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Styles of Investing | Active, Passive, & More
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- Опубликовано: 18 янв 2018
- The Plain Bagel Episode VII
There are many different philosophies that investors follow when making investment decisions, some of which directly conflict with other schools of thought. In this video, we'll go over the Active vs Passive debate, as well as Fundamental, Technical, and Quantitative investing.
Intro/Outro Music: www.bensound.c...
Episode Music (Licensed): freemusicarchiv...
Drumming footage:
www.freemediaba...
Hello. I'm a financial adviser. I love how your videos explain complicated investment ideas in such a simple and entertaining way. It is a refreshing alternative to videos created by news media outlets as those tend to push fear, greed, or a particular political agenda. Would it be alright if I posted your videos on my website so that my clients might see them? I am of course more than happy to add anything on my website necessary to ensure you get proper credit and exposure for all of you hard work.
Hi Christopher, thank you for the very kind words; you are more than welcome to share the videos. I would just ask that if you embed the video into your website that you include a line indicating that the Plain Bagel and your website are not affiliated.
Aside from that, feel free to use the videos as you'd like! I'm honoured by the request :)
3:40 "meaning that passive investors are heavily exposed to market downturns, which can be difficult to ... bear"
... good one mr bagel
Great video. Might be interesting to mention 60-80%+ of actively managed funds (e.g. large mutual fund managers) under perform passive index funds. Might also be interesting to mention Warren Buffet recently won a $1M bet that passive index funds would outperform hedge funds on average over the last 10 years. I understand the video is trying to remain unbiased and am not sure if sharing these facts would have introduced the perception of some sort of bias. In any case, nice overview of different investing philosophies.
Actively managed funds underperform passive index funds when taking into account fees. There's no reason you can't do what they do and outperform passive funds.
@@freshrockpapa-e7799 "There's no reason you can't do what they do and outperform passive funds.
"
Yeah there is. For one active investor to do better than the index, another investor has to do worse than the index. The AVERAGE returns of active investors before considering fees are identical to those of passive investors. Even if you're an individual active investor, you still have fees when buying and selling, meaning your expected returns are already lower. Now also take into account that you're buying something that someone else is selling and vice versa. If you take into account the fact that 70% of all trades are made by institutions who have way more knowledge and data than you do, and you're trading with these large institutions 70% of the time, how can you possibly hope to come out ahead in those trades? You think you're gonna stick it to the big institutions?
Literally the only way you're gonna outperform passive funds is by taking on more (uncompensated) risk. At that point, you may be better off just skipping all pretense and betting all of it in a casino, because that's basically what you're doing anyways.
@@alex2143 "The average returns of active investors are identical to those of passive investors"
Nope, completely false. Think about that for 5 seconds, you'll realize why that's false.
Index funds buy more of the overvalued companies and less of the undervalued companies, and also buy into all bubbles. Even a mediocre investor could avoid this.
Beating the index is trivial, I've been doing it for a decade in both europe and the us, and I'm just an engineer that read a couple books about investing.
The issue is that most people confuse picking your stocks with trading, trading is gambling, picking your stocks isn't at all, and there's nothing stopping you from picking your stocks such that you replicate 80% of an index but exclude the companies that obviously aren't viable in the long term and an index fund would eventually sell at a loss (at least in cost of opportunity) eventually.
Tl;dr: if you're passively indexed for decades you're doing much worse than stock picking with a strategy of b&h
@@freshrockpapa-e7799 So what kind of stocks do you have in your portfolio, if I may ask? Value, Growth or Dividend stocks? What books have you read?
@@arrowmouse it buys less of the undervalued stocks and more of the overvalued stocks. Do you even know how an index fund works?
Nice job! I appreciate the fact that you are very unbiased when talking about this type of material
well done video.
i am doing passive ETFs via robo advisors (wealth simple, wealth bar), i believe from all that i've read that passive is the way. not active.
as the old commercials used to say: "SET IT, AND FORGET IT". that's it.
Really cool stuff bud. Damn proud. Keep it up!!!!!!
You are one of my favourite channels!
Thank you so much!
Great Videos -- All of them!
Glad you enjoy the channel, thanks for the kind words :)
There are no market conditions under which active investors (in the aggregate) perform better than passive investors; at least if "passive investor" is defined as one who holds a capitalization-weighted portfolio of everything. On any period of time, the return of the passive investors and the return of the market will be identical, and the aggregate results of the non-passive investors will also be the same, because they collectively own the part of each company not owned by the passive investors. However, that is all before transaction costs. Active investors will generally incur more transaction costs than the passive investors, and therefore their average performance is lower than that of passive investors. This is an arithmetic truth, without much room for controversy. The part of investing that is a departure from passive investing is a negative-sum game for the non-passive investors. So unless you have reason to be confident that you are better at investing than others, stay away. Sticking with passive investing is a good recommendation for the vast majority of people.
