Defining Active and Passive Management:
Active investors believe there is a constantly changing set of investment opportunities that can be captured by skillful investment managers. They buy and sell securities through market timing and stock picking to capitalize on these perceived opportunities. Passive investors believe there is a relatively constant relationship between risk and reward that can best be harnessed by using a consistent strategy over time. They do not engage in market timing or stock picking.
Active Management In active investment management, successes and failures exactly offset each other. For every active investor who wins, there will be one who loses. And, since active management is costly, the average return of all active investors will be less than the average return of all passive investors. There is no debate about this point among knowledgeable investors in either camp. It is a mathematical fact. Click here to read more…
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