If two stocks are fundamentally as good, does stock picking help? Singapore Airlines v Cathay Pacific
Stock picking may only be useful some time
According to Singapore Airlines and Cathay Pacific stock price, stock picking may only be useful some time. Now before I begin, I might add that this article has a narrow view: hypothesising the outcome of stock picking between two near-identical stocks in the same sector. I do not claim that stock picking is not useful at all.
It is my personal musing and observations as an individual investor. It will be a pleasure if a discussion can take place with contribution from readers.
Overlaying stock price of both companies on the same chart
I start out by putting the chart of Singapore Airlines and Cathay Pacific together. Although each chart belonged to a different stock database, both printed the same signal to me on the weekly chart.
They may not be apple to apple comparison since both airlines have slightly different fundamentals not to mention an exchange rate difference between the stock prices, they are still good for comparison because:
- They have similar positioning and overlapping revenue segments
- Both are flag carriers representing the pride of their economies and boast the best management teams that can be afforded
- Both might even have access to the same investors since they trade in the same time zone and are listed on highly sophisticated and open exchanges
Can stock picking produce a winner?
Legend: | Black for Cathay Pacific (SEHK: 0293) | Blue for Singapore Airlines (SGX: C6L)
This weekly chart overlaying the two over the period from 2000 to present show that:
- Coinciding peaks and troughs demonstrates same stock price cycle
- Both are subject to forces in the market place in the same way
- Especially during periods of crisis i.e. dot.com bust, 9-11 and subprime, both tend to fall equally as hard
In other words, they look pretty much the same.
There appears to be only two periods where a very obvious divergence in performance appears, between 2004 – 2007 and between late 2010 – present. Both between relative periods of economic calm and stability.
Jumping to conclusion
The charts strongly suggest that stock picking (looking for strong fundamentals) might only pay off during relative periods of stability (no external price shocks). In other words, picking the right one only delivers an out-performance during an upturn. During a downturn, be prepared for the same level of headache.
Considering it is difficult for individual investors to acquire timely data as well as develop the acumen to recognize business direction, this chart suggests that rather than learn to pick stocks, it might be a superior skill to recognize which part of the price cycle we are in and how to act accordingly.