Active VS Passive Investing. What's best for me?

Getting involved in your long-term investing is hard work and it doesn't always have to be you doing the personal heavy lifting. But maybe that's what's best for you and you might even be more successful because of it. Join us today so we can talk about the differences between active and passive investing, what they mean, and what some of the benefits are. 

Maybe you're doing everything right already!... But maybe you're not...

Transcript

Chris Holling: 0:01

Oh, how do we, how do we start this one?

Sean Cooper: 0:08

active versus passive management there, it's began. Actually, maybe we should introduce ourselves.

Chris Holling: 0:18

Such a, like, I'm just gonna drop this plate in front of you like here. Eat it?

Sean Cooper: 0:22

Yep.

Chris Holling: 0:23

Hope you like is ready. Yeah, yeah, yeah. Today Today today Hey, welcome, welcome. Welcome, ladies and gentlemen, boys and girls to another episode of the truth about investing back to basics. My name is Chris Holling.

Sean Cooper: 0:52

And I'm Sean Cooper.

Chris Holling: 0:54

And we are going to talk about what did you say?

Sean Cooper: 0:57

active versus passive management.

Chris Holling: 0:59

Look at that, we are going to talk about that. And let's, let's do the thing that we've been doing this season where I describe what I understand about it. And then you tell me if I'm wrong. Tell me how wrong I am.

Sean Cooper: 1:16

It's a lot of fun.

Chris Holling: 1:17

Yeah, you know, actually, this one, I feel like as far as just general concepts, I feel like I understand this one. The least I feel like I feel like I just have a base understanding of this one when I think of passive and active investing. To me. And I think as I'm saying this, I'm kind of forming my thought, I think the reason that comes off this way to me is because I'm more of a consumer than I am anything else on this. So when I think of passive and active investing, I think of I have a certain amount of money that I might hand to an investing firm, or say a certain amount of precious metals that I'm sitting on, and I hang on to it, and I kind of allow the market to happen. And when it is time to sell roughly around that time, I hope that my amounts have grown and gotten to a certain point over let's say 20 years, and sell and set up my my wins and losses. However, however you want to look at it, and hopefully through a combination of inflation and interest. And however I have that arranged that. That's what I acquire whereas active investing, I like I immediately think of like day trading stocks where it's like, it's it's a high price now I'm going to sell it now. Okay, now let's go Okay, now I'm going to and you're doing it throughout the course of the day. And I I'm sure that that's not exactly it. But those are the two extremes that sit in my head especially is like a consumer view. So how, how far off base? Am I on that?

Sean Cooper: 3:01

Not not too far, really. I would say your description of you know, kind of buying and holding precious metals, that would definitely fall on under passive. So you had that one down, Pat.

Chris Holling: 3:13

See that down Pat. You heard it from the guy?

Sean Cooper: 3:15

Yep

Chris Holling: 3:16

man.

Sean Cooper: 3:16

Yep

Chris Holling: 3:17

on record,

Sean Cooper: 3:18

the the stock trading day trading, that would be an example of active management, handing it over to a professional money manager. While a passive approach from your standpoint, as an investor it still would still be considered active management because most likely that professional money manager is going to be actively managing your portfolio.

Chris Holling: 3:45

I wondered about that. I hesitated saying it, but I I'm okay with being wrong on on public internet waves.

Sean Cooper: 3:55

So I mean, it does depend on the manager. So in general terms, active management really just means typically you're hiring some professional money manager to do it for you. The other example would be is if you're actively buying and selling on a more regular basis, like you were describing with the the day trader, the stock trader, whereas passive management is typically a buy and hold strategy, you might rebalance periodically, probably a good idea to do so. And it would still be typically classified as passive management. Even if you're rebalancing say a couple times a year or once every couple years, that sort of thing. From a investment standpoint, so what you're actually looking at when you are investing in a an active manager versus a passive manager, typically speaking, most mutual funds and hedge funds would be classified as active management. So there's some professional money manager overseeing the funds inside of that mutual fund, they're going to be the ones making the buy and sell decisions. And they're typically going to be fairly active about it. Whereas on the passive side, you're looking at index funds. So it's still a mutual fund, but it's tied to an index. So there's not some professional money manager overseeing and making buy and sell decisions. It's just a matter of are these holdings in the index as it has this holding, fallen out of the index gone into the index, and you're only really buying and selling when that happens? Or to potentially rebalance?

