I'm hearing from this that your preference would be a passive investment style Dave. Which I'm broadly in agreement with. Any thoughts on whether an active approach would offer more value in specific situations?
I like two things about "passive" investing. 1. The rules of engagement are set in advance (typically market cap weighting a portfolio which slavishly follows an index); and 2. Costs are lower.
If an "active" strategy has empirically evidence rules in place, which are followed come hell or high water, and it is fairly priced to the end investor, then I have no issue with it. My own pension is 100% invested in the Dimensional World Equity Fund (not investment advice!) and this strategy would typically be thought of as "active" because it isn't 100% tied to the index, although the tracking error is limited.
My main problem with active management, is that the fund manager is usually marketed as Warren Buffett 2.0, when in fact they are subject to exactly the same biases as the individual investor, only on steroids. You can see from the SPIVA numbers that the majority underperform, regardless of the situation, and cost has a huge part to play in this alongside behaviour.
While certain active managers will do well in certain situations (because a stopped clock is invariably right twice a day), the median active manager doesn't add any value over any kind of sensible time frame. Quite the opposite.
I'm hearing from this that your preference would be a passive investment style Dave. Which I'm broadly in agreement with. Any thoughts on whether an active approach would offer more value in specific situations?
I like two things about "passive" investing. 1. The rules of engagement are set in advance (typically market cap weighting a portfolio which slavishly follows an index); and 2. Costs are lower.
If an "active" strategy has empirically evidence rules in place, which are followed come hell or high water, and it is fairly priced to the end investor, then I have no issue with it. My own pension is 100% invested in the Dimensional World Equity Fund (not investment advice!) and this strategy would typically be thought of as "active" because it isn't 100% tied to the index, although the tracking error is limited.
My main problem with active management, is that the fund manager is usually marketed as Warren Buffett 2.0, when in fact they are subject to exactly the same biases as the individual investor, only on steroids. You can see from the SPIVA numbers that the majority underperform, regardless of the situation, and cost has a huge part to play in this alongside behaviour.
While certain active managers will do well in certain situations (because a stopped clock is invariably right twice a day), the median active manager doesn't add any value over any kind of sensible time frame. Quite the opposite.