Author Topic: Active Management  (Read 2335 times)


  • 5 O'Clock Shadow
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Active Management
« on: June 29, 2017, 10:32:30 AM »
Id like to know how youd describe Active Management to someone who has never heard of it before. I'd like to stay away from simply comparing it to Passive or Indexing though. Any help would be greatly appreciated


  • Bristles
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Re: Active Management
« Reply #1 on: June 29, 2017, 10:56:38 AM »
I think simply put, active means fund managers are actively researching individual corporations or sectors and are actively buying and selling stocks of individual companies to try and maximize your return.  Passive means fund managers are making sure your funds stay spread out across a large percentage of the market according to a specific predetermined allocation distribution.  Passive fund managers do not directly research individual companies or sectors, they simply rebalance your assets from time to time to keep them consistent with the predetermined allocation.


  • Magnum Stache
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Re: Active Management
« Reply #2 on: June 29, 2017, 10:57:41 AM »
Kind of like throwing your money on the roulette wheel.

Giving your money to someone else to get sub par returns and pay more in fees.

A waste of money.

What else we got?


  • Handlebar Stache
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Re: Active Management
« Reply #3 on: June 30, 2017, 08:17:40 PM »
I literally just watched a segment from John Oliver where he discussed this issue.  Worth seeing.  I believe the segment was about retirement.

It seems the first question asked should be "Are you a fiduciary".  If the answer is "No", move on.


  • 5 O'Clock Shadow
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Re: Active Management
« Reply #4 on: July 01, 2017, 11:11:05 AM »
Active management is like buying a dozen eggs - and then opening the carton and trying to pick out the six that will taste the best.


  • Stubble
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Re: Active Management
« Reply #5 on: July 02, 2017, 01:04:33 PM »
Active management does not have to be the same as stock picking. Active management can also mean having a position (often in an index or allocation of indexes) and buying/selling stock and options around that position to reduce the portfolio's risk and volatility.

For example, if I hold 100 shares of SPY (the S&P500 index), my risk if SPY goes up/down $1 is +-$100. One might want to hedge their risk by selling a call, collecting $130. Now the risk has been reduced to the equivalent of only having 70 shares. SPY would have to go down $1.30 before I start losing money.
A more advanced situation with a larger account might use individual holdings as hedges. AAPL is about 4% of SPY. If I think AAPL is overvalued, I could short AAPL. My total portfolio risk would theoretically decrease by 4% because if AAPL goes down, SPY is probably going down too. My much bigger SPY position loses money, but short AAPL makes money, thus hedging the position.

By nature, trading options is active because they have an expiration date. But it does not mean you have to bet that RAD is going to be acquired, or AMZN is going to reach $1500. I look at it as using all of the tools in the toolbox.

That said, if I wanted to be passive, I still wouldn't invest with a hedge fund. Edward Thorp's book "A Man for All Markets" (who used to be a hedge fund manager), had a good argument against hedge funds, saying that the odds are against you picking the "right" fund that will make money. And, after expenses, you won't really do better than the overall market. The money managers can close down the fund if they lose (your) money. The problem for consumers is that the odds are stacked against them in actively managed funds, the managers are the only ones who have a high probability to get paid.

Car Jack

  • Handlebar Stache
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Re: Active Management
« Reply #6 on: July 02, 2017, 02:47:10 PM »
Where passive is putting investments in the market and taking advantage of long term market gains.....

Active management is putting money in investments, predicting the future and trading in and out of the market and/or between various investment categories or even individual stock based on these predictions.

In a given year, 20% of active funds beat the market.  80% underperform.  In 5 years, 5% beat the market, 95% underperform.


  • Bristles
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Re: Active Management
« Reply #7 on: July 02, 2017, 03:01:38 PM »
Active management = a bad idea.