Talk:Passive investing

Rationale

The 'rationale' section is important. But current contents are perhaps too theoretical (EMH, CAMP, ...) for the average reader. IMO the key message is that indexing works: after costs, passive investors beat most active investors. I've included a figure to illustrate this and grab the reader's attention. Possibly the sentences currently appearing after the figure can be condensed to say that passive investing is supported by economic theory & research over several decades, with a bunch of references. Or at least these sentences should be made simpler to understand, without necessarily invoking the weak or strong EMH, CAMP, the principal–agent problem, and so on. --Quebec 10:01, 29 December 2015 (MST)

The challenge is we don't know and haven't defined our readership, which makes it difficult to set expectations. I'm willing to give the reader credit that some, or all, will make sense. By leaving the Wikipedia links for the theoretical in place, it provides a learning opportunity if the reader so desires. The reality is most of the critical contents are already covered in the lead-in section anyways. The image helps, but I'm wondering if it is placed correctly. Some pondering required. --Peculiar Investor 10:33, 29 December 2015 (MST)

OK. I've split the 'rationale' section in two: (1) the simple explanation, with a quote from Bernstein; (2) financial economics. That way all potential readers are covered. --Quebec 11:48, 29 December 2015 (MST)

An interesting and creative solution. But I've got another concern, too many quotes vs actual content makes it difficult to read. Does the use of all the quotes conform with Wikipedia:Quotations? Perhaps the main message of each quote could be paraphrased into the article and then referenced back to the source. Sorry, I see a problem but don't have a good recommendation for a solution. --Peculiar Investor 12:13, 29 December 2015 (MST)

The Bernstein quote is indeed on the long side. But so funny I could not resist. And the contents of the quote help understand the graph. I'll fix this tomorrow. --Quebec 14:23, 29 December 2015 (MST)

One quote has been deleted. The long Bernstein quote is now hidden in a footnote (as per Wikipedia's suggestion), where it is less visible. Only one quote left, in the intro. --Quebec 10:15, 30 December 2015 (MST)

Definition

On the Bogleheads wiki, blbarnitz has provided an interesting definition. See bogleheads:Talk:Indexing:

Here is Harold Evensky's definition of passive investing from:

• Harold Evensky (1997). Wealth Management: The Financial Advisor's Guide to Investing and Managing Client Assets. p. 481. {{cite book}}: Unknown parameter |Publisher= ignored (|publisher= suggested) (help)ISBN 978-0786304783

Passive management is the antithesis of active management. Its core philosophical tenet is that by brains, hard work, and technology, a manager cannot, over time and net of costs, beat the system; he can, however, beat other managers. Passive management is often assumed to be the equivalent of index management. It is not. Index management is a special subset of passive management. A passive manager may make active trading decisions. His decisions, however, are based on information currently available to all investors, not on an ability to read between the lines or predict future trends and events. Index management is passive management with the added constraint that the manager does not make active trading decisions.

— Evensky,Wealth Management, p.322

--Blbarnitz 06:28, 7 January 2016 (EST)

Can this definition be incorporated here?

Perhaps we can collaborate with the Bogleheads wiki, as Peculiar_Investor has created a dedicated page: Bogleheads:Passive management. The discussion can continue here or on the corresponding Bogleheads:Talk:Passive management page.

--LadyGeek 15:36, 7 January 2016 (MST)

I find the part of the quote starting with 'A passive manager may make active trading decisions' confusing for the average DIY investor, myself included. I think we should keep it simple, e.g., see intro from existing finiki page.--Quebec 04:31, 8 January 2016 (MST)

I've replied to blbarnitz on Bogleheads:Talk:Passive management. Summary answer, not convinced to add the quote. Rather than parallel discussions, it would be better to sort it out in one place, i.e. the BH wiki talk pages. --Peculiar Investor 05:54, 8 January 2016 (MST)

Lead section: passive management versus index investing

In the financial literature, passive investing is typically used as another term for index investing. Sharpe's definition, in the quote, means more or less that. But the 2nd parag of the lead section says that indexing is a subtype of passive investing, implying there are other forms. To clarify this, we should give examples of non-index passively managed portfolios. Does a GIC ladder count? What else? --Quebec 19:32, 6 March 2018 (CST)

I've addressed this in the last paragraph of the lead section, but added that in the rest of the article, 'passive' means 'indexing'.--Quebec 16:00, 7 March 2018 (CST)

Currently the 1st parag of the lead section reads "Passive investing (also called passive management) is a strategy in which an investor (or a fund manager) invests in accordance with a pre-determined strategy that doesn't entail any forecasting (e.g., any use of market timing or stock picking would not qualify as passive management)[citation needed]. The idea is to minimize investing fees and to avoid the adverse consequences of failing to correctly anticipate the future[citation needed]." Although it makes sense, I could not find supporting references for this definition. Also, it would seem that the so-called "smart-beta" strategies would qualify as 'passive' under this definition: they are pre-determined strategies, and don't involve predicting the future. That worries me a little bit. Should the definition of passive investing be clarified? --Quebec 19:32, 6 March 2018 (CST)

I finally found the source of our 1st paragraph yesterday, it was copied from wikipedia, ~2015 version, and I've included this information as a reference. I do note however that the current wikipedia page says, more or less, that passive investing = indexing, and again, that's what most sources say.--Quebec 08:31, 9 March 2018 (CST)