Chris Holling: 5:33

Okay, sorry, what's, what's an index?

Sean Cooper: 5:35

an index, So people often quote like the s&p 500?

Chris Holling: 5:40

OK

Sean Cooper: 5:40

is an index, the Russell 2000 is an index, the eafe is an index. It's just a basket of in this case, what are the examples I gave stocks?

Chris Holling: 5:54

Sure

Sean Cooper: 5:55

Barclays Capital aggregate bond index would be another one bar cap agg,

Chris Holling: 6:00

sure

Sean Cooper: 6:02

so there are certain requirements for a a security to fit the profile of that index, and basically either fits or it does not fit. s&p 500 is just the 500 largest capitalized stocks in the US. So either you're in the top 500, or you're not there's you don't need any experts to make buy and sell decisions based on that you're just tracking index.

Chris Holling: 6:30

I have a question that's probably going to take you off topic.

Sean Cooper: 6:33

Okay.

Chris Holling: 6:35

Do you happen to know off the top of your head? What company or like a couple of companies that have been in the 500? The longest just out of curiosity?

Sean Cooper: 6:45

That I do not?

Chris Holling: 6:46

I'm just curious. I don't know. I just, I just wondered.

Sean Cooper: 6:51

No, that's a great question. That the biggest ones are in in it now are all pretty much tech and they were have not been in it very long at all. But if you want if you want a longer track record in the index you'd want to look at would be the Dow Jones Industrial Average, because that's been around longer, and that has some very old companies in it.

Chris Holling: 7:12

Okay. Okay.

Sean Cooper: 7:14

Yeah,

Chris Holling: 7:14

I was just I was just curious if you just knew something off the top of your head.

Sean Cooper: 7:17

Nope, not particularly.

Chris Holling: 7:20

Well, sorry. listeners. Go. Figure it out.

Sean Cooper: 7:25

Yep. Chris, you can look it up while I keep blabbing on about passive investing.

Chris Holling: 7:30

Okay, I'm gonna I'm gonna try I'm gonna try the the researching and edit out all my angry typing later.

Sean Cooper: 7:37

Okay. I don't know why its angry typing, but sure,

Chris Holling: 7:40

because it's, it's not here. That's how it sounds. Sorry. Okay, you go ahead. And I will be researching as you continue describing,

Sean Cooper: 7:50

okay, so ETFs, or exchange traded funds are also typically passive investments, because typically, they're also tracking a an index, or something along those lines, there are some active ETFs. The idea of an active ETF is kind of strange. But that's another topic entirely. As far as the kind of pros and cons of each, the idea behind active management is that you're prof... paying this professional money manager, ideally to either enhanced your performance or reduce your risk without sacrificing performance in some way, shape or form. That that's the concept anyway, active management does tend to, or at least has a better chance of outperforming when the market is very volatile, especially a volatile market going sideways. same holds true for a bear market, so market in decline. Whereas passive management tends to outperform during a bull market, it's very difficult for an active manager to outperform a bull market. What the studies have found is that over the long term, passive management tends to outperform anyway. And the reason being is the active managers, the even even the very good ones, over the extended period of time. If they do well tend to basically offset their fees and the fees of trading. So they essentially breakeven. Now, there are obvious, obviously exceptions to that. However, the number of exceptions, doesn't actually exceed what you would expect from basically from just random chance, if you will. At least from the you know, The statistical level, and that's what we see coming out of the big institutions. So,

Chris Holling: 10:04

okay, okay, I got I got good news and I got bad news. Okay. The good news is, I finished my research,

Sean Cooper: 10:12

nice work.

Chris Holling: 10:13

The bad news is that I was not able to research and listen to you simultaneously. So I need you to give me like, a 10 second synopsis of what you just said, that I need the crash course I need the, I need the like, this is what I said I go, okay.

