I’ve posted Entry #23 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Even Stock Pickers Can Benefit from Allocation Shifts.
Juicy Excerpt: Stock pickers do not believe in market efficiency; effective stock picking is impossible in an efficient market. But presuming that there might be some efficiency to the market, it is likely that there is a greater measure of efficiency on the micro side (how individual stocks are priced) than on the macro side (how the overall market is priced). Stock pickers are better informed than most indexers. So the market is probably better able to price stocks well relative to each other than it is to price the overall market properly.
Market inefficiencies present opportunities to stock pickers. They seek to take advantage of micro inefficiencies by picking stocks. It may be that even greater opportunities are available to them in the form of macro inefficiencies. Stock picking is all about gaining an edge. Lots of people are studying annual reports of all the companies in an effort to find profitable edges. How many are giving thought to how much of a change in their overall stock allocation is appropriate at various valuation levels? It may be that it is on the macro side that the low-hanging fruit is to be found.