How has the stock market done over the past 4.5 years? If you answered “great,” I know where you are looking. At the S&P 500 ($SPX) or growth-oriented index funds. You’re probably focused on the biggest U.S. stocks. Because if you look anywhere else, frankly, it’s a mess.
It has been for a long time. Long enough so that we need to talk about it seriously. Because this table, a summary of a study I published recently, essentially says “stock picking” has been a coin flip since the start of 2022. Not coincidentally, that’s when interest rates climbed off the mat and again became competition for the broader stock market.
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Using the Russell 1000 Index as the universe (which shrinks slightly over longer time frames in the above table, as it only includes stocks which have been in the index the full period), about half of 950 stocks have not outperformed “measly” T-bills. I used the State Street SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) to represent that cash-like investment. So without using fancy stats like equity risk premium, it is fair to say that if you were not a strict index-tracker, crowding into the top names and holding them, there’s an excellent chance your portfolio has a relative “loser” to T-bill since 2022, for every relative winner.
If that doesn’t strike your brain where it hurts, you’re not paying enough attention. This market has been described as “top heavy.” But that only refers to how few stocks are carrying the load in terms of high weightings in the S&P 500 and other growth stock indexes. This is different.
Here we are talking about the decision to take on risk and invest in single stocks.
For Baby Boomers and Generation X investors who have accumulated strong stock portfolio balances, there’s never been a better time to look underneath. Just to make sure you don’t have mold in the closet. Or worse yet, asbestos, in the form of convincing yourself your portfolio is doing well as a unit.
Sure, the few can carry the many, and have for years. However, my simple question is: What happens when they don’t? The rest of the “club” that is the top 1,000 stocks have been unable to pull their weight.
