STEPHEN CRANSTON: The active-versus-passive investing debate
There is often more psychology than mathematics in active management
James Downie may well be the best asset consultant in SA. He has an independent mindset and a wealth of knowledge. So I couldn’t ignore it when he weighed in on the active-versus-passive investing debate. Veteran investor Charles Ellis told us at a recent "fireside chat" with my friend independent financial expert Candice Paine that index investors should never have been called "passive". It is hard to feel positive about anyone who is described as passive and, in contrast, "active" has overwhelmingly positive associations. Ellis made a fortune as an active manager and he is now a prime mover of simply riding the growth in the market passively. Downie says active investing is easy to define — it is the style of an investment manager that takes active bets away from a particular index, investing more in cheap shares and less in expensive shares through clever stock selection to beat the index. Some investors don’t even consciously weigh their portfolios against the index, but operate...
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