Investing Analogy: Damian Lillard
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I go back and forth between believing that a 100% passive investing strategy is better than an active one. (And by active I don't mean trading in and out of the market, I mean actively picking stocks and then buying and holding.)

There is some really good research out there that argues that just buying into well diversified whole-world indexes funds is the way to go. Don't even try and pick stocks. And they may be right.

But if everyone went 100% passive, then there would be no one researching companies and doing price discovery. That to me proves that there needs to be at least some people actively picking stocks. The question is, should you be one of those people?

For most people, the answer is likely no, you have more important things to do with your time than to be constantly researching the companies.

But for those of us who think there may be some alpha we can add to the portfolio, the art of knowing when to be passive, and the when to take a shot is a bit of an art.

The best way to explain this "feel" for when to take risks is to hear it from an artist themself. And in this example, the art is basketball. Take 60 seconds to watch this:

Recently in a crucial game to qualify for the playoffs, down by 5 in the fourth quarter Damian Lillard suddenly took a shot from almost half court; a very low percentage shot. Quite a risk.

When the announcer asked Lillard why he took that shot, he said:

"2 and a half minutes went by where I was just trying to make the right play, but then it got to the point where I knew I wasn't going to sleep well tonight knowing I was passive. So each time I saw a look, I don't care how far it was, if I had a sniff I was raising up and shooting it."

As an investor, most of the time is spent waiting and being patient. But when you "see a look" like Lillard describes, you have to be courageous enough to act. Most of the time the best investing opportunities are ones where a lot of other people have already looked and said "that's too far out." People will ask you why you are taking the shot.

And sometimes, the only answer you can give them is, "I knew I wasn't going to sleep well tonight knowing I was passive."
Ambrose's avatar
I think sometimes people overthink active investing. The right picks might be the ones already right in front of you in the portfolio. It can be as simple as adding more position into it.

You do not have to do the biggest plays and buy into the next big thing. The stock market is always forward thinking, so are you in the past.

Passive investing sounds fine until you realized reds going towards -50%. Like a bonsai pot, your portfolio needs trimming. Sell the ones that are not performing, those that do not follow your investing thesis and add them to your winners.