. This is a snapshot of short-term performance since the earliest publication date of March 15, 2021, and the latest was October 18, 2021. My evaluation or measurement standards use a long-term investment horizon of ten years. However, what is interesting is that no matter how good the pickers and picks are, they still had losers.

The second article was in its Outlook Issue published on December 20, 2021. The Barron’s picks for the top 10 best candidates to outperform the market for 2022 were introduced. They also provided the results of its 2021 picks, and they narrowly trailed the S&P500 index. Barron’s picks were up 26.9% versus 27.6% for the index. This is not bad. Actually, it is great. However, staying with the index is easier and simpler and requires less time managing the portfolio and transactions. Of the ten picks, five did better than the index, while five did worse, with one of them losing 22.2%, and one was up only 1.2% and another 3.7% in an extraordinary up year. Gains are never guaranteed or even predictable.

The third article I am referring to was published on January 17, 2022 and rated the entirety of Barron’s 2021 160 stock picks. The total return of their picks was 5.1% against the corresponding indexes of 8.4%. Not so good, but still up a reasonable amount. I compared the ten small company yearend results in the first article to these yearend results and while six of the seven winners were still up, they were of varying amounts as would be expected; however, one of them that showed a 33.2% total return in the November 15 issue, ended the year with a 6.3% loss.

There are a lot of variables, and I’ve posted previous discussions about this. The point here is that at this point in time, in the current economic situation and using this relatively small sample, it appears that sticking with the indexes seems to be a better choice.

A comment about “beating” the market. There are many ways to invest, one of which is to try to beat the market, and another is to match the market. In a future blog, I will write about a strategy of not trying to do either and will present my reasons for that, but now I am addressing these two ways. If you want to match the market, you need to define the “market” and then find an index fund that duplicates that market. For instance, if you want to match the S&P500 index, you can easily buy shares in an exchange-traded or mutual fund that does this. Then you will pretty much make or lose whatever that index does. However, if you want to beat the market, then you would invest in mutual funds whose purpose is to do that, or buy individual shares also trying to beat the market. The three Barron’s articles I referred to here, related to previous articles they published that provided information on why these stocks would do better than the market as a whole. Yet, on balance, they could not “beat the market.”

I refer you Barron’s entire articles, which can be accessed at www.barrons.com and recommend subscribing to Barron’s.