As we start the New Year, I want to touch on the important distinction between managing a portfolio compared to picking stocks -- it is something that I have been meaning to elaborate upon for some time.
Jim "El Capitan" Cramer and I do something different than many others -- we manage a portfolio(s).
By contrast, many other market pundits are picking stocks -- they may be made and selected as a "Trade of the Week," or based on flow or unusual options activity or delivered using charts and technical analysis. But almost entirely, they are making (what they believe to be) educated opinions on individual stocks and not producing a comprehensive portfolio strategy which considers different asset classes (equities, bonds, options, cash, etc.) and weighs them according to a probability distribution (based on a projected fundamental outlook) -- that produces a reward vs. risk calculation in order to compile a portfolio based on a given time frame and risk appetite/profile.
Make no mistake about it -- the above is a preoccupation with many -- but my focus and Jim's focus is much broader and parallels the world of portfolio management compared to trading isolated securities and finding "winners."
Like comparing fundamentals to technicals, anticipatory vs. reactionary methodologies, etc., there is no concession on the best way to deliver investment returns. Stock picks, in isolation, can obviously produce great returns but my approach is a different regiment.
This helps explain why I require and have the need for modeling, the calculus of "fair market value" and, generally, adopt a broader orientation toward investing vs. trading.
That is not to say I don't trade. I do (and often quite frequently based on my perception of the markets -- are we in a secular Bull or a trading range?) in order to produce a "cash register" effect in my portfolio. After all, many stocks are "dormant" or underperforming at times.
You may say, well, a portfolio of stocks is simply a compilation of individual stock picks. Though literally correct, managing an investment portfolio (through cycles) is far more nuanced and complex than that.
The distinction between managing a portfolio and picking a stock is substantive. One is not "better" than the other, but it's a materially "different" exercise or charge.
It is like comparing "apples to oranges."The functions are as different as night and day.
Many retail investors (particularly high net worth with larger portfolios) and virtually all institutional investors have a far broader portfolio mandate than finding a stock that is currently "hot," or positioned well technically.
Others may have different objectives in mind, but I view my charge in my Diary to present, explain, weight and continually update my view of the structure of a broad investment portfolio of different asset classes.
(This commentary originally appeared on Real Money Pro on Jan. 4. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)