The time is right to highlight two different languages that exist in the investing world. One you may hear all the time, the other you might just begin to hear whispers of. The two styles of speaking surface from the biggest debate that is raging the investing world today: active vs. passive investing and which is the better philosophy.
I won’t go into the finer points of each view right now because I feel the dialogue will give you a more nuanced appreciation.
I will start with the basic idea for each of the school of thought followed by something its corresponding advocate might say. Which one do you identify with?
Active: What stocks can I buy?
Passive: How much should I put into markets, bonds and cash to achieve my goals?
Concentrated bets: What’s the top 5 best performing stocks I can buy?
Diversification: Let’s fill the portfolio with as many stocks to copy the market.
Personality: This is a proven fund manager who gives great returns
Objectives: This fund will track the global markets.
Discretionary cash-holdings: I’m raising cash for this portfolio by selling stocks because I forsee a bad market.
Near zero-cash holdings: You’ve already decided on your split of safe and risky assets so I will invest your money entirely.
Faith: I believe the market would go down because interest rates will rise.
Philosophy: No one can predict the market consistently, stick to your asset allocation and reduce trading and costs.
Alpha: This stock will outperform.
Beta: I don’t know if this stock will outperform but I’m invested in the Asian region to capture long-term growth.
Short term: Here are the three best stock picks for the next quarter.
Long term: What are your objectives over the next five to ten years?
Marketing: How can we promote this fund to achieve sales targets?
Advice: How can we manage the client’s financial life to earn a fee?