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Volatility rising: why stockpickers will rule this market


Three weeks into the new year and stocks have nothing to show. After sprinting to multiple  record highs in December, the S&P 500 (^GSPC) is essentially flat for the year, which is just fine for some investment pros.

“As they say, the market can correct through price or through time,” says Joe Fahmy, managing director at Zor Capital in the attached video. “So if it doesn’t correct through price (or decline), it’s actually healthier when it just goes sideways and digests the big gains of last year.”

Like most portfolio managers, Fahmy is bracing for increased volatility this year, calling 2013 “great but not normal” for its upside bias and absence of major corrections.  

While the benchmark indexes may be little changed this year, the performance on the sector level is widely varied, with Health Care (XLV) and Utilities (XLU) up big, and Telecom (XTL) and Discretionary (XLY) suddenly falling way behind.

“For individual stock pickers like myself (greater volatility and a diversity of sector performance) is good for individual stock picking, because that’s when you can really shine,” Fahmy says. 

His point is, in a market where everything is rising and up big, it’s easy for active investors to look bad by lagging their benchmark indexes. Compare that to a choppy, flat market with lots of big winners and losers, and it’s a whole new ballgame that’s skewed in favor of the active, rather than passive, investor.

 But don’t think the market is going to “hand you money,” Fahmy warns.

“Overall I’m bullish in the longer term, however this year I wouldn’t be surprised to see some more volatility,” Fahmy says, adding that he’s focusing on newer growth companies this earnings season for possible opportunities.

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