In a recent interview with The Economic Times, Aswath Damodaran was asked about his thoughts on active vs passive investing and the impact that ETFs will have on existing active managers. Here’s an excerpt from the interview:
Interviewer: Do you think active investing is going to be dead and passive investing, which has made a comeback, is here to stay?
Damodaran: Absolutely, and the reason is it was long overdue. Active investing for the most part is lazy and inefficient. It’s always been lazy and inefficient. Most portfolio managers were charging you one-and-a-half to two percent of your money to manage it by buying low PE stocks blindly and hoping that they would go up. Guess what, I can create a ETF of low PE stocks and charge you nothing.
I think active investing is getting exactly what it deserves. I will shed no tears for active portfolio managers who get wiped out by ETFs and index funds because many of them deserve to be wiped out.
I think active investing will stay but it’ll be much smaller, more focused, and it will consist of portfolio managers who will actually bring something to the table.
So if you’re an active money manager, bring something to the table. Don’t screen for stocks and tell me you’re an active money manager because an ETF can do that a lot more efficiently than you can and at a lot lower cost.
You can watch the entire video interview here:
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