Don’t Be an Active Investor Unless You Have an Investment Thesis
If you don’t have a view that’s different from the market’s view, you’re better off as a passive investor
After spending decades dedicated to investments research, I’ve come up with some pithy advice for all investors (despite my disclaimer that I don’t provide financial advice). I call it “Steve’s Surefire Method for Earning Millions of Dollars Through Investing” and I’m sure you’ll agree that it is surefire. It’s a simple two-step process:
- Step 1: Have a view that’s different from the market.
- Step 2: Be right!
Step 1 is really easy; step 2, not so much, as I’ve found from personal experience as well as academic research. If your view is the same as the market then your investment strategy should be straightforward: buy-and-hold an index fund, which is often referred to as a passive investment strategy because you don’t really need to do anything on your own. Conversely, if you’re an active investor, then to have any chance at successfully beating the market you need a process, which starts with defining what your view is — that’s where an investment thesis comes in.
