If it's widely known that only a FEW active fund managers will get results that beat the market, why is there such an inclination for people to choose active investing (and not passive investing)? - Seedly
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Heng Kai Le

Asked on 25 May 2020

If it's widely known that only a FEW active fund managers will get results that beat the market, why is there such an inclination for people to choose active investing (and not passive investing)?

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Hannah G.
Hannah G.
Level 4. Prodigy
Updated on 26 May 2020
  1. Short term profit. Active investors can perform better in volatile markets by taking advantage of market dislocations.

  2. Reports illustrating greater returns for passive investing may be time-sensitive. Passive investing generally does better in bull runs and we recently had the longest bull-run between 2009-2020.

  3. Some actively-managed funds hedge against market risk by shorting the market. This is especially beneficial for business owners during recessions who may need to take money out of their investment portfolio to keep their businesses afloat.

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Not every investment objective is to beat the market. Active managers can also deliver better risk adjusted returns than just pure alpha.

Also, even if 5% of active managers beat the market, 5% of 10000 of them, is still a good 500.

I have areas in my portfolio that are quite passive, and areas of my portfolio that are actively managed. Some securities or investing styles may not have indices made for them and thus no index fund to track them.

So it's up to you. I choose what works for me and I do my research and analysis for my own portfolio.

Index/Passive investing also has its faults and no strategy is perfect.

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It's easier to believe that investing will get you out of the rat race than working hard in your business or career. The latter provides higher return on your time as compared to pure investments.

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Wilson Nid A Break
Wilson Nid A Break
Level 9. God of Wisdom
Answered on 25 May 2020

-Thrill of speculation

-Pride of being of a owner in a company

-Innate belief that one can beat the index via due diligence/circle of competence/patiently waiting for the right opportunity when Mr Market mispriced

-No pressure to consistenly outperform index every quarterly

-No restrictions in the kind of securities

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