I am a closet active investor.
This statement is partly predicated on the fact that most investing decisions, including purchasing index ETFs, contain an element of active decision making. Unless you are 100% invested in the entire market, even the index ETF selection process involves the selection of asset classes, which is by definition, an active choice.
“As Rick Ferri, perhaps the most notable expert in the world when it comes to indexing says, “there’s no such thing as passive investing. It’s true. Passive investing in its purest form doesn’t exist. Only lesser degrees of active management exist.” – The Myth of Passive Investing
In fact, some research suggests asset class selection is potentially the most significant driver of returns.
“More than 90% of the variability in returns for institutional portfolios had to do with the asset allocation decision.” – Four Investing Lessons From David Swensen
Also, I believe that a lot of the research on “passive investing” vs. “active investing” is based on periods of history where the aggregate level of “passive investing” was much lower than it is today. So it will be interesting to see how those relationships hold up as the amount of “passive investing” increases to a much higher percentage in the research dataset or if that relationship changes and additional opportunities for more active selection decisions present themselves. Further, we have had a fairly long stretch of broad gains across almost all asset classes, which seems like the perfect environment for less active decisions. It is possible the environment will change in the future. I may write more on all that later.
Based on my investing philosophy, I have a portion of my portfolio that is invested mostly in the equity of individual names. The starting point is based on some of the tenets laid out in Joel Greenblatt’s book, The Little Book That Beats the Market
I have been doing this for over a decade. And I have created a little bit longer checklist as I have attempted to enhance my investing decision making process.
So, for your enjoyment, here is my investing checklist:
This is not investment advice. Use at your own risk. If you do use this checklist, you will likely be publicly shamed based on your under-performance, generating excessive fees and taxes, lack of non-income producing assets in your portfolio, and knowing what EBITDA means. Other legal disclaimers. Blah, blah, blah.