Gallery:Step 1|Step 1: Active Investors

What is Active Investing?

Gallery:Step 1|Step 1: Active Investors
Active vs. Passive
Active vs. Passive

Active investing is a strategy that investors use when trying to beat a market or appropriate benchmark. Active investors commonly engage in picking stocks, times, managers, or styles. As later steps demonstrate, active investors who claim to outperform a market also claim the power to predict the future. When accurately measured, this is simply not possible. Surprisingly, the analytical techniques that active investors use can best be described as qualitative or speculative. They include predictions of future sales and earnings growth, and are often based on gut feelings and intuition. On the other hand, the passive index investing approach is best described as quantitative or scientific. Indexing techniques include statistical analysis of risk and return data of 20 years or more, in addition to extensive measurements of numerous performance criteria. Many indexes are now based on more than 86 years of risk, return, and correlation data.