Stock Co-Variance

Stock market “co-variance” means in laymans’ terms that, when something happens, all the stocks in your portfolio move in the same direction. Regardless of an individual companies’ performance, financial position, or future prospects, every stock in the index moves up or down together. As you can see in the list above, the 20 or so stocks in this portfolio ALL went down today.

The types of events that used to move markets like this were due to wars, elections, or changes in policies such as interest rate meetings like the Fed. Now, however, it is often due to the inexorable series of financial crises that we have faced in the US and now in Europe with the Euro crisis. Today the German bond auction had difficulty, and this ricocheted across the ocean into our markets.

To be an investor today you need to keep one eye on the stocks that you select and another eye on the overall factors that are causing the market to rise or fall. Unfortunately, many of these items causing the market to rise or fall are caused by government policies and actions which are impossible to predict in the short run and impact the entire market.

It is frustrating…

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One thought on “Stock Co-Variance”

  1. And this is why stock jockeys (i.e. traders) take it in the arse so often. Imagine that loss in your value if you were long and levered up.

    Well rounded portfolios that are well diversified. although this is a decades (centuries?) old strategy is still a winner. Being young I still am overweighted stocks, but most of mine are dividend paying and I diversify that even more by weighting percentages in different sectors and cap values. It isn’t rocket science.

    But I agree, some days there just aren’t any winners out there.

    Fortunately, I don’t worry too much about the day to day stuff but study intensely my quarterly and semi-annual reports and try to sniff out trends.

    If a guy I have hired to run my block of allocated small cap value assets is getting smashed by the Russell 2000 over and over and over, he is out of there. Nothing personal, just business. I am not paying somebody to underperform an index fund that I can buy with close to zero fees.

    Like

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