Sean Cooper: 10:34

Okay.

Chris Holling: 10:35

Ready? Go.

Sean Cooper: 10:36

Okay, the idea behind active management is to provide some form of outperformance either actual better returns or lower risk. And they tend to do better has the opportunity to do better during a volatile sideways market or a bear market, whereas passive investing tends to do better outperform in a bull market. The statistics show that the active managers typically cannot do anything more than just break even with the long term.

Chris Holling: 11:09

No, no, no, no, that's 30 seconds. That's 30 seconds. I need I need the the the 10 second five year old explanation, because now I'm just curious what you're gonna say. That's how we're gonna

Sean Cooper: 11:21

eh. But if I give you 10 more seconds, that's just adding 10 seconds

Chris Holling: 11:25

total, like you're starting over but only have 10 seconds.

Sean Cooper: 11:32

I don't know that I could shorten it that much.

Chris Holling: 11:35

Oh, you're sure you could.

Sean Cooper: 11:37

active managers goal is to outperform in some way, shape or form. But statistically, it typically does not.

Chris Holling: 11:46

Nice. Okay, five seconds.

Sean Cooper: 11:49

No.

Chris Holling: 11:53

Okay. No, that's, that's, that's fair. Because it's, that's that's important to note. Because if you're if you're looking at that as a, as a whole, and you're, it kind of goes back into some of the stuff that we're we're talking about. And I hope I addressed this properly, because I, I was doing what I could to pay attention simultaneously. But when when we are looking at those things, and when you're talking about the differences between the two, it kind of goes back to what we were talking about of comparison of inflation to interest. And that's why we started with it and why we opened with some of those things, to talk about some of the comparisons that it's good to do something and chances are as you're addressing the, the active portion is going to outperform the two which is which is why it's good to learn about these things and get involved.

Sean Cooper: 12:43

Over the long term, the passive actually outperforms the two

Chris Holling: 12:49

shoot, well, then that completely disrupts everything I just said

Sean Cooper: 12:53

the issue the active portion has is typically speaking, the any outperformance that it experiences is offset by the higher fees associated with paying the professional money manager and paying for all the trading costs that come in, in with the active management. Now, there are a few exceptions to that, like I said, just from pure sis statistical chance there are exceptions to that. But there are also exceptions as you get into asset classes. And what I mean by that is, the more efficient a market is the more efficient an asset class is, the harder it is for an active manager to beat just a passive index. So for example, domestic equities, even as you get down to small cap or mid cap or small cap, whether you're do growth, growth or value, it doesn't really make a difference. It's much harder for an active manager to outperform those in those asset classes. Because the market is so efficient, any other type of even bonds or other international equities so like investing in Europe, again, it's a very, they're very efficient markets. So it's very hard to take advantage of any type of imbalances in terms of, you know, things being undervalued or overvalued, and things of that nature, where you see active management tend to do a bit better. bond markets where right, I mean, right now, technically speaking, an active manager should have the potential to do better, because we're okay, maybe not right now, but going forward where we're facing a rising interest rate market, which is going to have downward pressure on bond prices. An active manager should be able to beat a passive fund because the passive fund is basically just going to continue to get hit by those rising interest rates, but then being offset by the better interest rate down the road. Other things like uh emerging markets or frontier markets, where actually investing in those markets becomes very cumbersome, just because of the regulations. And the way you have to go through the process of creating, even creating an index becomes a challenge. So an active manager may have the opportunity to take advantage of those different valuations. same holds true with some alternative asset classes. So for example, managed futures, for example, there's no easy way to wrap that that concept into a passive investment, to put it into some form of passive ETF, it just, conceptually, it doesn't work very well. So there are instances where it can certainly be advantageous to have that active manager. And again, you know, depending on the market cycle, there are other reasons why they might have a better opportunity to outperform. But broadly speaking, statistically speaking, if you look at the studies coming out of, you know, your big institutions Harvard and Yale, and those active managers typically underperform or basically just offset their own fees.

