No-brainer bargain stocks have been picked over.
Just as individuals are starting to develop the stomach for investing again, professional investors say stock-picking has become a challenging endeavor.
The best deals evaporated so quickly in the rally that followed the early March stock market sell-off that even the professionals missed out on many of them.
Some of the most renowned fund managers were asked to tell an audience of investors and financial advisers at a recent Morningstar Inc. convention about mistakes they made amid the 56 percent plunge in the market. One of the most glaring: They didn't buy enough or fast enough.
Like the average investor, fund managers struggled to make sense of what was occurring, and emotions got in the way.
Wally Weitz, manager of Weitz Value fund, said that as he awoke each day during the market plunge, he wondered what former financial Goliath might disappear. Stock prices were attractive, he said, and "it would have been fun if it hadn't been so terrifying."
Christopher Davis, manager of the Clipper and Selected American funds, said his grandfather used to say, "You make most of your money in a bear market; you just don't realize it at the time."
For investors who put money to work around the March 9 lows, that is likely to turn out true. As an example, Davis says he was able to pick up the market's top-quality stocks, such as Johnson & Johnson, at prices not seen in a lifetime of investing. "These are the sorts of things you can buy and put away."
Now that the stock market has climbed roughly 40 percent since early March, the low-hanging fruit has been picked. Investing does not seem as scary, but it requires deeper analysis and provides less clarity on value.
You could see the lack of conviction at the Morningstar conference as mutual fund managers described what they are buying now and why.
During most years, financial advisers use the conference to pick up on common themes and sectors embraced by the fund managers who speak. After the worst of the 2000-02 bear market, for example, numerous managers were singing the praises of technology companies beaten to cheap prices after declines of 70 percent or more.
But this year, an investor would have been hard-pressed to find a common view among the pros other than the beliefs that the worst of the financial crisis has likely passed and that the economy will show lackluster growth for several years.
The view is what Pimco bond fund manager Bill Gross calls the "new normal," or a period of perhaps a decade when the economy will not be able to grow vigorously because consumers are out of jobs and have debt. As they save more and spend less, companies worldwide will have trouble growing profits. Gross said he thought the stock market's returns might be about 6 percent annually for an extended period.
Fairholme fund manager Bruce Berkowitz said he had never seen bonds so cheap. He likes earning double-digit yields while having some protection in the case of bankruptcy. Stocks generally are worthless if a company goes bankrupt.
Berkowitz is buying stocks, too.
For example, he has made a major investment in Pfizer Inc. because he is especially focusing in this tough economic environment on companies with sizable cash positions or free cash flow.
But in a sign of the times, and a lack of agreement among professionals, Berkowitz's peers at the conference saw Pfizer as a controversial stock pick. Health care is one of the few sectors that did not soar in the rally, creating possible opportunities for investors attentive to stock prices.