One of the most hotly contested topics in the finance industry is the ongoing debate between active and passive investing. Should investors aim to beat the market, or should they be content simply matching it?
Skill determines ‘luck’
Some may choose passive as they believe active management requires a certain element of luck, but we argue the opposite. In the short term you may experience good or bad luck but in the long-term it is skill that determines results. Skill is consistent and reliable. You can’t be a successful active investor without a deep understanding of the market. And when you do find an investor with this level of skill; results are remarkable.
110% or nothing
Growing up as a young boy, I always had an aversion to settling for the average. With everything I did, I was 110% or nothing. As an investor, nothing has changed and that is why I embrace an active investment philosophy.
Actively managing client’s portfolios means watching when the market rises, falls and doesn’t do any of what’s expected. It requires constant research and diligence to ensure opportunities are spotted in time to take advantage of what others are missing.
Whilst this investment philosophy may mean more work, my 20 years of experience has taught me it means better returns for my clients.
It is during periods of market volatility that active management is particularly effective. In a downturn, passive funds bear the full brunt of the market’s losses while active funds can be more defensive. Active managers can pick undervalued or high-growth stocks and position in a way that avoids the full pain of any decline. By eliminating the most obviously overpriced or troubled securities in the index, skilled fund managers can ensure their portfolios outperform weaker markets.
Is it right for you?
So, is active investment right for you? Yes, if you are willing to do the due diligence to find a fund manager who has proven their worth and you want to know that they are working hard for their money, not only re-visiting your portfolio once a year. It is especially effective for those in last few years of their career who need to maximise returns before retirement.