Picking Winning Stocks

What if your team lost 90% of its games year after year? Would you stick with it?

Most active fund managers are facing this dilemma. The SPIVA® U.S. Year-End Scorecard for 2016, issued by S&P Global, shows that over the past fifteen years, the performance of 92% of large-cap fund managers, 95% of mid-cap managers, and 93% of small-cap managers has trailed their respective benchmarks.

Picking winning stocks is hard. As I wrote in Money Grab,

That was always a major selling point with our clients. Anyone could have a good year. Make a few lucky stock picks, sidestep a few land mines. But it took real skill to do it year after year, to constantly outperform your benchmarks. And Shep had proven he could do it.

Does this mean you should never invest with an active fund manager? Not at all. There are always winning funds out there. But it may mean that a percentage of your assets can benefit from being invested in index funds or ETFs that give you the return of the benchmark, without trying to beat it. The rest could be allocated to active managers with a strong track record of outstanding performance. Your financial advisor can help you decide on the best mix for you.

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