Chris Holling: 16:28

Okay, that makes sense. I is that is that why? How do I put this is that why when discussing these as a as a base, understand me just as a as a consumer, that I don't know anything about investing and, and stuff like that, is that a big reason why diversifying your portfolio and, and things along those lines is is encouraged, because then you have sort of that that offset of the passive investing that's doing well in those consistent markets and indexes, like you're talking about, as well as when there is a dip and there is a change, and the active investors have that opportunity to, in theory do well statistically, like you're referring to and then and then take advantage of those, those times when those are available. Is that why that's encouraged? Or is there a different reasoning different thought process on that?

Sean Cooper: 17:21

There's certainly that's certainly a form of diversification. Typically speaking, when people talk about diversification, they're actually referring to asset classes by asset class, not necessarily by management style. However, that is certainly a form of diversification. And typically, what you see with that is people will use like a, what they call a core and explore strategy. So they'll have a strategically diversified core of their portfolio, call it 60% 70% 80%. That is strategically allocated, they're going to buy and hold, they're going to use it as a passive, passive investment rebalanced periodically, and then depending on what they're they're willing to, potentially, in some cases, risk, depending on what they're using for that explore, piece. That other piece of the pie that you know, 10, 20, 30, 40%, whatever it is, ends up being used. Oftentimes, it's in a more aggressive fashion. So it might be in something that has a bit more risk. But also potentially more reward.

Chris Holling: 18:37

Well, no, that's, and I'm sorry, I'm cutting you off here. But I'm, I'm doing two things partially, because the that's that's why I was asking was the high risk versus low risk, if you're looking at something that's high risk, where it's technically somebody that's active versus the low risk is something that's established, and it's slow, and over time, like you were talking about a little bit earlier. And the other reason I'm stopping you is because unless we're going to dive into it right now, correlation, diversification is our next episode. And

Sean Cooper: 19:08

that should definitely be its own own episode.

Chris Holling: 19:10

Okay. Okay, cool. I'm just, I'm just taking the reins in cause That's my job.

Sean Cooper: 19:16

No, no, the one other thing I would I would add is, you know, in this particular example, depending on how you're using an active manager, they may actually be used as more of a conservative play. So that Explorer is actually a conservative piece of the portfolio, you're using it for protection, because you're hoping that active manager is actually going to do better when the markets do poorly. So it's not always a an aggressive play a risky play, but it's just more often used the other way.

Chris Holling: 19:53

Okay, yeah, that makes sense.

Sean Cooper: 19:56

So, what did you find?

Chris Holling: 19:59

Oh, thank you. Look at you keeping me on track, I was not able to find S&P that was, specifically that's what I was interested in because I thought, you know, the top 500, who's been in the top 500 the longest, but I just I just had a hard time finding it. But what I did find is the six stocks that have been in the Dow the longest,

Sean Cooper: 20:22

perfect.

Chris Holling: 20:23

And now I mean, I really just googled this and this this was just the, the hot button that I picked here. So you know, always always check your sources and bla bla bla bla bla bla bla, but this is from fool.com The Motley Fool. I've Never heard of it. Oh, you know it. Okay.

Sean Cooper: 20:41

Yes.

Chris Holling: 20:42

Cool. So it looks like the number one that's on here is General Electric.

Sean Cooper: 20:48

Oh, that's not surprising

Chris Holling: 20:49

General Electric has been in the index since 1896. Actually.

Sean Cooper: 20:54

Alright, that's not quite as long as I would have expected but

Chris Holling: 20:57

Oh, no. Okay. Then followed by that is Exxon Mobil, which is 1928. When they got on there, then Procter and Gamble, which I don't know any of these things, so they are perhaps best known for tide detergent, crest, toothpaste, and dozens of other consumer products. They have been involved since 1932. which kind of makes me wonder what they started with, but they don't say anything about that in here. Doo doo doo doo pot. Oh, doo doo doo DuPont. Alright, nevermind. They they came in play in 1935. They are known for their chemicals. Chemicals for I don't know, it says chemicals. That's literally all it says chemicals.

