Definitely active, the returns on passive is difficult to achieve at least 15% ROI a year on average. Passive also allows you to profit only when the market goes up, with active approaches you can make money no matter which direction the market goes. Up, down, sideways.
I know many like to quote stats that majority of retail traders/investors underperform the market/lose money even. That also depends who you talk to/get the information. Do note people tend to quote surveys/studies of random people from the general population. Does that mean all investors/traders have equal knowledge? This is a poor study methodology.
A better study would be to separate based on ability and understanding of the market. This is why there are investment bankers, proprietary traders and even full time retail traders/investors (I perosnally have come across many) that consistently outperform the market. Of course minority, but it is the same as majority of things we do for example setting up a business instead of being employed.
Majority of businesses fail, does that mean no one can start a business or it's a bad move to do?
Understanding, competency and proper risk management are underestimated skills.
For the case of mutual funds/unit trusts... (I agree they underperform and I do not invest via them)
We must first understand who are the bulk of people who invest via funds. In general many retail investors who don't know much about the market /do not have much time to. That makes it very very difficult for fund managers. Because most people are risk averse. They do not understand volatility and corrections are opportunities which may cause them not to take advantage of the opportunity. Fund managers do not have the chance to utilise on that chance by going in big in times like these.
Also, during times of sector rotations, there is a lot of hype on stocks that are performing well and people tend to chase them. With trading sure, but investing, this severely reduces your ROI. Instead we should be looking at the under performing stocks to pick them up while people are dumping them, sure we will never know how long it takes for them to come back up, but when they do the ROI is much greater. Fund managers however are stuck in this scenario where if they share they are focusing on the less well performing stocks and not chasing after the stocks that are booming up 20-30% in a few weeks, a lot of their clients may not understand the approach and start pulling out/stop investing as much with them.
Hence, to keep people invested in them, they offer diversification to cater to the reduce volatility people like while being unable to take advantage of great opportunities even if they understand it.āāā
Definitely active, the returns on passive is difficult to achieve at least 15% ROI a year on average. Passive also allows you to profit only when the market goes up, with active approaches you can make money no matter which direction the market goes. Up, down, sideways.
I know many like to quote stats that majority of retail traders/investors underperform the market/lose money even. That also depends who you talk to/get the information. Do note people tend to quote surveys/studies of random people from the general population. Does that mean all investors/traders have equal knowledge? This is a poor study methodology.
A better study would be to separate based on ability and understanding of the market. This is why there are investment bankers, proprietary traders and even full time retail traders/investors (I perosnally have come across many) that consistently outperform the market. Of course minority, but it is the same as majority of things we do for example setting up a business instead of being employed.
Majority of businesses fail, does that mean no one can start a business or it's a bad move to do?
Understanding, competency and proper risk management are underestimated skills.
For the case of mutual funds/unit trusts... (I agree they underperform and I do not invest via them)
We must first understand who are the bulk of people who invest via funds. In general many retail investors who don't know much about the market /do not have much time to. That makes it very very difficult for fund managers. Because most people are risk averse. They do not understand volatility and corrections are opportunities which may cause them not to take advantage of the opportunity. Fund managers do not have the chance to utilise on that chance by going in big in times like these.
Also, during times of sector rotations, there is a lot of hype on stocks that are performing well and people tend to chase them. With trading sure, but investing, this severely reduces your ROI. Instead we should be looking at the under performing stocks to pick them up while people are dumping them, sure we will never know how long it takes for them to come back up, but when they do the ROI is much greater. Fund managers however are stuck in this scenario where if they share they are focusing on the less well performing stocks and not chasing after the stocks that are booming up 20-30% in a few weeks, a lot of their clients may not understand the approach and start pulling out/stop investing as much with them.
Hence, to keep people invested in them, they offer diversification to cater to the reduce volatility people like while being unable to take advantage of great opportunities even if they understand it.āāā