Thanks for your comments, IGP Paradox. Passive or active, market crashes are inevitable. My "mental game" for either way of investing would be to always focus on the long term, fundamentals of a company (if stock picking), and staying the course through the volatility.
As a previous active investor, I also didn't 'select' my way out of volatility by buying defensive stocks. I bought more of the same stocks if they were still fundamentally strong. For passive investing, it makes my decision making much easier since I just buy that index fund (as opposed to choosing which company to average down on). Thanks for your question. Made me reflect. I've written about this part in a previous article here: https://www.thecompoundingdad.com/p/providend-philosophy-of-sufficiency
Warren Buffett said most investors should index, but also built his wealth through selective ownership. The lesson isn’t the tool, it’s the temperament behind it.
Thanks for your comments, Value Investing. You are right - as they say, "All roads lead to Rome". It's whether we are contented with the journey that we choose to undertake.
“Enough” is the right anchor - but the conclusion doesn’t have to be passive vs. active. It’s really about aligning time, skill, and desired involvement with the strategy.
Indexing works for most because:
time is scarce
consistency beats occasional outperformance
fees and behaviour destroy returns
But there’s a middle ground you don’t touch on: concentrated active + passive core. A small, high-conviction sleeve alongside broad indexing often captures both - simplicity and upside from real insight.
Also worth noting: the data compares against fund managers, not disciplined individual investors with a narrow focus and low turnover. Different game.
The key takeaway I agree with:
You don’t need to maximize returns - you need to minimize the chance of failing your objective.
Thanks for your comments, thefreedomunderwriter. Agree with your points, including the core-satellite approach. There's no one perfect way - what's more important is the investor is happy with the approach and it works for his/her lifestyle. Also agree that disciplined individual investors might have an upper hand over fund managers for many reasons. One being they are independent and don't have anyone to report to. This makes being a contrarian much easier during a market crash. Also no/minimal fees involved for the individual investor.
Great Read! Question for you… The SPIVA data is compelling regarding underperformance, but active management often claims to offer better downside protection during crashes. Since your shift to passive, how have you prepared your “mental game” for the next inevitable major market drawdown where you can no longer 'select' your way out of the volatility?
Very insightful article. My path was different as I started late. Like you said it’s a question of knowing how much one needs and then allow the money to make more money. I now follow the policy that if my counters fall so be it but it will soon come back
Thank you for your encouragement, Ganesh. Everyone's path is different, and as long as we are contented with what we have, I believe we will have a fulfilled life.
Thanks for your comments, IGP Paradox. Passive or active, market crashes are inevitable. My "mental game" for either way of investing would be to always focus on the long term, fundamentals of a company (if stock picking), and staying the course through the volatility.
As a previous active investor, I also didn't 'select' my way out of volatility by buying defensive stocks. I bought more of the same stocks if they were still fundamentally strong. For passive investing, it makes my decision making much easier since I just buy that index fund (as opposed to choosing which company to average down on). Thanks for your question. Made me reflect. I've written about this part in a previous article here: https://www.thecompoundingdad.com/p/providend-philosophy-of-sufficiency
Warren Buffett said most investors should index, but also built his wealth through selective ownership. The lesson isn’t the tool, it’s the temperament behind it.
Thanks for your comments, Value Investing. You are right - as they say, "All roads lead to Rome". It's whether we are contented with the journey that we choose to undertake.
Yes, well said. Active investing requires time, energy and conviction.
Good piece, thanks for sharing!
Compounding usually looks boring in real time.
Most investors underestimate how much long-duration discipline matters relative to constant tactical repositioning.
That's so true Tony Ferreira
A solid piece, but I’d tighten one point:
“Enough” is the right anchor - but the conclusion doesn’t have to be passive vs. active. It’s really about aligning time, skill, and desired involvement with the strategy.
Indexing works for most because:
time is scarce
consistency beats occasional outperformance
fees and behaviour destroy returns
But there’s a middle ground you don’t touch on: concentrated active + passive core. A small, high-conviction sleeve alongside broad indexing often captures both - simplicity and upside from real insight.
Also worth noting: the data compares against fund managers, not disciplined individual investors with a narrow focus and low turnover. Different game.
The key takeaway I agree with:
You don’t need to maximize returns - you need to minimize the chance of failing your objective.
Thanks for your comments, thefreedomunderwriter. Agree with your points, including the core-satellite approach. There's no one perfect way - what's more important is the investor is happy with the approach and it works for his/her lifestyle. Also agree that disciplined individual investors might have an upper hand over fund managers for many reasons. One being they are independent and don't have anyone to report to. This makes being a contrarian much easier during a market crash. Also no/minimal fees involved for the individual investor.
💯 When we recognize that maximizing returns and maximizing wealth are distinct concepts, we sharpen our plan's focus.
That's so well said, Cosmo P DeStefano.
Great Read! Question for you… The SPIVA data is compelling regarding underperformance, but active management often claims to offer better downside protection during crashes. Since your shift to passive, how have you prepared your “mental game” for the next inevitable major market drawdown where you can no longer 'select' your way out of the volatility?
Hi IGP Paradox, I've replied you as above. Forget about using the "Reply" function.
Very insightful article. My path was different as I started late. Like you said it’s a question of knowing how much one needs and then allow the money to make more money. I now follow the policy that if my counters fall so be it but it will soon come back
Thank you for your encouragement, Ganesh. Everyone's path is different, and as long as we are contented with what we have, I believe we will have a fulfilled life.
Good stuff.. Thanks for sharing!
Thanks for your support, Sean!
Many investors chase higher returns.
Very few ask the better question:
“What return is enough for the life I want?”
That question changes everything.