January 27, 2022

This Year Will Be Different: The Stock Picker's Motto

Max Martin

2021 was a historic year for the stock market. The S&P 500 ended the year with an annual return of close to 30%, Vanguard’s Growth Index and Value Index each had returns of over 20%, and the Russell 2000 Index was up over 15%. Whether investing in small-cap, large-cap, growth, or value stocks, 2021 offered high returns to just about everyone.

Why then, did actively managed stock funds struggle to keep up with the market? As of November 30, 85% of active US stock funds were on pace to underperform the S&P 500.  Unfortunately for stock pickers, this year was not a fluke. In 2020, the amount of underperforming active funds was 64%.[1]

These numbers might be unexpected by some, but the underperformance of actively managed funds is not a tightly held secret. The statistics above came from a front-page article in the December 29th Wall Street Journal, with similar articles from past years being found in the New York Times[2], Business Insider[3], and CNBC[4]. The truly surprising part of the underperformance is that the same news sources, analysts, and stock pickers that gave bad advice about the past year waste no time making predictions about next year’s market. In fact, directly beneath the Wall Street Journal article cited above is another article titled “Wall Street Analysts Turn Pessimistic on 2022.”

This is just one example of many when it comes to the constant cycle of market predictions. All you have to do is Google “Stock picks for 2022” to be bombarded with thousands of stock predictions from equally as many sources. There is no accountability from last year’s bad picks, only the assurance that this year will be different.

Diversifying your portfolio might not be as flashy as following the latest stock picks, but historically it has been a great option to maximize your returns at a given level of risk. It allows investors to assess their own risk tolerance and invest accordingly, avoiding the added risk and volatility that often comes with active funds and stock picking. For help with your portfolio, visit our website www.kdminvest.com or give Jeff a call at 630-232-9097.


[1] https://www.wsj.com/articles/stock-pickers-are-struggling-to-beat-the-market-11640692983?mod=Searchresults_pos3&page=1

[2] https://www.nytimes.com/2014/07/20/your-money/who-routinely-trounces-the-stock-market-try-2-out-of-2862-funds.html

[3] https://www.businessinsider.com/personal-finance/investment-pros-cant-beat-the-stock-market-2020-7

[4] https://www.cnbc.com/2020/09/18/stock-picking-has-a-terrible-track-record-and-its-getting-worse.html