John De Goey is a senior investment adviser and portfolio manager with Wellington-Altus Private Wealth.
Everyone is entitled to their opinion. Hopefully, we can all agree on something so basic.
Once we get past that simple axiom in the age of alternative facts, the problems start. The problem is twofold: determining what is actually true and then further determining whether that conclusion is a matter of conclusive fact or mere opinion. The example that everyone is familiar with is the contested results of the 2020 U.S. presidential election. Both Joe Biden and Donald Trump claim to have won. They cannot both be right, so it would seem that who actually won the election is clearly a matter of fact. However, given that tens of millions of Americans believe Mr. Trump won despite considerable evidence to the contrary, the question has largely morphed into a matter of opinion to the public. And since everyone agrees that people are entitled to their opinion, the “stolen election” narrative lives on.
We live in a world where motivated reasoning is creeping into all manner of decisions. Combined with confirmation bias, which is when one looks for evidence, but only as long as it takes to find literally the first shred of it that supports a pre-existing viewpoint, we face important challenges in the search for truth. Specifically, we live in a world where people can’t even agree on basic facts to have a meaningful exchange of competing viewpoints, much less come to lasting resolution.
Consider the notion of the existence of a “stock picker’s market.” On the surface, it seems uncontentious. The term has existed for decades and crops up from time to time in financial newsletters, commentaries and the like. It is loosely understood to mean a set of circumstances that makes for profitable outcomes for those traders who can capitalize on the situation.
As with many things in life, the burden of proof is a challenging hurdle to clear since reasonable people can differ on the veracity required to feel certain about causation. Is agreement even possible?
I am compelled by the logic of countervailing outcomes. The yin and yang of life means that a market where stock pickers might reliably be able to add value seems to be a stretch. Whenever a stock is traded, the two stock-picking counterparties cancel each other out. To the extent that one side “wins” the trade, the other side “loses” by the same amount (setting aside transaction charges and/or tax consequences). The only way Colorado can win the Stanley Cup is if Tampa Bay loses – and vice versa. I believe this simple, self-evident consequence of transacting in capital markets rises to the level of confidence required to assess the situation as being demonstrably factual. There are no exceptions.
This elegant element of offsetting outcomes holds true in all environments, too: Inflation, deflation and growth, bull markets and bear markets, easy money and tight money – you name it. Basically, there is no overarching circumstance where traders gain an advantage as a result of the environment changing. As such, the implied circumstantiality of “entering into” a stock picker’s market strikes me as being highly suspect. Even if stock picking were to be an intellectually consistent value proposition for adding value, it seems to me that it would be one that could be acted on at all times and in all circumstances, not something that could be turned on and off like a light switch.
The information contained herein has been provided for information purposes only and is not a recommendation or solicitation to buy or sell securities of any kind or to employ any particular strategy. Please contact your financial adviser for advice with respect to your personal financial situation and objectives. Wellington-Altus Private Wealth is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.
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