What Is An Active investor?

The Investor Diary Entry #6: January 18, 2023

When I first started investing in stocks back in January 2022, I never knew the term active investor. Then I came across the term ETF which at the time I saw as another investment tool that I did not understand.

I was relaxed not understanding things that I came across, as I was, and still am, not aware of many things in the investment world. Then the ETF term was associated with being a passive investor. Once I heard passive investor, it was by logic I knew there must be an active investor. But What is an active investor?

What Is A Passive Investor?

One of the good ways of understanding a concept is by understanding its opposite. A passive investor is someone who is investing money but without having to know much about investing.

The objective of the passive investor, is to use the tools of increasing wealth without having to spend much time neither on learning how to do it nor on doing it.

Therefore, one of the techniques of being an investor without actually knowing how to invest is to find a way to put your money into financial securities without having to put much time into it, nor turning it into a career. Many of us have established careers and do not want to become investors by career.

An ETF is one of those tools where people can put their money into month in and month out without having to study individual stocks or worry about valuations, the economy, or any of that stuff.

What Is An ETF?

An ETF is an Exchange traded fund that holds a diversified portfolio of stocks. Some of them are specialized in, for example, technology stocks or in certain indices, or certain markets. Others are more diverse that they include stocks from all over the world.

The most famous methodology of investing in an ETF is to invest every month in the ETF of your choice. Yet to benefit from this you really have to do it every month regardless of the market conditions. This way you can average the price in the long run and your invested amount will grow as the market grows.

Remember that this is investing and not trading. If you want to understand this difference, you can check out this article. I am making this statement here so as stress out the fact that there is no buying low selling high kind of thing. This is buying low and buying high for ever.

Would Any ETF Do The Job?

I am afraid that the answer to that is not YES. Unfortunately, one has to understand the different types of ETFs and also understand the costs associated with investing in an ETF.

Is this Difficult? Well, it can be confusing for some of us as the information can become too technical for our average understanding of the world of investment.

On the good side, this research effort is done once. Once you decide which ETF(s) to invest in, you don’t have to do any further effort. All you have to do is decide the amounts that you want to invest every month, and that is it.

So What is an Active Investor then?

Being An Active Investor

An active investor is someone who studies individual companies, decides on an investment strategy and style that suits him/her, and finally starts looking for opportunities based on the selected strategy.

For example, since last year I have been building my portfolio, and looking for opportunities based on the general theories of value investing, but since the beginning of the year the market has gone up a lot and it is getting harder to find buying opportunities.

Based on my strategy I was happy that my account was down about 25%. Now my account is approaching zero. I am looking at investing for the long run, and not looking to become profitable now. I still didn’t invest the money I put aside for investment, as I am gradually buying stocks to do what is called cost price averaging every stock. Therefore I still have 50% of that money not invested yet.

Therefore, being an active investor means that you keep looking for companies that present a buying opportunities, and tracking companies that are changing direction within your portfolio to see if you want to close your position(s) in those.

Conclusion

What I have described is a very simplistic approach to explain what is an active investor. The reason I am writing this entry is that I want to diversify my investment.

I am very happy with being an active investor, but another scary way to look at an active investor is that this type is trying to beat and outperform the market. This is not an easy task. You can go wrong easily and the market can easily outperform you. Meaning if you just invested in an index your portfolio would have been much better.

Imagine after all this effort and time spent, someone who is just putting money in an index is doing much better than someone who is daily looking into the market for opportunities. Luckily, until now I am outperforming the market despite the mistakes that I have made at the beginning and before I knew what is value investment.

That is why lately I was thinking of putting aside some money to invest in an ETF. Therefore, now I need to know which ETF to invest in, and that is a research on its own.

The Investor

Wednesday 18 January 2023

About The Author

I started looking into individual stocks in January 2022. I created this diary initially for myself to track my investing progress, and second as a place that I can share my ideas publicly hoping that others will share their ideas and learn from each other, and lastly as an online business where some links that I share are affiliate links, and if anybody bought anything by clicking those links I will get a commission based on that successful sale, which of course will not affect the price that you are buying the product or service at.

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Furthermore, this site is in no way or form is giving any financial or investing advice, nor it is encouraging or discouraging people to buy or sell any financial instrument. This is a personal diary in which I track my own progress and share for informational, educational and entertainment purposes.