While there are lots of ways to make money, pure passive index investing tends to go against our monkey human psychology! We are hardwired to like action. So emotional patterns tend to push investors towards active investing, while logic and reason investors towards passive.
The line between passive and active investing is not clear cut and Exchange Traded Funds can be used as part of investing strategy under either approach.
Active Investing – The emotional triggers
We are hard wired with a need for control, drama or thrill and risk-taking, a need that active investing satisfies. Or to put is another way you like to have fun and derive pleasure from ownership and the selection process of what to buy and what to sell.
There are no average investors
Secondly we all like to believe we are superior to the mass of average people and hence the idea of passive investing and accepting an average return is difficult to swallow.
Just like many surveys have shown there are no average drivers in the world, there are no average investors either. As Charles Ellis (author of the book titled The Losers Game) once said “The market isn’t hard to beat because it is dominated by stupid people. It’s hard to beat because it’s dominated by very bright people.”
As Charles Ellis (author of the book titled The Losers Game) once said “The market isn’t hard to beat because it is dominated by stupid people. It’s hard to beat because it’s dominated by very bright people.”