There are many management styles when it comes to investing your money, but two are most common- Active and Indexing. Understanding management styles can help you identify which is best for you and your financial goals.
Traditional managers fall into two groups – active and indexing.
Active managers normally have a goal of outperforming a benchmark or index, and they aim to do so by looking for market inefficiencies or mispriced assets. This results in a lot of buying and selling, and decisions are normally based on predictions of where the manager thinks the market is going. This style leads to frequent trading, higher turnover, increased costs and lack of diversification.
Rather than trying to beat the market, an index managers goal is to closely track the index results. This style is also known as passive management, because there is a lot less trading. Although index managers will have less buying and selling activity, this style can still lead to forced trading.
Index managers are judged by their ability to track the index. As indexes change the list of stocks once or twice a year, index fund managers are forced to buy and sell the same securities... all at the same time as the other index managers tracking the same index. With hundreds or thousands of index funds all attempting to place the same trade at the same time, index managers are consequentially affecting the price of that security and driving the cost up. This results in buying and selling at the worst possible time and price.
Dimensional Fund Advisors (DFA) is one of the leading evidence-based investment management firms, yet their funds are only available through a select network of advisors.
OCTO Capital has established a relationship with Dimensional Fund Advisors (DFA), an investment management firm based in Austin, TX with offices across the globe. Established in 1981, Dimensional and its affiliates manage approximately $576 billion in assets globally as of March 31, 2019, and offer funds to individual investors through a select network of fee-only financial advisors.
DFA maintains close links with the University of Chicago and other research centers for financial economics. Board members and consultants include some of the nation’s most distinguished academic theorists and Nobel laureates, including Eugene Fama, Kenneth French, Roger Ibbotson, Donald Keim, Merton Miller, and Myron Scholes.
We strongly believe this relationship can help address your financial objectives and help you pursue an even more successful investment experience. One of our explicit goals is to assist clients in achieving outstanding investment results using disciplined, well-established practices. Dimensional strategies are grounded in the research of leading financial economists. The firm's broadly diversified portfolios, consistent investment approach, and trading expertise seek to provide low expenses and turnover.
How does the stock market actually work? Understanding this can help improve your personal investment strategy.
The stock market is essentially a big auction where buyers and sellers negotiate their transactions and are able to efficiently exchange shares of existing companies.
A transaction always includes two parties – a buyer and a seller. As with any free market, stock prices are based on expectations and demand. A stock’s price is a reflection of the collective view of all buyers and sellers in the market. Their opinions are affected by new information related to the specific company.
According to financial theory, a stock’s price is determined by three forces: (1) expected company earnings (dividends), (2) the expected rate of return, and (3) the expected earnings growth rate.
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