Unqualified Advice

The Passive Storm

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Description

This week, Sean and Dan breakdown their thoughts on investing actively vs. passively. 

00:00 Introduction and Discussion on Investing Preferences
12:46 Passive Investing: Investing in Diversified Portfolios
26:47 Active vs. Passive Investing
27:44 The Benefits of Passive Investing
30:10 The Importance of a Healthy Cash Position
32:18 Active Investing in Specific Industries or Market Opportunities
36:00 The Magnetism of Active Investing
43:09 The Potential Risks of a Purely Passive Market
46:46 The Possibility of Outperforming the Market with Active Investing
52:10 The Potential Drawbacks of Passive Investing
56:35 The Impact of Passive Investing on the Market
01:04:19 The Challenges of Outperforming the Market as an Active Manager
01:06:11 The Emergence of Alternative ETFs
01:13:05 Debating the Effectiveness and Sustainability of Passive Investing

Here's some of the material we consumed to help prep for this episode, for those who want to dig deeper:

AQR Capital Management. (2018, April). Active and passive investing — the long-run evidence. Alternative Thinking. https://www.aqr.com/-/media/AQR/Documents/Alternative-Thinking/Alt-Thinking-2Q18-Active-vs-Passive-Investing.pdf

Faber, M., & Asness, C. (2024, April 5). Episode #527: Cliff Asness - Timely & Timeless Investment Wisdom. Meb Faber Research - Stock Market and Investing Blog. https://mebfaber.com/2024/04/05/cliff-asness/

Faber, M., & Bessembinder, H. (2024, May 3). Episode #532: Hendrik Bessembinder - do stocks outperform T-bills?. Meb Faber Research - Stock Market and Investing Blog. https://mebfaber.com/2024/05/03/hendrik-bessembinder/

Faber, M., & French, K. (2024, May 1). Episode #530: Professor Kenneth French on risk, return, and rationality. Meb Faber Research - Stock Market and Investing Blog. https://mebfaber.com/2024/04/19/kenneth-french/

Gabaix, X., & Koijen, R. S. (2021). In search of the origins of financial fluctuations: The inelastic markets hypothesis. National Bureau of Economic Research, 28967. https://doi.org/10.3386/w28967

Hoffstein, C., & Green, M. (2022, May 29). S05E01: Michael Green - The active impact of passive investing. Flirting with Models. https://www.flirtingwithmodels.com/2022/05/29/s05e01-the-active-impact-of-passive-investing/

Mandelbrot, B., Hudson, R. L., & Olazabal, J. (2019). The misbehavior of markets: A fractal view of financial turbulence. Hachette Audio.

Ritholtz, B., & Einhorn, D. (2024, February 8). Masters in Business: David Einhorn. Bloomberg.com. https://www.bloomberg.com/news/audio/2024-02-08/masters-in-business-david-einhorn-podcast

Taleb, N. N. (2016). Fooled by randomness. Random House.