Group rotation. As an old-time Wall Street analyst that phrase always enters my mind when folks sell stocks in a particular sector. My subset of coverage was autos, and I went through several years of "group rotation" away from my sector - towards tech - before I left Wall Street for good.
To paraphrase the late Supreme Court Justice Potter Stewart, who famously said about pornography, I may not know how to define group rotation, but I know what it is when I see it.
Similarly, it is hard for me as a small asset manager to definitively say "the market is doing this" when my clients and I represent much less than 1% of it, but, again, like Justice Stewart, I know it when I see it.
The last few days have seen a very pronounced rotation from tech and into hard assets, notably gold. Generally this occurs because portfolio managers perceive that the relative valuation premium given to tech stocks no longer is justified based on fundamentals. We saw this same phenomenon in the bursting of the Tech Bubble in 2001 and we may be seeing it again today.
It is not as if some veteran market savant (like me) suddenly makes a proclamation and portfolio managers jump on the sell button. It may work that way for short-term swing traders, but pm's make their money by beating the market over years, not quarters, and by investing in mega trends, not calls du jour. As a market player, one must listen as well as speak. I have always been under the assumption that large pm's have more money under management than I do, so I need to be more of a follower than a leader.
The way to follow market sentiment is to...follow the market. Just track it. Doesn't that mean that one can lose the forest for the trees and lose out on great ideas because portfolio managers have chosen to underweight them? That's what you need to understand about the Big Game. PM's performance is measured against benchmarks, so they will be "overweight" or "underweight" any given name. This means they own more or less of the percentage weighting of the stock versus its weighting in their benchmark average.
That's the professional way to play stocks. Not to identify the next Intel (INTC) or Apple (AAPL) , but to over/underweight INTC and/or AAPL versus a given benchmark and watch the relative performance.
If that doesn't sound as much fun as trading your account with a couple home run names, let me tell you that in my experience, it is not. If you are ever aghast at a stock's individual reaction to a piece of news - an earnings report, for example - then you should put yourself in the shoes of a professional portfolio manager. The job entails much more risk-aversion and pattern-matching than you might imagine.
That is why stocks move the way they do. That is why you should always read those dense, numbers-heavy interviews with fund managers in Barron's. In person, most of them are not as boring as they seem. But they are data scientists and there is a science to stock owning, and, of course, stock picking.
Read the WSJ and Barron's. The folks who actively manage money will always sit for interviews with the staffs at those publications in an indirect way of raising more money. When you can do what they are doing - before they are able to get their ideas through the fully bureaucratic investment policy committees that exist at every money manager - before they do, you will have figured how to make short-term profits in this game.
Don't tell them, though. Let's keep it as our little secret.