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We’ve had Diversity of Performance as a theme since 2005. Every year, it seems to get more pronounced. The very best just get better and the worst, worse. On the stock markets, there was a time – not too long ago – when investing in the Index would still do you proud. Indeed, any bunch of tech stocks picked at random would do well. But those days are long over.
I’ve recently done some research with a client of ours of NASDAQ stocks. In the 12 months to 30th Nov 12, NASDAQ has risen by a pretty impressive 14.9%. But if you take the 162 mega, large and medium cap NASDAQ stocks (BTW – they include c50% which are not US-HQed like ARM and Wipro) and divide them into four quartiles, the shares of the top performing quartile rose by a massive 57% whereas the bottom quartile slumped by 23%. That is the largest gap I have ever recorded. In the 12 months to 30th Nov 11, the top quartile grew by 39% compared to a 28% slump in the bottom quartile in a year when NASDAQ advanced by just 4.9%.
The other rather interesting point is that nearly 50% of those in the Top Quartile in the last year were also in the Top Quartile in the previous year. Top performers – like Apple, ARM, SAP etc - just keep performing! Conversely 40% of the worst performers this year were the worst performers last year too – here we list companies like HP, Nokia, Xerox, Riverbed.
My take from all this is that in tech ‘stock picking’ is now so crucial that the ‘average’ fund manager can no longer hide behind the average index performance. But it also shows that the best policy is to choose great companies and stick with them; rather than ‘churn’.
Mind you with Apple currently having recorded its worst day since 2008 and a 20%+ fall since Sept, that theory is currently being cruelly tested!
