An Active Investing Strategy

By Stock Research Pro • January 18th, 2010

An active investing strategy refers to the buying and selling of stocks or other securities in an effort to exploit short-term market conditions for profit. Active investors are those who tend to continuously monitor and adjust their holdings, rather than take a long-term approach to investing. While active investing can be highly profitable, it does carry a higher degree of risk than a passive investing strategy.

How Passive Investing Differs from Active Investing

Unlike active investors, passive investors seek to own all of the stocks in the market or a specific segment of the market with the knowledge that, over the long-term, their returns will equal that of the entire market. Active investors, on the other hand, believe they can find the stocks that will deliver the greatest return. Active investing, then, is more time-consuming and involved as it requires investors to continually monitor price movements as they seek to earn shorter-term profits.

The Risks and Costs of Active Investing

Active investing is typically seen as the higher risk and more costly approach to investing. Taxes and other costs can put a significant “drag” on the active investor’s returns (an actively managed mutual fund, for example, bears greater commission loads than passively managed funds).

The term “active risk” is used to describe the additional risk that an investor or fund manager must incur in their efforts to beat the market as a whole. The theory says that in order for the investor to see returns greater than the overall market, they must operate at a higher risk-level.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.


Leave a Comment

You must be logged in to post a comment.

« How a Variable Annuity Works | Home | Backspread Strategies in Stock Options Trading »

The Stock Research Pro Guide
to Fundamental Analysis
  • Target companies to invest in
  • Use financial statements to pick winners
  • Identify a strong management team
  • Run financial ratios to confirm strength
  • Find undervalued stocks
Please Send Me My Free 22 Page Report!
We value your privacy like our own and will never share your information with anyone.

Recent Posts