Every time markets swing, some investors claim it’s a stock picker’s market. But is stock picking really the best investment strategy in volatile markets, or does diversification win out?
In this article, we explore what this phrase actually means, what the data shows about stock pickers during volatile times, and why diversification may still be the most effective approach for long-term investors.
What is a “Stock Picker’s Market”?
This buzzword gets thrown around when markets are volatile or when some stocks are outperforming others. The idea is that investors can take advantage of these swings to cherry-pick the winners and experience the best returns.
But here’s the issue: most people, even professional fund managers, struggle to consistently pick winners, especially in turbulent markets.
Active stock picking vs passive diversified investing
Here’s a side-by-side comparison of how active managers fare compared to passive, diversified strategies:
| Strategy | Typical Performance | Risk Profile | Cost | Historic success rate |
| Stock Picking (Active) | Often underperforms index | High: relies on timing/selection | High (1–2%+) | Only ~15% outperform consistently¹ |
| Diversified Investing | Tracks market averages | Lower: spreads risk across assets | Low (usually between 0.2–1.0%) | ~90% of diversified investors beat active managers² |
Picking stocks rarely works, yet so many still try to do it.
Why volatility doesn’t help stock pickers
Volatility actually doesn’t make for good market conditions for active managers. When markets are erratic, short-term gains and losses often have more to do with investor emotion than company fundamentals. That unpredictability makes it harder, not easier, to spot the next winner, and investors or fund managers often chase trends or predict movements when the market is fundamentally unpredictable.
Key challenges for stock pickers in volatile markets:
- Emotional decisions: lead to buying high and selling low
- Market timing: is almost impossible to get right
- Overconfidence: often leads to concentrated bets and losses
Why diversification beats stock picking
At Stockspot, our portfolios are designed to handle volatility, by diversifying your investments across different asset classes. By spreading your money across Australian shares, global shares, bonds, and gold, you reduce risk without sacrificing long-term growth.
Why diversified investing works:
Diversified investing helps investors by:
- Removing the guess work as to which stock will perform
- Charging lower fees = more money compounding over time
- Historically offers more consistent performance across market cycles
So, is it a stock picker’s market? The answer is: not really. While volatility creates short-term winners and losers, predicting them reliably is a gamble. A diversified, low-cost portfolio remains the smartest path to wealth for most investors.
Instead of chasing short-term gains, smart investors stick to a long-term investment strategy built on diversification and discipline.