I certainly agree with aspects of this, but the same argument can be used to justify certain active strategies. For example, plenty of research reports highlight that active mutual funds under perform indices, so by that same logic would that not mean other active strategies (i.e. wrapped accounts) outperform? Since active strategies will net passive performance (before fees), there would be some out performance offsetting this, right? Just a thought, after fees the difference might be negligible but it's an interesting spin on the argument that I've heard before.
@@ThePlainBagel I have no problem with some active strategies outperforming passive investment. What I specifically objected to is the statement that in some market conditions active investors will do better than passive investors. When taking active investors as a whole, there are no such market conditions.
I apologize if my comments sound too adversarial: I have seen a handful of your videos and I generally like your explanations, but that bit bothered me.
@@alonamaloh Not a problem, nothing wrong with some healthy debate!
I see your point, something to keep in mind for future videos. I appreciate the comment :)
I can see myself being a bit of a jazz rocker - showing more interest in volatile markets and letting things ride when things seem stable. Same for the research I'd do. I'd like a balanced approach to the extent possible, giving me the most comprehensive viewpoints. We'll see how that works out from a practical standpoint. 😅
I use safe passive investments to fund my aggressive and sometimes stupid active investments.
the background music is lit
Hi, what is your opinion about Bloomberg's article of 28th of August 'The Big Short's Michael Burry Sees a Bubble in Passive Investing'?
If I understand correctly with marginal knowledge is about everybody jumps into ETF's to get a diversified portfolio and containing much more liquidity than the actual underlying assets. I'm curious what you think about this.
I like your channel btw!👍🏻😀
Please do a video on my favorite play in the market. Shorting.
VOLUME IS TOO LOW
THEN TURN YOUR VOLUME UP
on a more serious note, is technical analysis mutually exclusive with quantitative analysis?
I'm not too familiar with either, but is there a way to get the best of both worlds and somehow consider mixed strategies?
nvm, just searched it up - if anyone wants to know:
"But quantitative analysis is not often used as a standalone method for evaluating long-term investments. Instead, quantitative analysis is used in conjunction with fundamental and technical analysis to determine the potential advantages and risks of investment decisions."
- Investopedia
Is the market going up or is the currency going down?
🤣🤔🤣
dude you are phenomenal thank you for that
also are blue chip stocks for small cap stocks
6:57 Not sure on what you meant when you said "objective outputs"?
Technical analysis is a form of quantitative analysis, right?
Ok I'm sorry Richard I know this video is old...
But wouldn't Jazz make more sense as Active investing vs Rock in your metaphor?
You described Jazz as more technical and off-beat as opposed to Rock's typically more predictable standard rhythms and time signatures.
Wouldn't that make Jazz drumming more like the very involved and often "off-beat" active investing while Rock drumming is more "predictable" and akin to Passive investing?
As antithetical as it sounds I truly belive it's backwards.
Very educational. Thank You.
Gracias
I don't understand why they have to be at odds with each other. The way I see it both approaches are right, it just depends how much work/time you are willing to invest.
thanks Benjamin Graham
Facts, I invest as well as trade. I invest passively as well as actively. I use fundamental analyisis, I use technical analysis, I also use quantitave analysis (tho i currently don't have much knowledge in this area yet). Things are not so black and white, at the end of the day you gotta find what is the best approach according to a lot of factors for you at that time. But i can understand why passive investing has a higher majority. It's easier and most people are not that interested in finance they just want their money to grow (which is a valid argument). But for me all of this has worked beautfully so far
Can you combine, passive and active as a technuiqe if so, does it have a name
Why is 'potential for data mining' listed as a concern for the effectiveness of quantitative analysis? Isn't data mining just a tool in quantitative analysis?
Great vid thank you
Good video but please turn the music down a bit and also, my right ear enjoyed this.
Great videos!
Thank you!
Trying so hard to listen to these videos but the beat in the background is torchering my brain. Can barely listen to you.
2:15 doesn't that also kinda go against their own thought process though? It's circular. If investors make illogical and inconsistent trades in all the time then it follows they cannot consistently beat the market, especially with more fees for trading more frequently. So that in of itself implies passive is the more efficient choice
I love it this is the type of content I want to make. HMU on twitter to collaborate. I have a wealth of knowledge at my disposal, and wouldn't mind talking more about where you think our channels could be headed. I am working on some crypto currency type topics to gain more credibility with my unique perspectives. BUT that is not what my channel is all about. Also we have very similar audiences and view counts so lets talk if you would like to. Peace.
dayum u look better in those outfit, i could focus better for some reason, haha
Im sorry but why ur wearing a full suit?
Active investments are just like homeopathy