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The referenced article is utter nonsense; it is a waste of time and space.
At best, it is a circular argument. It suggests that the passive/active decision is itself an active investor decision. From my perspective, the designation between an active and passive policy is better characterized by trading frequency, cost containment, and target returns.
The author emphasizes that one common goal for active investors is to avoid the negative side of the Bell curve returns distribution. But choosing to go the active route works to expose the investor to that real danger. Indexing does not. And diversification among investment categories further reduces that risk.
No, notwithstanding their many denials, active investors are mostly Alpha seekers, and knowingly accept the risks. If risk control were the real objective, the risk could be most efficiently controled with a diversified portfolio of low cost Index products. The institutional investment world is actively moving in that direction.
Hooray for active investors. They keep the market's pricing machinery working smoothly.
The author fails to make his case in my limited opinion.
"It suggests that the passive/active decision is itself an active investor decision." Of course it is: how can making a decision be anything other than "active"?
"The author emphasizes that one common goal for active investors is to avoid the negative side of the Bell curve"
Really? Here are his exact words: "Indexing’s perfect record of keeping investors toward the right side of the bell curve has given its supporters pole position in the race"
The author was quite even-handed, and made his case quite well in my limited opinion.
InCorrect: "But choosing to go the active route works to expose the investor to that real danger. Indexing does not. And diversification among investment categories further reduces that risk.... the risk could be most efficiently achieved with a diversified portfolio of low cost Index products.
WE have crossed these bridges many times....but they will arise over and over
No, notwithstanding their many denials, active investors are mostly Alpha seekers, and knowingly accept the risks. If risk control were the real objective, the risk could be most efficiently achieved with a diversified portfolio of low cost Index products.
Don't really see the evidence for this assertion. I'd refer you to David's long discussion in the September Commentary on why funds should exist. This article seems more in that vein.
Given these replies, I presume you, on balance, favor actively managed mutual funds for at least a portion of your portfolios. So do I.
When I initially morphed into a mutual fund portfolio, I exclusively bought the active products. Over the years, mostly as a cost containment effort to retain market rewards, I migrated into Index holdings. I suppose I’m roughly 40% active positions today, with a goal towards the 30% level.
Given that I’ve diversified sufficiently to control risk, the primary, likely the singular, purpose of my active funds is to generate a little Excess Returns (Alpha). In your postings, you did not identify why you prefer active funds.
To steal a line from a haunting Jimmy Rodgers song : “Please tell me if you can” – what are your primary goals when investing in actively managed funds? My answer is simplicity itself: Alpha.
The Rodgers song is a highly emotional reflection of veterans returning home after WW II. Here is a Link to a YouTube video of it:
The song captures the sadness of a blind-man coming home from war. Rodgers sudden death has similar tragic elements. At this moment, I’m blind as to why you invest in expensive actively managed funds if not in the expectations for an exceptional profitable payday. That’s my incentive; what’s yours?
Investing, be it money and/or time is to obtain a personal goal, yes?
TIME investing: I spent a fair amount of time investing in a particular educational path. I wanted to have the ability to be within a work area that I enjoyed and that would also provide a "decent" livelyhood.....wage.
That did happen (the career); but I was not part of a union workforce, and I knew at a young age that I would not have a bountiful pension program that was very evident in a large, union wage state as Michigan was during my work period. I would not have any health benefit, nor a cost of living index attached to my retirement.
I/we knew we would and should be prepared to provide for ourselves monetarily in the future; for any shortcomings or unknowns from any other income source. We did not and still do not have any rich relative who will be dropping a boatload of money into our laps upon their passing; and we still have not had the big win in the lotto.
MONETARY investing: From the above arose active investing of our monies that were in excess of our needs from our budget. As to active investing, well, as @Old_Joe noted too; I don't know what else one could name the direct involvment of investing; other than one being active. One decides; plain and simple about how to guide the monies, eh?
When I use the word "active" here, it is only in the sense of being involved with the decision of "what" for an investment. We're not very fussy about the sector(s) where the capital appreciation arrives. We have active, passive and etf's.
