Active vs Passive Investing
Index-style (passive) investing has become more popular in the past couple decades.
Passive investing is an investment strategy to maximize returns by minimizing buying and selling. Index investing in one common passive investing strategy whereby investors purchase a representative benchmark, such as the S&P 500 index, and hold it over a long time horizon.
Passive Strengths
Low fees
Transparency
Tax Efficient
Active investing refers to an investment strategy that involves ongoing buying and selling activity by the investor. Active investors purchase investments and continuously monitor their activity to exploit profitable conditions.
Active Strengths
Flexibility
Hedging
Risk Management
International vs U.S.
US equites have outperformed international equities over the past 10 years
Recent US outperformance has been mainly due to:
Investor reference of growth over value
Success of large US tech (FAANG)
Generally greater domestic stability
Valuations
Valuation is the analytical process of determining the current (or projected) worth of an asset or a company. There are many techniques used for doing a valuation. An analyst placing a value on a company looks at the business’s management, the composition of its capital structure, the prospect of future earnings, and the market value of its assets, among other metrics.
Price to Earnings ratio is a widely used market valuation metric
Expectations of US earnings growth and a strong market has driven up the US P/E
International valuations have stayed significantly lower than the US over the past 10 years
