The Philosophy Of Passive Management

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speaking, not true. In particular, it was assumed that the market is in the state of equilibrium (i.e. all investors have finished to complete their portfolios), operational and transaction costs (payment of intermediaries’ services, staff, information services, taxes, etc.) are insignificant, the investor has the ability to receive and grant loans on the same risk-free rate, and so on. Nevertheless, the idea that the market portfolio is probably close to an effective portfolio, initiated a passive portfolio management. This strategy means that when the investor prepares the portfolio, determining the expected return, he is focused entirely on the market portfolio and he doesn’t carry on to make any changes in the composition of the portfolio after its formation. Hence is the name. The philosophy of passive management is to minimize the costs of market research and the formation of the portfolio if there is sufficient guarantee of obtaining a stable high yield. In fact, an investor, preparing the portfolio, is focused on some reference portfolio (benchmark portfolio), i.e. portfolio with standard yield in comparison with the actual yield of the portfolio manager. This is not necessarily to consider as a reference only the market portfolio. There are dozens of different investment funds, called "index" funds, which focus on the benchmark portfolio, consisting of securities, selected for a particular trait (eg: a part of any index). So, there are index funds holding
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