I maintain active funds in the emerging markets, bond markets and small-caps and then invest my large-cap holdings split between indexes and funds with histories of downside protection and a quality-value slant.
My argument in the first cases is that the present indexes are not as effectively representative and that the market is less efficient. (alpha) My reason for the second is mild concern over valuations and market-central bank positioning (peace of mind).
You often explore a subtle and sometimes nuanced perspective of the subject matter. Your post on this exchange is no exception. It greatly expands the scope of my very focused submittal.
My post was designed to be a laser-guided missile attack on the author’s conclusion. Your comments extended the target to be more like a carpet bombing run. I only concentrated my aim on the main theme and title of the referenced piece, “The Real Point of Active Investing”.
We surely make decisions every day that do not address the subject matter. When I got out of bed this morning, I made a decision that had nothing to do with the topic. When I decided to include mutual funds in my portfolio, it too had nothing to do with which funds to incorporate into the portfolio. That came later. The active/passive decision belongs in that “later” category.
I understand your appreciation of investing as a potential time sink. So do I.
As we age with each tick of the clock, time becomes an even more precious, non-recoverable commodity. To preserve it, that’s why I abandoned a stock and bond portfolio in favor of an active mutual fund portfolio. To preserve even more time, that’s why I’m in the process of cutting back on my active fund holdings. An all Index portfolio approaches a minimum investment time commitment. That’s not a bad goal.
As I read the reference, I sensed the author punted to arguments that obfuscated the purpose of the article. In fact, I’m not fully convinced that he truly supports the position he took in his defense of the active fund management proposition. At best, his defense was lukewarm.
Other MFOers offered different interpretations. That’s okay; investing is all about divergent opinions.
A good conversation here. For my international funds, I prefer active management. The playing field is large and many funds invest in the same old half a dozen countries in Europe with some Japan thrown in. I prefer a Asia bias. Same with emerging markets. There are many countries to invest in besides the BRIC's.
Fixed income is also becoming more and more convoluted. Having active management via unconstrained funds hopefully will provide an advantage.
If investing were just a set it and forget it exercise, it would be pretty dull. I, like most here go both ways. The sense of accomplishment if things goes well is a good feeling and while the agony of defeat is always there, it becomes a learning exercise.
Comments
The referenced article is utter nonsense; it is a waste of time and space.
At best, it is a circular argument. It suggests that the passive/active decision is itself an active investor decision. From my perspective, the designation between an active and passive policy is better characterized by trading frequency, cost containment, and target returns.
The author emphasizes that one common goal for active investors is to avoid the negative side of the Bell curve returns distribution. But choosing to go the active route works to expose the investor to that real danger. Indexing does not. And diversification among investment categories further reduces that risk.
No, notwithstanding their many denials, active investors are mostly Alpha seekers, and knowingly accept the risks. If risk control were the real objective, the risk could be most efficiently controled with a diversified portfolio of low cost Index products. The institutional investment world is actively moving in that direction.
Hooray for active investors. They keep the market's pricing machinery working smoothly.
The author fails to make his case in my limited opinion.
Best Regards.
Of course it is: how can making a decision be anything other than "active"?
"The author emphasizes that one common goal for active investors is to avoid the negative side of the Bell curve"
Really? Here are his exact words:
"Indexing’s perfect record of keeping investors toward the right side of the bell curve has given its supporters pole position in the race"
The author was quite even-handed, and made his case quite well in my limited opinion.
Correct: Outperforming the market is not the goal
InCorrect: "But choosing to go the active route works to expose the investor to that real danger. Indexing does not. And diversification among investment categories further reduces that risk.... the risk could be most efficiently achieved with a diversified portfolio of low cost Index products.
WE have crossed these bridges many times....but they will arise over and over
Thank you all for your replies.
Given these replies, I presume you, on balance, favor actively managed mutual funds for at least a portion of your portfolios. So do I.
