Many people think they can outperform the market, but stock picking is dead. That’s one conclusion you could reach based upon BlackRock’s decision to replace some fund managers with automation.
Stock picking is dead
More job automation, this time, it’s at BlackRock – Many people rightfully should be worried about the future of their jobs. Numerous reports and projections have indicated that many jobs will be automated, but few among us probably would have guess that high-paying jobs at the world’s largest asset management company were being automated.
BlackRock: picking individual stocks is difficult
Those jobs that are being automated are stock pickers. BlackRock is coming to the realization that picking individual stocks is difficult. The company has taken the view that it is difficult for human beings to beat the market with traditional bets on large U.S. stocks.
Today, the firm announced an overhaul of its actively-managed equities business that will include job losses, pricing changes and a greater emphasis on computer models that inform investments.
Seven stock portfolio managers are among several dozen employees who are expected to leave the firm as part of the revamp, a person familiar with the matter said. While seven jobs in-and-of-itself isn’t a significant number of jobs, it is telling.
If BlackRock is starting to see that stock selection is difficult, does this mean that everyone one day might be investing all of their money in index funds or having stocks selected automatically for them by computers? Unlikely. There will always be those people who think they can do it better. Heck, if everyone was invested in index funds, stock prices might not move much.
Regardless, if BlackRock is realizing that it is tough to beat the market by making individual stock selections, what makes you think that you can do better? Chances are, you would simply be better off putting all of your investments into index funds. While you won’t beat the market — you returns will simply track the market — you won’t under-perform the market either.
Performing in line with the market over the long haul gives you a very nice return. Historically, including reinvested dividends, you can expect to see returns well above 9%. If you invest $6,000 a year — that’s $500 each month — for 20 years, you would have almost $350,000. If you never added another penny to that, after 40 years you would have almost $1.9 million.