Sean Cooper: 21:53

very descriptive.

Chris Holling: 21:54

Yeah. Science. There. They've been doing science since 1935. Then United Technologies started in the early 1930s. Which, I mean, I'm trying to see exactly, it says involved in everything from elevators to climate control and aerospace systems for aircraft, and did brief stints on the Dow in the early 1930s. But 1939 was when it was a solid position on the index. There you go.

Sean Cooper: 22:26

Okay.

Chris Holling: 22:27

And then finally, 3M, 3M. oh, started in 76. That's a big gap of 40 years of

Sean Cooper: 22:39

that is a big gap. Well, even though even the first one, to, the second one was a big gap.

Chris Holling: 22:44

That's true. That's true. So yeah, there you go. Those those are the ones that have been in the Dow the longest. And that's, I guess, because we're talking about it. And when you're when you're looking at things like that, when you're talking about, like, say 3M, you know, bottom 3M and what was the first thing I said General Electric, those do, those fit as more of a passive investing classification, then like, I get that, you know, it would be an active investor that would be utilizing this and it'd be an active investing choice to make it but in a way, if you only purchased that stock, kind of like you purchase gold or something of that sort and just hang on to it as its continued to remain in dow for however long would that be considered a passive investing process?

Sean Cooper: 23:31

That Yeah, yes, you're

Chris Holling: 23:32

Am I understanding that, okay.

Sean Cooper: 23:34

Yes, yeah, the stock in and of itself is not a passive or an active investment, it depends entirely on how you invest in it. So

Chris Holling: 23:44

that makes sense.

Sean Cooper: 23:45

If you if you buy into it, you just buy the stock, and you hold it for a long time, that would be considered a passive investment. If you buy an ETF that happens to have so you buy an ETF that is the Dow Jones Industrial Average and it has GE in it, then you're and you just buy and hold it then it is a passive investment. But if you start if you go out and you look at GE and you you buy it one day and then sell it a few days later and then buy it and sell it that same day and you know, you're being an active investor, day trader in that case scenario or you hire a mutual fund manager, you know, you invest in a mutual fund, you are hiring that manager and they are actively trading the stock.

Chris Holling: 24:34

Okay,

Sean Cooper: 24:35

yeah. So, the stock itself has the security itself has no bearing on whether it's passive or active. It's all about how you invest in it.

Chris Holling: 24:46

Well, then let me let me question the norm here. Then if you do a buy and hold on a real estate property which you are making an active investment and renting out and you are making Active decisions in this, whether it is a property management process, or if you are the landlord or whatever the process is, but you hang on to it for 30 years, then is that passive? Or is it active?

Sean Cooper: 25:15

That would be probably somewhere in between. Honestly,

Chris Holling: 25:18

Yes,

Andrew Geske: 25:19

if you're if you're holding it for a long period of time, that would classify as a kind of a passive investment, but because you're actively involved in the day to day decision making of the the rental itself, then you know, that that would be active. So

Chris Holling: 25:38

I just I just wanted to challenge the norm.

Sean Cooper: 25:40

Yeah, I lean more towards active on that one. But yeah,

Chris Holling: 25:43

okay. All right. No, I like that. I just, I just wanted to

Sean Cooper: 25:47

that's fair

Chris Holling: 25:47

to poke the bear a little bit. Okay. Well, I mean, I mean, I think that clears it up pretty well, for me. I, I guess that makes sense. I feel like I understood that, but I never really took the time to, to think about how different the passive versus active is specifically.

Sean Cooper: 26:09

Yeah.

Chris Holling: 26:10

But what else is, is on there, too. I think we've we've hit that pretty well, or the better.

Sean Cooper: 26:16

I mean, I touched briefly on the fact that it's the fees associated with the active management that causes it to not really outperform the passive management over the

Chris Holling: 26:25

right,

Sean Cooper: 26:25

you know, extended period of time, but to give you an idea, an exchange traded Fund, the internal expenses of an exchange traded fund, depending on what you're investing in, it's going to be a wide range you, you know, you have some of like Vanguard that are, you know, point 02 percent. So, ridiculously low, and then you have some that are

Chris Holling: 26:48

sure, that get into that kind of, I mean, you're getting into more active ETFs, which, like I said, it's kind of strange, but you can actually get up over 1%. But generally speaking, ETFs averaged right around 30 basis points. So point 3%. Fairly, low okay.

