For years, analysts and investment managers would often state, "this is a stock picker's market". It seemed like every market environment was described as a stock picker's market, but that mantra is being put to rest now.
The stock market is not a static environment, it is a dynamic system, and the rate at which the environment is changing is also increasing. Between half and three-fourths of all daily stock transactions are now high frequency trading, intraday trades where positions are held for brief periods of time. There is a higher degree of correlation between individual stocks relative to their sectors and indices than there has been in prior eras. I cannot recall any time when picking individual stocks has been less important than it is today.
I have been increasing my allocation to ETFs, and tweaking my methods as new products are introduced, which means the percentages allocated to individual stock positions has been on the decline. Leveraged daily ETFs, which can correlate to double or triple the move in a sector or index in either direction, trade huge volumes every day. This allows traders who want to attempt to catch short terms moves to do so without resorting to the complexities of option strategies. Leveraged ETFs are for aggressive investors, but typically less so than options, and they can be purchased in cash accounts, such as IRAs. A couple of words of caution when utilizing leveraged ETFs: leveraged ETFs, whether long or inverse, will tend to decline in value over time due to the daily rebalancing. While this may appear to make them good candidates for shorting, be forewarned that your brokerage firm or custodial institution can call back shorted shares anytime they want, and will do so, and as Murphy would have it, at times that are least favorable for the retail client. Also be aware that if you should purchase shares of leveraged ETFs, given that their longer term nature is to decline in value, holding periods can rarely be for long periods of time. Chart two equally leveraged opposing ETFs and you will see what I mean, as time progresses, both of them are likely to lose value. Tricky stuff indeed.
Many more senior traders and investors will eschew this change in the market environment. I believe there is something in human behavior that causes people to become less open to change with increasing age. For example, I loved the music I grew up on, and for many years after, but I would rather have the proverbial unnecessary root canal than listen to almost any "musical" recording from this millennium. I mention this because many experienced investors will resist modernizing their investment approach with the new environment. They will invoke the name of the deity Warren Buffet and his buy and hold strategy. Buffet made his riches decades ago, in a very different environment, his methodology was outstanding for that era. Here is a chart of Berkshire Hathaway since 1998. I selected 1998 because that was the pinnacle of adoring investors trying to mimic Buffet's portfolio, paying inflated multiples for stocks like Coca-Cola and Gillette. The performance of Berkshire has certainly not been something to get excited about in the past dozen years.
I expected that ETFs, iSHARES, and other more liquid instruments would have done more to hasten the decline of mutual funds, but mutual funds have hung on. I do not see much value in mutual funds anymore. They did serve a purpose years ago, but with the advancement of technology, proliferation of ETFs, the dwindling commission fee on transactions, and the rise of investment advisors who custodian through large institutions than can provide more and customized service at a lower expense, I think mutual fund share will gradually erode.
So don't expect to hear "this is a stock picker's market" to describe this market....or at least don't believe it.