Active vs. Passive: “Stand Up and Be Counted”

sheaff brock investment advisors active management style portfolio investing

Active vs. Passive: “Stand Up and Be Counted”

One question any investor must consider, Sheaff Brock Managing Director Dave Gilreath agrees, is whether to take an active or passive approach to investing. While there is certainly room for both approaches in an investor’s portfolio, he concedes, ’tis the season for the stock picker and sector picker to stand up and be counted. Why?

“Markets are not cheap right now,” Gilreath explained in an interview with our SheaffBriefs editor, “whether judged by ‘price-to-sales’ or ‘price-to-book.’” Unlike 2009, for example, when valuations were cheap and it mattered less which individual companies you chose, going forward, Gilreath believes growth is less likely to happen across the board. Big multinationals are less likely to benefit as much now compared to smaller, more localized companies, he posits.

That is not to say passive investing, which attempts to replicate the performance of an index or a broad sector of the market as closely as possible, has no place in today’s portfolio. But Gilreath suggests that adding actively managed assets may increase the opportunity for profits, while at the same time can mitigate risk through increased diversification.

Choose an active management style with which you’re most comfortable, Gilreath advises. There are quite a few, including:

  • value
  • growth
  • momentum
  • covered calls
  • small cap
  • large cap

As just one example of the active management portfolio options offered by Sheaff Brock, Gilreath discussed the IntelliBuilD® Growth Portfolio, which is a growth stock, momentum-driven portfolio strategy based on the following tactics:

  • 33 stocks are chosen from lists generated by Investor’s Business Daily
  • managers select 33 fundamentally strong growth and momentum-driven stocks
  • managers follow certain investing rules, including a 7% stop-loss and a downside risk analysis tool
  • since only 33 stocks are culled from a much larger list, this portfolio maintains a very active management style

Fact is, individual investors rarely have the time, expertise, and money to perform their own ongoing research. The thing that most often trips up retail investors, Gilreath regrets, is not giving any portfolio strategy sufficient time to work.

David Swensen, chief investment officer of Yale University’s highly successful endowment fund, concludes in his book Unconventional Success that, because “most individual investors lack the specialized knowledge necessary to succeed in today’s highly competitive investment markets, passive index funds are most likely to satisfy investor aspirations.”

Dave Gilreath admits that he, at least, is not satisfied to incorporate only passive investing in his plans. “As a student of the market,” he says, “I’m always looking for ways to increase the opportunity for profit…and active portfolio management can help. At Sheaff Brock, we’re counting on it being worth the effort.”


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