For active portfolio managers the central questions are whether information is already incorporated into market prices and is there a way to accurately predict when to buy and sell assets to produce better returns from short-term market predictions. Unfortunately, skill in evaluating the business prospects of a firm or the outlook for an industry may not be sufficient for successful trading. To construct a market beating portfolio, active managers must identify miss-priced securities. They must have accurate information that other investors don’t know about yet. To profit from this insight, other investors must then act upon this information, causing the mis-pricing to be corrected. In a world where information is rapidly distributed, and use of insider information is illegal, identifying miss-priced securities is a tall order. Gaining an advantage over other investors in a competitive market place is challenging. To be successful, active managers must regularly find miss-priced securities and anticipate when unusually high or low returns might begin or end. The failure of active management to outperform the market would provide solid evidence that capital markets are functioning efficiently.

The mass media of late has given full coverage to the benefits of using low-fee passive investment vehicles – ones that do not try to pick individual positions, but rather represent broad asset classes. The next logical step, building a passive portfolio, is a much more difficult proposition. Which asset classes to choose? Which vehicles to buy? What allocations?

One of the most fundamental task of real estate portfolio approach is to take the decision of  which approach you would like implement for your investment. You can either undertake active portfolio process or can go for passive portfolio approach. Each has their own objective and is suited to certain circumstances, in particular, during the prevailing monetary conditions.

A portfolio of securities that is altered only when another variable, such as market index, is altered.

Active investing, as its name implies, takes a hands-on approach and requires that someone act in the role of a portfolio manager. The goal of active money management is to beat the stock market’s average returns and take full advantage of short-term price fluctuations. It involves a much deeper analysis and the expertise to know when to pivot into or out of a particular stock, bond, or any asset. A portfolio manager usually oversees a team of analysts who look at qualitative and quantitative factors, then gaze into their crystal balls to try to determine where and when that price will change.

Active investing requires confidence that whoever is investing the portfolio will know exactly the right time to buy or sell. Successful active investment management requires being right more often than wrong.