A goal of passive investing is to match the market return as closely as possible.
However, it is not a given that a passively structured investment will match the market. In fact, there may be material variations between different investments and the benchmark index.
Index funds (both mutual and exchange traded) are typical passive investments. Here is why they do not normally match their benchmarks. (more…)
Why does active investing not outperform a passive approach in most investment scenarios?
I have a few thoughts on that. (more…)
It is highly questionable as to whether active management is appropriate for investors.
You can find studies that indicate active management can provide superior performance in certain circumstances. But more studies conclude that, over the long-term, active management does not outperform a passive approach.
What do I think? (more…)
Based on the differences between passive and active investing styles, it might appear that active management should easily beat passive results.
But, based on comparative research, the reality is much less clear.
Today, we will look at a few studies and see what they recommend. (more…)
We will look at the active versus passive management debate.
Today we shall differentiate the two strategies.
Then we shall shall see if one strategy is preferable when investing. (more…)
I believe that non-professional investors should not normally compete with professionals.
In some ways, I view it as competing against Tiger Woods on the golf course. Unless you have the same skills, it is difficult.
The professionals have an unfair advantage over the amateurs and it is not wise to try and beat them in picking investments. (more…)
Asset allocation is a cornerstone of successful investing.
As the name indicates, it involves investing one’s capital among different asset classes and investment styles. If you allocate incorrrectly, you reduce the probability of achieving your investment goals.
So how does investment style drift figure into this? (more…)
When analyzing mutual funds, reviewing fund holdings is useful to ensure adequate diversification within a fund, as well as between different funds.
But you need to be certain that the holdings you review accurately reflect the fund’s investment strategy. If they do not, it may be due to the presence of window dressing.
Today we will take a look at this topic. (more…)
Investors like mutual funds because they are a simple way to diversify one’s portfolio on a cost-effective basis.
When investing in funds, individuals need to ensure that they are truly diversifying. Often investors think they are diversifying, but in actuality they are not doing an effective job.
Today, we will take a look at ways to ensure you properly diversify. (more…)
Analyzing mutual fund performance may seem straightforward.
Look at a fund’s results for different time periods. Then compare the returns against peers and benchmarks. And away you go.
Unfortunately, relative performance can be distorted through survivorship bias.
Today we will look at this issue and its close relation, creation bias. (more…)
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