“Passive” Investing Beats “Active” Investing

From: Exploiting the Myths

Summary

Passive index investing is active investing. The only difference between the two is the percentage of stocks in the portfolio that are bought and sold each year (the “turnover”).

Key Points

• •Passive index investing is active investing. The only difference between the two is the percentage of stocks in the portfolio that are bought and sold each year (the “turnover”).
• •The major market indexes were not created with the intent of maximizing performance, only with the intent of being “representative.”
• •A rational person would not subrogate their investment process to the index managers; rather they would manage their portfolio themselves pursuant to some clearly defined, objective, profit-motivated, systematic, and repeatable set of rules.