9 ms·

I think passive investing works, on average, because, on average, companies generate profits and increase in value over time. Active investing loses because tra

I think passive investing works, on average, because, on average, companies generate profits and increase in value over time. Active investing loses because transactions have costs in terms of management fees, commission and spread and is how stockbrokers make their money.

coltonv 8y ago
I agree that passive investing works, but the real story, I think, is that the economy is guaranteed to grow on average if the population keeps increasing and innovation keeps happening. If the population grows 3%, we have to produce roughly 3% more, so revenues go up roughly 3%, number of employed goes up roughly 3%, so the economy grows 3%. If I invent a steel manufacturing process that makes steel 3% cheaper, expenses go down 3%, profits go up, supply goes up, prices go down, the economy grows. If all you do is passively invest, then over large periods of time you should on average see returns of, roughly, population growth + innovation. Even if everyone is passively investing, it's the same thing. If you actively invest, but still invest in the whole market (as any diversified investor does), you get the same thing, minus ~1% towards. If everyone was actively investing before, and the market grew ~8% per year, and now they passively invested, why would the market not gain the same?
deleted 8y ago
[deleted]
conanbatt 8y ago
If 100% of the stocks were passive invested, then the game for banks would be to list companies as fast as possible, with as high capitalization possible. Who cares if its overvalued? nobody is looking. As soon as a stock is publicly listed it gets bought. IT would not work. Not poorly, it just wouldn't work at all. This tells me that there is a balance on how much active/passive investment can there be, and at some point they will be balance by some criteria.

9 ms·

I think passive investing works, on average, because, on average, companies generate profits and increase in value over time. Active investing loses because tra

by barking 8y ago

coltonv 8y ago
I agree that passive investing works, but the real story, I think, is that the economy is guaranteed to grow on average if the population keeps increasing and innovation keeps happening. If the population grows 3%, we have to produce roughly 3% more, so revenues go up roughly 3%, number of employed goes up roughly 3%, so the economy grows 3%. If I invent a steel manufacturing process that makes steel 3% cheaper, expenses go down 3%, profits go up, supply goes up, prices go down, the economy grows. If all you do is passively invest, then over large periods of time you should on average see returns of, roughly, population growth + innovation. Even if everyone is passively investing, it's the same thing. If you actively invest, but still invest in the whole market (as any diversified investor does), you get the same thing, minus ~1% towards. If everyone was actively investing before, and the market grew ~8% per year, and now they passively invested, why would the market not gain the same?
deleted 8y ago
[deleted]
conanbatt 8y ago
If 100% of the stocks were passive invested, then the game for banks would be to list companies as fast as possible, with as high capitalization possible. Who cares if its overvalued? nobody is looking. As soon as a stock is publicly listed it gets bought. IT would not work. Not poorly, it just wouldn't work at all. This tells me that there is a balance on how much active/passive investment can there be, and at some point they will be balance by some criteria.