When I initially morphed into a mutual fund portfolio, I exclusively bought the active products. Over the years, mostly as a cost containment effort to retain market rewards, I migrated into Index holdings. I suppose I’m roughly 40% active positions today, with a goal towards the 30% level.
Given that I’ve diversified sufficiently to control risk, the primary, likely the singular, purpose of my active funds is to generate a little Excess Returns (Alpha). In your postings, you did not identify why you prefer active funds.
To steal a line from a haunting Jimmy Rodgers song : “Please tell me if you can” – what are your primary goals when investing in actively managed funds? My answer is simplicity itself: Alpha.
The Rodgers song is a highly emotional reflection of veterans returning home after WW II. Here is a Link to a YouTube video of it:
The song captures the sadness of a blind-man coming home from war. Rodgers sudden death has similar tragic elements. At this moment, I’m blind as to why you invest in expensive actively managed funds if not in the expectations for an exceptional profitable payday. That’s my incentive; what’s yours?
Best Wishes.
TIME investing:
I spent a fair amount of time investing in a particular educational path.
I wanted to have the ability to be within a work area that I enjoyed and that would also provide a "decent" livelyhood.....wage.
That did happen (the career); but I was not part of a union workforce, and I knew at a young age that I would not have a bountiful pension program that was very evident in a large, union wage state as Michigan was during my work period. I would not have any health benefit, nor a cost of living index attached to my retirement.
I/we knew we would and should be prepared to provide for ourselves monetarily in the future; for any shortcomings or unknowns from any other income source. We did not and still do not have any rich relative who will be dropping a boatload of money into our laps upon their passing; and we still have not had the big win in the lotto.
MONETARY investing:
From the above arose active investing of our monies that were in excess of our needs from our budget.
As to active investing, well, as @Old_Joe noted too; I don't know what else one could name the direct involvment of investing; other than one being active. One decides; plain and simple about how to guide the monies, eh?
When I use the word "active" here, it is only in the sense of being involved with the decision of "what" for an investment. We're not very fussy about the sector(s) where the capital appreciation arrives. We have active, passive and etf's.
Take care,
Catch
My argument in the first cases is that the present indexes are not as effectively representative and that the market is less efficient. (alpha) My reason for the second is mild concern over valuations and market-central bank positioning (peace of mind).
Thank you for your participation.
You often explore a subtle and sometimes nuanced perspective of the subject matter. Your post on this exchange is no exception. It greatly expands the scope of my very focused submittal.
My post was designed to be a laser-guided missile attack on the author’s conclusion. Your comments extended the target to be more like a carpet bombing run. I only concentrated my aim on the main theme and title of the referenced piece, “The Real Point of Active Investing”.
We surely make decisions every day that do not address the subject matter. When I got out of bed this morning, I made a decision that had nothing to do with the topic. When I decided to include mutual funds in my portfolio, it too had nothing to do with which funds to incorporate into the portfolio. That came later. The active/passive decision belongs in that “later” category.
I understand your appreciation of investing as a potential time sink. So do I.
As we age with each tick of the clock, time becomes an even more precious, non-recoverable commodity. To preserve it, that’s why I abandoned a stock and bond portfolio in favor of an active mutual fund portfolio. To preserve even more time, that’s why I’m in the process of cutting back on my active fund holdings. An all Index portfolio approaches a minimum investment time commitment. That’s not a bad goal.
As I read the reference, I sensed the author punted to arguments that obfuscated the purpose of the article. In fact, I’m not fully convinced that he truly supports the position he took in his defense of the active fund management proposition. At best, his defense was lukewarm.
Other MFOers offered different interpretations. That’s okay; investing is all about divergent opinions.
Thanks again for your thoughts on this exchange.
Best Wishes.
Fixed income is also becoming more and more convoluted. Having active management via unconstrained funds hopefully will provide an advantage.
If investing were just a set it and forget it exercise, it would be pretty dull. I, like most here go both ways. The sense of accomplishment if things goes well is a good feeling and while the agony of defeat is always there, it becomes a learning exercise.