ACTIVE VERSUS PASSIVE INVESTMENT

It follows from the above that long term investors who were able to merely track the large stock markets of the world over say the past fifty years have done well. There are many examples of those who have done even better by actively managing their investments including funds. It is possible to outperform the market and there are a few fund managers who consistently achieve better performance then the benchmark stock market index (the stock market index which most closely reflects the area of investment of the particular fund).

It is, however, a fact that many more do not. Why?

The reasons are many and could be any one or combination of the following -

· poor sector picking e.g. a high exposure to a dismal performing manufacturing sector coupled with a low exposure to a high flying sector - say telecommunications

· poor stock picking e.g. picking the poorer performing companies within a particular sector

· spreading the risk to such an extent that performance suffers - the good performing shares cannot shine through because of the safety first approach · investing into too few stocks - which turn out to be very poor performers!

· poor timing - buying at the top and being forced to sell in a bad market