THE INVESTMENT MARKET

It is not possible to beat the market in the long run


In implementing an investment strategy, the decision has to be taken whether to invest in index-based financial instruments («passive management») or to process company news and market information with a view to choosing individual stocks to buy and sell in the hope of beating the market («active management»).

The answer that the literature on financial markets gives is unequivocal: In the short term, some asset managers using active management will outperform the average investor in the respective asset class. But already in the medium term, the market will outperform almost all asset managers and – because of the high costs – will also perform noticeably better than the average active manager.

Accordingly, active management does not pay off in liquid markets. Rather, the better option is to invest as cheaply as possible in index-based investments that replicate the respective investment class.