Given the amount of turmoil we lived through this past year, it is surprising how little we got from it in terms of investing wisdom. stock market is now back to its pre pandemic levels and then some, so when you think about it, nothing really happened. well, that is not true of course, a lot has happened, just not anything of great interest to passive investors.
When it comes to investing decisions, most of the information we consume via the different media channels is a mix of some useful information with a lot of noise. this was true in normal times, but for a disciplined index investor, absolutely all news that came since the onset of the pandemic was just noise. for him or her the only message that was of any use was "keep calm and stay invested", and that message was (as usual) hard to find.
I am not saying nothing substantial happened in the financial markets, the economy took a forced stop and central banks flooded markets with liquidity. when it came to stocks, the pandemic divided the market into big winners and big losers, but when looking at the big picture, it turns out that this was just a re-shuffle, nothing more.
This strange behavior of the market is the most compelling narrative in favor of passive index investing I came across in a long time. Active investors had not only to identify the loosing stocks and avoid them in advance but also to find the big winners and invest heavily even though they were already expensive heading into the pandemic. passive investors had only to keep their ears plugged to all the noise, sit back and do nothing. easier said then done to be honest.
As for me, even though I am a stock picker, I had the luck of not owning stocks in any of the sectors that took the worst hit, and so I could take advantage of the the opportunity created by the markets during the march panic without the need to think about taking loses. I guess my behavior may have been different had it not been the case. spotting some of the big winners did not require an exceptional mind, just some common sense. not owning the big loosers in the first place required some extraordinary insight as to how events will unfold when the whole thing started, Insight I most certainly did not have, I just had some luck.
It is often recited that the case for active vs passive is that it will hold better during a crisis. well, this time it didn't. could it have ended differently? sure, it could have been another great depression, but it didn't, so we don't know.
I haven't yet decided what is the investment method that best suit's my temper and skills, for the time being the needle still points more toward active, but that may change as future events like this shed more light on the advantages of passive vs active.