Stock Pickers Find Success Navigating 2022’s Turbulent Market
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Here's your money briefing for Wednesday, December 21st. I'm J.R. Whelan for The Wall Street Journal. This year's topsy-turvy stock market has made it difficult for many investors to take shelter from all the turbulence. That is, except for those who've employed a strategy that's been out of fashion in recent years called stock picking.
It's a tricky strategy. Whatever is going on with the broader indexes, they're willing to look behind that and go pick specific stocks on the basis of their own fundamentals and technical factors and whatnot.
So is stock picking an effective approach for individual investors who are trying to protect their portfolios or 401ks? WSJ Markets Reporter Hardika Singh will join us for a little Stock Picking 101 after the break.
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The stock market turbulence that we've seen in 2022 has left many investors scratching their heads.
What is stock picking and why has it reemerged during 2022’s market turbulence?
But one piece of clarity has come into view. Stock picking has reemerged as a way to make money in this year's up and down market. So how does it work? And should you use this strategy to grow your own nest egg? Let's bring in WSJ Markets Reporter Hardika Singh for some answers. Hey, Hardika, thank you very much for being with us.
Thank you so much for having me today.
So first of all, Hardika, what is stock picking and how does it relate to the broader market?
This has been an absolutely brutal year for investors. There's been very, very few places for investors to seek safety and hide away from all the turbulence. And that really has opened up a window of opportunity for stock pickers. who aren't exactly into following whatever is going on with the broader indexes, but they're willing to look behind that and go pick specific stocks on the basis of their own fundamentals and technical factors and whatnot. And that really has helped stock pickers rally this year.
But it wasn't that long ago that we had some of your colleagues from the WSJ markets team on the show, and they were discussing the successes of passive investing, which is essentially the opposite of stock picking. What caused some of the success of passive investing to dry up?
Like with any story about the stock market, it's all about tech. So obviously, over the last decade or so, we had this monster rally in tech stocks. So if you were owning tech stocks, that at one point was like most of the S&P 500. It had a huge weightage. And once they were going up, it helped the S&P 500 and many other indexes set these new records all the time over the past decade. This year, with the Fed coming in and saying, hey, we need to start raising rates, we need to start to tame this inflation. That has been not so good for tech stocks, as one could imagine. Tech stocks are very, very sensitive to interest rates, but interest rates go up, tech stocks go down because their valuations get hurt.
So investors have pulled out of tech stocks this year. And in addition to that, the overall indexes, such as the S&P 500, Dow Jones, and NASDAQ, they've all been stuck with these tech stocks, which still have a huge weightage.
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