Sean Cooper: 27:11

And that's a percentage on an annual basis that you're going to be paying, you don't necessarily see it, it's disclosed in the prospectus of the fund. It comes out of your performance. So the performance that you're quoted is going to be net of those internal expenses. Conversely, mutual funds that are typically active Now, like I said, there are index mutual funds. Vanguard has some index mutual funds, that are still much, much lower. American funds actually is very good at producing low cost, even active mutual funds as if as is Vanguard, but generally speaking, your average internal expense on a mutual fund is going to be somewhere between 1% and 2%. So you know, more than three times as much as your average index fund or ETF. And that's, that's just the internal expenses disclosed in the prospectus. The prospectus itself doesn't typically disclose the trading costs associated with that, because they can vary so much year to year, often, that's disclosed in the statement of additional information. And when you incorporate the the additional trading costs, it typically increases the average internal expense of a mutual fund by about 40%. So which puts your average at closer to 1.4 to 2.8%.

Chris Holling: 28:41

When you're when you're talking about these percents that that are involved as as fees and such, does that happen? within the the process of the act of investing? Or does that happen? At the end of your transactions? Does it happen? At the end, when you pull your money out? Is that when the fee is implemented? Or how does is that dependent on the place? Or how does that work? Do you know?

Sean Cooper: 29:06

So those mutual fund fees are or internal expenses, the fees associated with any of these funds are going to be ongoing? So you're paying that on an annual basis?

Chris Holling: 29:18

Okay.

Sean Cooper: 29:19

Yeah, typically, it's going to come out, like quarterly, maybe monthly, the actual fee. So a piece of that is going to come out the the trading costs, you're actually paying as it as it occurs. Yeah, but the real point here is the difference between the fees is quite substantial between your passive management styles and your active management styles. And that's why it's very difficult for those active managers to actually outperform the passive strategy. Some of their you know, if there were no costs associated with some of these active management styles. Over the long term, yes, they would outperform But statistically speaking, the fees basically offset them. Now, that trait with trading fees going down, and the fees associated with that being compressed so much in recent years, I haven't read recent data to incorporate that. And that may have changed. That that's at least marginally, especially for some of your really active funds that have, you know, three or 400% turnover ratios. So that may change it. To a degree, I don't know that it's going to be real significant, but it certainly is going to help the active manager in that regard, just by reducing the trading fees. Yeah, that's, that's all I was gonna, gonna add there. There's, there's reasons for investing in both, there's philosophies behind each that may or may not speak to you and your, your style and what you're shooting for.

Chris Holling: 31:00

And no different than what we've talked about before, it's it's all it's all tools for the toolbox, you know,

Sean Cooper: 31:05

exactly.

Chris Holling: 31:05

That's, it's

Sean Cooper: 31:09

One thing, I'd say. So speaking to that idea of active trading, active investing, and

Chris Holling: 31:17

sure Yeah,

Sean Cooper: 31:18

buying and selling on a regular basis, that sort of thing. I talked about the fact that these professional money managers, you know, basically, they're lucky to offset their fees and kind of breakeven with the passive management see, so you will look at, you know, a passive, s&p 500. And then you look at an active active manager who is buying s&p 500 stocks,

Chris Holling: 31:41

right,

Sean Cooper: 31:42

but they're, they're active in their buying and selling of those stocks in there. And they're only buying a subset of those stocks. That's what I'm talking about where they, you know, their their trading fees, basically offset, and they end up kind of breaking even if you will,

Chris Holling: 31:55

okay.

Sean Cooper: 31:56

However, if you look at the average equity fund investor, so the, you know, average person just investing not a professional. They have, on average, regardless of what decade you look at, they typically underperformed the market by something like 6%, five to 6%.

