• Harsh Patel, CFA

Active vs. Passive Investing


Active

  • There’s an entire investment industry which employs research analysts (and charges higher fees!) to carry out fundamental analysis in order to profit from times when a market is not "semi-strong form efficient". 

  • Believers in active investing are your stock pickers, fund managers and specialist investors (many institutional investors including hedge funds, some sovereign wealth funds) of this world.

  • If you decide you're not going to pay high fees for someone else to pick which stocks you want to invest in, but still want to invest in companies you believe in - you're in the right place! Our team at Evarvest is working hard to ensure this process soon becomes simpler than ever! 🤓

Passive

  • On the flip side, there is also a rapidly growing passive investment / ETF industry, catering to those who believe markets are in fact at least semi strong form efficient. 

  • These individuals believe there is no need to pay someone (a lot of money) to conduct lots of research & invest on your behalf, when you could just cheaply, quickly and easily invest in the market - chances are you wouldn’t earn a return which is much different than someone pursing an “active” investment strategy anyway. Believers in passive investing are fund managers like the Blackrocks, Vanguards and ETFs of this world.

  • If you decide you'd like to take this relatively stress-free approach to investing, the team at Evarvest is also working hard to ensure this becomes simpler than ever! 🥳

The Sporting Analogy (we just had to!)

  • Think of Active Investing as hand-picking and then buying your favourite Premier League football club on the expectation that they will win many trophies and earn lots of revenue as a result

  • Meanwhile, Passive Investing would be the akin to buying the entire Premier League (albeit different stakes in each club) - you benefit if the league as a whole does well, while any relative ups / downs between football clubs wouldn’t be as worrying for you - you own them all!

What’s better?

  • The active vs. passive investment debate rages on today, driven by how efficient markets really are.

  • Following decades of research, debate and real world observations, we seem to have landed on a compromise whereby folks generally tend to agree that most stock markets tend to be semi-strong form efficient - *most* of the time. However, there can be times at which this form of efficiency can break down (think about times when a company announces its latest set of earnings results - would all publicly available information be reflected in the stock price instantly? In practice, it can take a few hours to a few days to fully digest the management’s latest bombshell!), giving those who are quick enough to spot this an opportunity to outperform the broader market

  • The above implies that perhaps a mix of (i) holding a significant portion of your investment portfolio in the form of passive investments such as ETFs and (ii) actively investing a small portion of your portfolio in individual stocks you know, believe in and expect to do well, might be the path to financial success!

Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.


Disclaimer: At Evarvest we believe in making investing and investment education more accessible, but we don’t provide investment advice and individual investors should make their own decisions. While we try our best, we cannot ensure the accuracy of the information we provide.


This content is copyright protected by Evarvest Limited (12544579). Evarvest Limited refers to the Evarvest network and/or one or more of its subsidiaries, each of which is a separate legal entity. 

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Any and all information produced by Evarvest Limited (Company No. 12544579) is copyright protected, and while we try our best, we cannot ensure the accuracy of the information we provide.

Please know, the value of investments can go up as well as down and you may receive back less than your original investment. Further, the tax on your investments depends on your individual circumstances and may be subject to change.  

Evarvest Limited refers to the Evarvest network and / or one or more of its subsidiaries, each of which is a separate legal entity.