From the course: Financial Portfolio Management Fundamentals
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Portfolio manager strategies: Part 2
From the course: Financial Portfolio Management Fundamentals
Portfolio manager strategies: Part 2
As an example to illustrate the two differences, say we have an active investment manager. They are thinking, "I think Alibaba is going to outperform, so I'm going to put 10% of my portfolio in this stock", which is very different from the thought process for the passive manager, which is more likely, "My index has 6.7% of Alibaba. So I'm going to ensure that my portfolio never deviates from the same proportion, 6.7%". This means I not only replicate when the securities go up in value, but I also replicate the down days. This is an example of refusing to make any decisions that entail taking additional or less risk in a portfolio relative to the index, and it is essentially the definition of passive investing.
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