An Active Value Manager’s Major Role in Portfolios Today
David Herro discusses how a passive approach is opposite of Harris Associates’ philosophy of buy low and sell dear
Active management definitely has a major role to play in anyone’s investment portfolios. Why? We as active managers make decisions based on the attractiveness of the underlying equities. Granted the counter-argument of course is not all active managers outperform. But if you can find an active manager that outperforms using a sound philosophy, executing in a disciplined fashion, that is the root to outperformance.
A passive manager literally invests in a company because it’s there. If it becomes bigger in an index, that passive manager buys more of it. If it becomes smaller in an index, the manager sells the stock. It’s kind of the opposite of buy low, sell dear. In order to keep up with the index, the passive manager makes decisions purely on price movement. Whereas in the case of an active value manager, we evaluate the value of the business and we act to buy low and to sell dear, sell expensive, which is, to me, how you make money long-term in investing and for your investment portfolios. It’s not to say there’s not a role of passives. There probably is a role. But there’s also a role of active. And active management, just based on the theoretical underpinnings of it, I think really has a lot to contribute to your investment portfolio.
The views and opinions expressed may change based on market and other conditions. This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary.
Unlike passive investments, there are no indexes that an active investment attempts to track or replicate. Thus, the ability of an active investment to achieve its objectives will depend on the effectiveness of the investment manager.
All investing involves risk, including the risk of loss. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.