Active Versus Passive Investing
Active investing is a strategy investors use when trying to beat a market or appropriate benchmark. Active investors rely on speculation about short-term future market movements and ignore the lessons embedded in vast amounts of historical data. They commonly engage in picking stocks, times, managers, or investment styles. As later steps demonstrate, active investors who claim the ability to outperform a market are in essence claiming to divine the future. When accurately measured, this is simply not possible. Surprisingly, the analytical techniques that active investors use are best described as qualitative or speculative, largely including predictions of future movements of stocks or the stock market. Bottom line, these methods prove self-defeating for active investors and actually lead them to underperform the very markets they seek to beat. The first step in any 12-Step Program focuses on recognizing and admitting a problem exists. In this case, this means identifying the behaviors that define an active investor. These include: • Owning actively managed mutual funds • Picking individual stocks • Picking times to be in and out of the market • Picking a fund manager based on recent performance • Picking the next hot investment style • Disregarding high taxes, fees and commissions • Investing without considering risk • Investing without a clear understanding of the value of long-term historical data
Published on Jun 1, 2015
This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...