Notes for Final Active vs Passive investing Notes for Final

Notes for Final Active vs Passive investing Notes for Final...

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Active vs. Passive Funds 1) Passive vs. Active funds a) Do the worst active fund continue to be bad active funds? i) Yes, because they are the worst because of high expenses and high expenses persist b) Do the best active funds persist? i) Depends, if they are good managers than maybe, if they are just lucky, then who knows c) Typically there is a cycle of well performing funds to go from 3 to 4 to 5 star funds back to 3 star. i) Why? – because 5 star get an inflow of funds which reduce their returns; portfolio managers cannot keep their strategy which made them the large returns when they have lots of money d) Why do bad funds stick around? i) People are dumb and invest in them ii) You can fool some of the people some of the time, and that is enough to make a living 2) Asset allocation of Active and Passive a) Asset Allocation/ Security Selection (Examples) b) A – Active/ Active
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Unformatted text preview: i) Variable asset class proportions ii) Active security selection within each asset class (1) Examples (a) Financial industry - Short Term Changes; (b) Warren Buffet Long term changes c) B Passive/ Active i) Fixed asset class proportions ii) Active security selection with each asset class (1) Examples (a) Institutional Investors Pension funds, insurance Companies, Endowments (b) FJJ Frank himself did this Id love to be warren buffet, but Id also love to do a 360 slam dunk d) C Passive/ Passive i) Fixed asset class proportions ii) Index Portfolios within each asset calss e) D Active/ Passive i) Variable asset calss proportions ii) Index portfolios within each asset class 3) Passive a) Beta = 1 b) R^2 = 100 c) = 0 d) N = same as index e) Turnover = low f) Expense = low...
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Notes for Final Active vs Passive investing Notes for Final...

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