Chris Holling: 32:18

Really,

Sean Cooper: 32:19

yes. And the reason for that is, it's very psychological, honestly. But it kind of plays to this idea of active investing, as opposed to passive investing and why the passive tends to do better. And that is, as the market ramps up, people start to get very excited, euphoric, they hear their friends talking about how much money they're making in in the market they buy, they buy more, and they're buying things that are very, very expensive. And then the market tends to correct itself and starts to underperform. And then it starts to go down. And they end up panicking and selling but they've, and what they've done is they've ended up buying relatively close to the high and selling relatively close to the low. So the average equity fund investor over the long term only makes out about 3.2 3.5%.

Chris Holling: 33:13

That's interesting.

Sean Cooper: 33:14

Anually

Chris Holling: 33:14

That makes sense. Y

Sean Cooper: 33:15

ou're barely breaking even, you're just barely beating inflation. Whereas you know, if you just baught and hold like the s&p 500 index, you're looking at average performance, depending on the decade of eight to 12%. so dramatic underperformance depending on you know, what we're talking about here. And the reason for that is people are very bad at timing, the market, they're very bad at buying at the right time and selling at the right time, because it requires a psychology to do what the opposite of what everyone else is doing when everyone is panicking. You know, and this Warren Buffett's famous for saying, I think it's when ever everyone is fearful, be greedy. And when everyone is optimistic, or something like that be fearful. Or when everyone's greedy, be fearful. And the reason for that is as when everybody's getting that euphoric. And there's a frenzy in the markets, that's when you should be cautious that the markets going to turn and when everyone's panicking and selling out, that's when there's buying opportunities. But it takes a very, it takes takes a lot to go against the trend to go against the masses from a psychology standpoint, but that's why they tend to underperform and that's from a an individual investor standpoint, not the not necessarily the professionals, that's where they struggle a lot is they get it when they become active in their investments. And even the professionals can struggle from that because they're getting pressure from their investors and their investors are, you know, selling at the wrong time so they have no choice but to sell their underlying investments in the funds to create liquidity. So it does play into that. But that's really jumping into the psychology behind it. So

Chris Holling: 35:07

no, that's that's a really good point. Because not I mean, not only does that happen, I've been that guy, I was that guy a couple years ago. And I'm just, I'm mostly just disappointed that, that you're, you're touching on the philosophy and psychology of this stuff, and that it doesn't it doesn't really give me a job anymore. So I'll just, I'll just sit here. You know, you can, you can do the numbers and the philosophy of the show. And I'll, I'll just, I'll just show up occasionally and go Yeah. Did you hear Sean talking to Sean a minute ago? Yeah. Sean really had a good point when Sean said this, and then Sean had another good point when Sean said this, and isn't Sean great. Everybody. Ladies gentlemen, It's the Sean's?

Sean Cooper: 35:51

No, I actually talked a lot about the psychology of it in the book. And I had my my cousin Shane actually provided me with a bunch of articles about psychology that I was able to utilize in discussion on how our psyche really impacts our investing. And also the, you know, kind of the hysteria of crowds that that herd effect that really doesn't help your investment style.

Chris Holling: 36:20

Maybe we should write a book, we'll have like a little little section of it, we'll have make sure to check these facts. And then we can put like, like the goofy little paperclip guy that you see on those old those old word programs?

Sean Cooper: 36:34

Yeah.

Chris Holling: 36:35

where it's like, did you ever consider that maybe the philosophy? Alright, we're, I'm totally going off. Maybe we'll write a book. I'll have my sections and crayon. It'll be Wow, this, this is good. This is actually had more info than I was anticipating to be honest. Which I like I like those. Is there? Is there anything else that you think we need to hit on for that?

Sean Cooper: 37:02

No, I think that that pretty well covers it. Yeah. I mean, the the general concept between active and passive management's pretty straightforward. I mean, you hit on it earlier, but there's lots of things to consider when it comes to actively deciding what strategy makes the most sense for you? Or if you're going to use both, and then how much of both each so.

