Chapter 4: Intro to Investing
Now that we have covered a variety of investment types let's compare a couple of the most common investing styles:
Active versus Passive Investing
The goal of active investing is to “beat the index” by actively managing the investment portfolio. Passive Investing advocated for a passive approach, such as buying an index fund, in tacit recognition of the fact that it is difficult to beat the market consistently. While there are pros and cons to both approaches, in reality, few fund managers beat their benchmarks consistently enough to justify the higher costs of active management.
Growth versus Value
Growth investors prefer to invest in high-growth companies, which typically have higher valuations ratios such as Price-Earnings (P/E) than value companies. Value investors look for companies that have significantly lower PE's and higher dividend yields than growth companies because they may be out of favor with investors, either temporarily or for a prolonged period of time.