The Peril of Professional Advise

Active or Passive

I read a research article published by a unit trust business corporate not long ago. The article discussed about a finding of the result between active management of investment portfolio verses passive management.  Active management was defined as someone who keeps on looking on market condition to invest. They come in and out of the market as often as necessary. Whereas passive investor is someone who always stay invested regardless of what the market condition is.

The conclusion of the article ended that the passive investors enjoyed greater return than the active ones.  The main reason is the issue of market timing employed by active investors. They often missed out accurate market timing as what they wished for. Because market timing is the least possible thing any investor can do with accuracy.

I do not know for certainty what parameter the research paper has actually used for the analysis and study. How the researcher define market timing or market condition for active investors leaving the market and entering the market is also another question I had in mind.

Market Timing: Worst Thing to Do

However, it is agreeably true that market timing is the least any investor would be able to do with accuracy. On the other hand, moving in and out of the market is not the only thing active investors doing. There are many kinds of strategy and means active investors might be doing instead of removing and investing totally from investment.  It is not as simple as the research paper might have seen or treated.

For short, I have been a passive investor before I learned how to do investment myself.  I invested a certain sum of money into unit trust as advised by a banker. I have trusted the highly qualified fund manager to do the job as professionally advised and did not have to worry anything about it.

After 10 years, I came back to check the result of my investment with the bank. It was to my horror to discover that the amount of investment stayed exactly the same 10 years ago. It was a total waste of time and an actual loss due to the passage of time and inflation. It would be more beneficial if I were to deposit that sum with the bank fixed deposit.

From then on, I was awaken and learn how to do investment myself. Later on I also discovered that bankers as they are supposed to be are just a bunch of sales men and sales girls working in the bank. The knowledge of unit trust they have are just a replication of their training officer. At times, I have to realign some of their investment concepts when I have come to be a little more mature in this field.

Superiority of Active Investment 

Back to my own investment currently, I have proven that the return of active investment is not poorer than the passive investors. In fact, it is the other way round. As you all know, starting from the last week of the month of November 2017, Asian market had period of correction. Almost all Asian Market dropped gradually and modestly.  It was bottomed at the first week of December 2017 and has been on the course of full recovery until present.Fund Falls

A passive investor would do nothing at this period of time. But an active investor would seize this rare opportunity to gain even more.  Table A shows the different result between a passive and an active investor. While this is not intended to be an academic study about investment finding for professional presentation, it is nonetheless just a sharing from my own investment experience.

Table A
Table A ~ Active or Passive Investment Performance

I have picked up 3 of the funds that I have invested during this period of time between November 30th 2017 and January 4th 2018. The starting time was set on November 30th, because the fall was more obvious by November 29th. And the ending time at January 4th 2018 was preferred is because the recovery is much more completed by then.

I would presume a passive investor would be fully invested. His return can be easily computed from the difference between the two unit trust fund prices.  While the active investors such as mine is more complex than people can easily perceive and understood.  To make it easy for my readers, I would say I have used different tactic and risk control strategy with various degree and varieties. Consequently, we can see that the return of an active investor such as mine is much higher than the passive investor.  For example, a return of 29% (AGR ~ annual growth rate) verses 26% (AGR) on Pacific Focus China Fund for passive investor.  A 21% of AGR verses 17.6% of return in CIMB Greater China Fund and 36% annual rate of return compared to 24% annual rate of return from Eastspring Invest Dinasti Fund. If market condition remains bullishly for the following days, this disparity might get even further apart.

Learn to Welcome Market Tremors

While this analysis seems interesting to me alone, but I hope it is also encouraging to those who are actively managing their unit trust investment. As what I have said to my trainees, we employ risk management is not only for protecting our capital but rather for profiting even more during the time of crisis such as what we have just passed.

For an active investor, we should learn to love market tremors. Because there is where we can take advantage and gain greater profit for our advantage. To a passive unit trust investor, market tremors might be night mares. But for active investors, market tremors might be blessing in disguise if we learn how to employ proper risk management into our portfolio and investment strategy.



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