Is it the twilight of the short-sellers? Is it the renaissance of the stock pickers? Or has nothing changed?
It's tougher to tell than ever, because something amazing has happened and it is so rarely talked about. Even as recently as a few years ago, individual stocks in an index could matter as much as the index itself, or even more so. A bad quarter from a big-named company could hurt the whole market. Now, it doesn't even hurt the sector if there is momentum in the group.
Why is that?
Simple: index-buying overwhelms all but the hottest of small-cap stocks that aren't included in the indices and a couple of FANGs -- Action Alerts PLUS holding Facebook (FB) , Trifecta Stocks name Amazon (AMZN) , Netflix (NFLX) and Google parent Alphabet (GOOGL) -- that are so big they feel like indices in their own right.
It was hard to see this coming. I remember talking to an extremely cerebral executive at a major retailer 25 years ago, whom I was congratulating as his company had just been added to the esteemed S&P 500.
He wanted nothing of it. He was actually quite upset about it, and wanted to know how he could get his company out of the index. I said that was silly, as it was a badge of honor. He said he felt all of his work -- and it was a lifetime's worth of it -- was thrown out of the window because his stock, which had been a good measure of his performance, would now be just a commodity, like every other stock in the index. He said that one day it would not matter at all what he had done; the judgment of his company's worth would be set by the indexers.
Not long after, he sold his company and retired to do charity work. I bumped into him not that long ago and he was as adamant as ever as to the meaningless of an individual CEO's efforts to bring out value, unless it was in a sale.
Time has proven him to be a visionary.
Why does this matter so much? Because it makes it so hard to be a stock picker. The index, allegedly so passive, is actually the opposite. It is a living, vibrant instrument, which benefits from a takeover of one of its own, while simultaneously knocking out the worst and replacing it with some hot stock from the S&P midcap index.
Can you imagine a money manager who could do that? Who could literally impact his own performance by kicking some out and adding others?
It's why the bar is so high against them.
But it's even harder when it comes to being a short-seller. You aren't just fighting the possibly rising fundamentals of a company, you are also fighting the tide of historical passive money managing.
I lament all of this. I think, when I interview someone like Jane Elfers, CEO, Children's Place (PLCE) , that if I bought that stock in addition to owning the indices, I would have the advantage over the passivists as well as the highly compensated hedge fund managers who, if they were to cut their fees, might have much better track records.
I think that if I used my instincts and my observations and bought a stock like Canada Goose (GOOS) or Denny's (DENN) or Wingstop (WING) -- all of whose executives I interviewed yesterday -- I would do so well, that I would be grateful I tuned in that night.
Instead, I think that the vociferous index proponents would say that the interviews are hazardous to your health, even as they are anything but.
Which brings me to the piece de resistance of critical thinking about the debate: Yesterday, Patrick Doyle, CEO of Domino's Pizza DPZ, announced his retirement. Eight and a half years ago, I met Patrick when Domino's stock sat at $10. I actually got to see him the morning he took office. Domino's at the time was a real second-rater. I didn't even want to take the meeting.
I remember thinking, OK, I gotta go do this, part of the job, let's see what this guy has to say about his crummy pizzas that no one likes.
We sat down and I was haughty and derisive; I didn't "chief" the man or anything, but really, Patrick Doyle, CEO of Domino's? Let's get this meeting over with and focus on something important.
Right off the bat, I said, what's the plan, man, I mean just tell me the thinking, that's good, thanks, cheers, check!
He said he was going to start a series of ads about how his pizza tastes like cardboard.
I reiterated, OK, that's funny, what's the real plan? He said that's the plan. He was going to make the pizza taste better, 'cause it was awful.
I walked away shaking my head. I didn't believe it until I saw the ads where, literally, a series of live people dumped on the pizza, including one who said that the cardboard box tasted better than the pizza inside. They were remarkable, ground-breaking, and, yes, insane.
But they didn't get me to try the pizza. That's not the case for others I know, though. Not long after, my eldest daughter came over to my house and said "Dad, we are going to order from Domino's." I said you have to be kidding me. We're Trat people. We're Joe's guys.
She said "wait until you see this cool app." And she proceeded to create and order a pizza online and then tracked its arrival with a baseball game analogy, that ended with "it's out of here", signaling get ready for it to arrive.
Doyle had cracked the code. He figured if he owned up that the pizza was suboptimal, fixed the taste and then offered a version of the ordering system where the millennials didn't have to speak to anyone, you could dramatically cut back on the errors at the store level, while pleasing the "let me text, not talk" cohort that he had to win over.
He kept refining it, making it easier, like paying with a credit card online, because millennials hate interacting with cash and tipping. And he gave people what they wanted, including, for my kids, a vegetarian pizza -- just press "no cheese", it prompts you by asking "are you sure you want no cheese?" and then a fabulous tomato pie is on the way. Try it with the banana peppers; you will love it and you will lose weight; trust me.
Which brings me all the way back to stock-picking. Patrick Doyle, who announced his retirement last night, drove the stock from $10 where it was at that breakfast to $200 and change, and that's not including special dividends. He did so by out-executing everyone, and by owning up to the chain's problems and the technology to help fix them.
The index people don't care. He's an oddity to them.
The people who don't own it don't care. The academics who study the market don't care.
He didn't work for them.
But for all of those along for the ride? It mattered. He did better than the index. He crushed it.
He will be missed.
It's not the twilight of the stock pickers. It's just that there aren't enough executives like Patrick Doyle, or the nameless fellow I mentioned who sold his company, rather than have it commoditized. When we find them, we have to salute them. Thank you, Patrick Doyle, for all you have done.
You transcended the average and the averages. You have done good. And, after June, you will be sorely missed.
Today is the first call with subscribers of Action Alerts PLUS, the portfolio that Jim Cramer co-manages as a charitable trust. Click here for an exclusive video that takes a look at the portfolio behind the scenes.