GO
Loading...

Buy on green and sell on red. Is it that easy?

Tuonas Kujansuu | E+ | Getty Images

Between you and I, it all got a bit catty behind the scenes on the set of SquawkBox this week. During one of our daily market open strategy debates, one of my guest strategists told me and the audience that his big idea for the rest of the year was to "buy the winners of 2013 and sell the losers". At which point the claws came out!

You'll rarely hear it on air, but this was the cue for another guest to sarcastically point out off the record that the aforementioned strategist was clearly worth every penny of his management fee for such in-depth and sophisticated advice. Personally I thought it was probably better than many of the supposedly more intricate trading ideas I've had touted before me for most of the year so far.

(Read more: Here's some Nobel Prize-winning advice for investors)

Had the strategist dressed up his trade in more acceptable lingo to the bigwigs in the markets, using terms such as 'momentum' and 'flow', such as dissecting the active hedge fund buying in a certain stock or sector, noting the build-up of shorts via options and stock out on loan elsewhere in an underperforming stock, then no-one would have blinked an eye. It would have been more of the usual "gumpf " we get fed when a money manger breaks down his rationale for a position.

But no, this chap just said "buy the winners and sell the losers". Plain and simple. In fact, that level of honesty can get a man into a heap of trouble, it seems to me, because it has the potential to reveal the emperor's new clothes to investors as a whole.

You see, the chaps and chapesses of the global equity market have made most money this year by just going with it. Going with the flow and holding on to the early leaders in terms of performance, whether it be at a stock, sector or index level. So why not just cash in now rather than keep with the winners?

(Read more: Now, bond markets throw taper tantrum as yields flutter)

My open and blunt strategist fellow has a very simple answer to this question. The reason you buy the winners and steer clear of the losers is because a vast number of equity asset managers are going to have to explain two things to investors come the time of reckoning at the end of this quarter and hence end of the year.

Managers are going to have to explain why they've underperformed. Two, they're going to have to explain why they aren't holding a decent weighting of the stocks that did rather well in 2013. To put it simply one of those two conundrums just disappears if you can show that you have the outperformers in your portfolio. Then it's just down to how silver-tongued the manager is at wriggling out of the underperformance issue.

(Read more: Here's the technical reason stocks worry me: Pro)

In addition, of course there is the seasonal money flow that can give a festive rally as players scramble for a percentage point or two in the run up to Christmas.

Whether buying the winners and selling the losers of 2013 works as a strategy for November and December I have no view on. What I like about it though is the plain logic of it. Three cheers for vanilla!

Contact Commentary

  • CNBC will consider commentary on a variety of topics, including investing, Wall Street, politics, international affairs, the Federal Reserve, health care, technology, careers, entertainment and more. We want a variety of viewpoints – especially those that are different from something you’ve read on CNBC.com.

    Send op-ed pitches to commentary@cnbc.com. Put the words OP-ED in the subject. Articles should be between 600 and 700 words. All submissions must be exclusive to CNBC.com. Please also include a 1-2 sentence bio of the author and a Twitter handle for the author or company. Please remember these are opinions and should be in your own voice, not in the voice of your PR person or in-house legal consultant!

    We apologize that due to the volume of submissions, we may not be able to respond to every email. If we have not responded within 5 business days, please feel free to submit the op-ed to another publication.

    Get all the latest commentary on Twitter.com @CNBCopinion.

    Who is the commentary editor?
    Cindy Perman is the commentary editor for CNBC.com. She has worked in online news for more than a decade. She also writes the "There Must be a Pony in Here Somewhere" blog and is the author of the book “New York Curiosities” (2013, 2nd edition). Follow her on Twitter @CindyPerman.