There is no stock pickers market

John De Goey is a Senior Investment Advisor and Portfolio Manager at Wellington-Altus Private Wealth.

Everyone has the right to have an opinion. I hope we can all agree on something so basic.

Once we get past that simple axiom in the age of alternate facts, the problems begin. The problem is twofold: determining what is actually true and then determining whether that conclusion is conclusive fact or mere opinion. The example everyone knows is the disputed results of the 2020 US presidential election. Joe Biden and Donald Trump claim to have won. They can’t both be right, so it would seem that who actually won the election is clearly a question of fact. However, with tens of millions of Americans believing Mr. Trump won despite ample evidence to the contrary, the issue has largely turned into a matter of opinion for the public. And since everyone agrees that people are entitled to their opinion, the “stolen election” narrative lives on.

We live in a world where reasoned reasoning creeps into all kinds of decisions. Combined with confirmation bias, that is, when one looks for evidence but only long enough to literally find the first fragment of it that supports a pre-existing point of view, we are faced with significant challenges in the search for truth. Specifically, we live in a world where people can’t even agree on basic facts to have a meaningful exchange of competing viewpoints, let alone reach a lasting resolution.

Take the idea of ​​the existence of a “market of stock pickers”. On the surface, this seems undisputed. The term has been around for decades and comes up every now and then in financial newsletters, commentaries, and the like. It is loosely understood to mean a set of circumstances that generate profitable results for traders who can take advantage of the situation.

As with many things in life, the burden of proof is a difficult hurdle to jump, as reasonable people may differ on the truthfulness required to be certain of causation. Is an agreement even possible?

I am constrained by the logic of compensatory outcomes. The yin and yang of life means that a market where stock pickers might be able to reliably add value seems overkill. Each time a stock is traded, the two counterparties in the stock selection cancel each other out. To the extent that one party “wins” the transaction, the other party “loses” by the same amount (aside from transaction fees and/or tax consequences). The only way Colorado can win the Stanley Cup is if Tampa Bay loses — and vice versa. I believe that this simple and obvious consequence of capital market transactions achieves the level of confidence required to assess the situation as demonstrably factual. There are no exceptions.

This elegant element of earnings compensation is equally true in all environments: inflation, deflation and growth, bull markets and bear markets, easy money and tight money – you name it. Basically, there is no overall circumstance in which traders gain an advantage due to the change in the environment. As such, the implied circumstantiality of “entering” a stock picker’s market strikes me as highly suspect. Even if stock picking were to be an intellectually coherent value proposition to add value, it seems to me that it would be a proposition that could be acted upon at any time and under any circumstances, not something that could be turned on and turned off like a changing light.

The information contained herein has been provided for informational purposes only and does not constitute a recommendation or solicitation to buy or sell securities of any kind or to employ any particular strategy. Please contact your financial advisor for advice on your personal financial situation and goals. Wellington-Altus Private Wealth is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

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