Step 1: Active Investors
often sell the investment, resulting in a loss. In contrast, Figure 1-3 shows the relaxed emotions that indexers enjoy by accepting market randomness and relying on investing science instead of making decisions based on emotions. Passive investors invest regardless of market conditions, because they understand that short-term volatility is unpredictable. They know that succumbing to gut instincts and emotions undermines long-term wealth accumulation. They also know that news about capitalism is positive on average â€” but involves some stomach-churning volatility. In order to regulate their risk, passive investors also engage in periodic rebalancing and are rewarded in the long term for their discipline. Figure 1-4 depicts the disciplined emotions and approach of â€œRebalancersâ€? who sell a portion of their funds that have grown beyond their target allocation Figure 1-4
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...