The Stock Picker’s Bear Market

By Charlie Bilello

22 Nov 2021


Bezos. Gates. Buffett. Zuckerberg. Musk.

A list of the wealthiest Americans all have one thing in common: concentrated positions in a single company’s stock that they founded.

It’s tempting to believe that is the model you should follow in your own investment portfolio, but for most, that would be a mistake.

Why?

Because the odds of you picking a single stock and it becoming one of the big winners of the future are not in your favor.

Most companies (72%) vastly underperform Treasury bills over the long term and more than half earn a negative lifetime return.

While the data is clear, the allure of stock picking remains. The siren song of finding riches in picking the next Apple/Amazon/Google/Tesla is simply to great to resist.

And after a year like 2020, it almost seemed easy. Had you purchased virtually anything in the high growth/tech/IPO/SPAC space, you would have outperformed the S&P 500 by a wide margin.

This trend continued at the start of 2021, with the meme-stock mania in January and a blow-off top in February. I wrote about it at the time, as FOMO-driven investors were chasing performance and pouring billions into the leading stock-picking firm of our age (ARK Invest).

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What’s happened since is a swift transition back to reality, which is to say a world in which stock picking is anything but easy.

Many former high growth/tech/IPO/SPAC favorites from last year are now showing significant drawdowns…

And the flagship stock picking fund ($ARKK) is more than 33% below its February high.

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At the same time, the simple, boring S&P 500 is hitting new all-time highs at a record pace (already 66 on the year) and the Nasdaq 100 is on track for its 13th consecutive positive year.

It’s a stock picker’s bear market, that much is clear.

Is it portending broader weakness to come, with the major indices following suit? We’ll find out soon enough.

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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For our full disclosures, click here.

About the author

Charlie Bilello

Charlie is the founder and CEO of Compound Capital Advisors.

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