Monday, January 03, 2005
Click on image to enlarge.
I realize that title makes no sense.
I am referring to a table in the year end issue of BusinessWeek which shows the best performing mutual funds for 2004. The table lists 40 funds (mostly open end funds but also five ETFs). Out of 4o funds, 36 of them are either sector funds or country funds. Two of them appear to be broadbased funds, one of them is a small cap European fund and another just says Bruce. I have no idea what that is and I did not try to look it up.
The reason this is noteworthy is that the driving force behind at least 90% of these funds on the list was being in the right sector or country. 90% is an interesting number because the studies that have seen advocating top down management say that 90% of an investor's returned is determined by correctly deciding when to be in the market and then correctly choosing what sectors to own. Said another way stock picking only accounts for 10% of an investor's return.
To repeat; stock picking is least important, but still very important. Good stock picking can enhance returns. As an example I have about an equal weight in healthcare. But, as I have been writing about for months I have avoided large US drug companies and instead owned foreign large drug companies, medical devices, generics and a little biotech. None of the stocks I own are up a lot, but have collectively outperformed the iShares Dow Jones Health (IYH).
As a reminder I would say to anyone that makes decisions about investing is that you can not take short cuts.
Posted by Roger Nusbaum at 6:17 AM