Gerard P. Sullivan, Portfolio Manager, December 23, 2014
The recent turbulence in the U.S. equity market has been a dramatic change in an otherwise tranquil year for domestic stocks. For the most part, the market’s advance was smooth, in part because companies have worked hard to issue guidance to ensure that their financial results were closely aligned with investor expectations. And I believe that level of predictability remains unusually high.
The market gets more interesting — and investment opportunities arise — when that predictability disappears and we see some type of meaningful disruption. Plummeting oil prices and their negative impact on stocks in the energy sector is a recent example. But the disruptions also can be positive, such as more robust economic growth, increased spending, or greater consumer confidence that causes businesses’ top-line growth to move unexpectedly. These surprises can create opportunities for active stock pickers who have been conducting intensive research through all market cycles.
Finding the research edge amid too much information
Since I began in this profession over 30 years ago, the investing environment has changed in many ways. One is the sheer volume of information we receive about the markets, companies, and stocks — and the speed with which that information flows. The whole idea of corporate guidance didn’t exist during the first half of my career.
Today, corporate conference calls and presentations are often so well choreographed, it’s difficult to learn anything new. To succeed despite a lot of “noise” takes new ways of thinking, knowing how to cull the voluminous data, and gaining insight beyond what’s already out there. To get an edge, we talk to competitors, conduct surveys, and dig deep with our own primary research. Sometimes we even surprise the companies themselves with the information we gather about them.