January Was Awesome for Stock Pickers, but Can They Keep It Going?

Over the last 20 years, stock pickers have had a dismal record. Most haven’t come close to beating the overall stock market.

But occasionally, there are exceptions. In some periods, stock pickers rule, and the start of this year was one of those times.

In fact, it was the best January for actively managed stock mutual funds since Bank of America began compiling data in 1991. It wasn’t just that they turned in handsome returns for investors. The entire stock market did that. The S&P 500 and other stock indexes set records during the month.

It was that active stock funds did even better, though not by much, beating various market indexes by less than a percentage point, on average. Still, it was the best single month for these funds — in which managers buy and sell individual stocks whenever they choose to do so — since 2007. That happened to be the best calendar year for stock pickers in decades.

There’s no way of knowing how long this streak of outperformance will go on, or why, exactly, it has existed in the first place. But it’s quite possible that it will continue for the balance of the year, and that buying the average actively managed fund will look like a brilliant move. Index funds that mirror the entire market could well lag behind.

That said, I think the active fund managers are unlikely to prevail over the long run. The reason is that history shows it’s just too hard to beat the market.