EVERY asset manager should have an investment philosophy: a stated approach to investing. Typically that -together with the discipline and rigour of the process used to apply the philosophy and the skill of the people applying it-will determine the success of the outcome.
At its most basic level there are three primary aspects of investing that one needs to consider to understand a stated investment philosophy: active versus passive; absolute versus relative; and invest• ment style.
The first aspect is whether the asset manager adopts an active or a passive approach to investing. Active managers believe that markets are imperfect pricing mechanisms and that, if correctly identi• fled, these imperfections create opportunities for investors to exploit. However, passive managers typically believe that markets make fewer (or at its extreme, no errors) - the so-called "efficient market hypothesis".