Chris Holling: 37:22

Right

Sean Cooper: 37:23

And then also the

Chris Holling: 37:23

Tools for the toolbox

Sean Cooper: 37:24

asset classes, you know, with this asset class, do I want to be a passive investor with this one? Do I want to be an active investor, you know, lots of decisions, it's

Chris Holling: 37:32

The decisions are up to you, the listener, the, I don't know, I'm just I'm talking to just the air right now. So that's, that's fine. They're listening. The listeners are listening. With their, their listening ears. Right now. I should stop talking. Thank you. Thank you again, for joining us on another episode of the truth about investing back to basics. Thank you for taking the time to want to better yourself and coming here for more tools for the toolbox. My name is Chris Holling.

Sean Cooper: 38:06

And I'm Sean Cooper.

Chris Holling: 38:08

And we will permit you to be the listener again. Next time. That was that was kind of better.

Sean Cooper: 38:19

I don't know about the permit.

Chris Holling: 38:21

I'm allowing. We're allowing

Sean Cooper: 38:24

okay,

Chris Holling: 38:25

My my listening peastants

Sean Cooper: 38:27

Okay, I think by putting it up there we have pretty much.

Chris Holling: 38:38

podcast disclaimer disclaimer. The disclaimer following this disclaimer, is the disclaimer that is required for this podcast to be up and running and fully functioning and moving forward. This is going to be the same disclaimer that you will hear in each one of our episodes. We hope you enjoy it just as much as we enjoyed making.

Sean Cooper: 39:01

All content on this podcast and accompanying transcript is for information purposes only. opinions expressed here in by Sean Cooper are solely those of fit financial consulting LLC unless otherwise specifically cited. ChrisHolling is not affiliated with fit financial consulting, LLC nor do the views expressed by Chris Holling represent the views of fit financial consulting LLC. This podcast is intended to be used in its entirety. Any other use beyond its author's intent distribution or copying of the contents of this podcast is strictly prohibited. Nothing in this podcast is intended as legal accounting or tax advice, and is for informational purposes only. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. This podcast may reference links to websites for the convenience of our users. Our firm has no control over the accuracy or content of these other websites. advisory services are offered through fit financial consulting, LLC an invest advisor firm registered in the states of Washington and Colorado. The presense of this podcast on the internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute, follow up or individualized responses to consumers in a particular state by our firm in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or pursuant to an applicable state exemption for information concerning the status or disciplinary history of a broker dealer, investment advisor or their representatives. The consumer should contact their state securities administrator.

Chris Holling: 40:45

Okay, why, why why do cow milking stools only have three legs?

Sean Cooper: 40:54

because they like to see you fall over?

Chris Holling: 40:56

No, because the cow has the utter

Sean Cooper: 41:02

I'll have to tell that one to Anastasia.

Chris Holling: 41:05

What happens when it rains cats and dogs?

Sean Cooper: 41:10

You shouldnt go outside because it will hurt

Chris Holling: 41:13

no you step in poodles do you actually know where that term came from. Like where that where that comes from?

Sean Cooper: 41:20

The term poodle.

Chris Holling: 41:21

No.

Sean Cooper: 41:23

raining cats or dogs.

Chris Holling: 41:24

Yeah. Yeah.

Sean Cooper: 41:26

No, I don't.

Chris Holling: 41:28

It comes from when houses we're still had, like straw and combinations of straw and mud.

Sean Cooper: 41:39

Okay,

Chris Holling: 41:39

just not like roof shingles holding the roof together. And so when the animals

Sean Cooper: 41:45

thatched roof

Chris Holling: 41:45

outside, yeah, yeah, thatched roof when the animals were hanging outside and they were climbing around and hanging out on top because it was a comfy place to sit because of the straw and different things and it would rain it would become slippery and they'd literally fall off the roof and be raining cats and dogs.

Sean Cooper: 42:00

Interesting. Hopefully, it only took once for them to learn that lesson.

Chris Holling: 42:09

Based on the types of decisions and mistakes I've made in my life, I think it's fair to say at least some of the animals forgot and we're right back up there again.

Sean Cooper: 42:18

Yep, that's fair.