Just a quick thought today: We often come across articles talking about how this is/isn’t a “stock picker’s market.”

Some articles begin with the idea that a stock picker’s market is one in which the internal correlation amongst the S&P 500 stocks is low.  This low correlation creates the opportunity for astute investors to choose stocks with a chance to materially outperform the index.

Other articles begin by defining a stock picker’s market as one in which the internal correlation amongst S&P 500 stocks is high.  Under these circumstances, active managers have a lower amount of risk in picking individual stocks, since their choices are more likely to resemble the index.  Under these circumstances, it’s nearly impossible to make a big mistake.

Contrary to both of these camps, we believe that there’s no such thing as a stock picker’s market.  Here’s our thinking:

Once we’ve accounted for the prominent factors involved in investing – value, momentum and beta – just about all other reasons for buying one stock versus another are rubbish.

Track records of equity style mutual funds and general classes of stocks strongly suggests that success in stock picking is almost entirely attributable to being ahead of those three factors.  In other words, it’s time we put down the idea of a “stock picker’s market” entirely because, no matter how you define it, it simply does not exist.