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Kent Thune

Alternative vs Passive Investing in 2013

By January 11, 2013

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I'm not one to make predictions but 2013 appears to be shaping up to be a trader's market year.  What I mean by this is that amateur traders and uneducated active investors, in total, will likely lose to the skilled traders and alternative investment crowd.  On the opposite end of the investment spectrum is the other prudent investment strategy for 2013 -- passive investing.

Alternative and Passive Investing: No Room for Middle Ground

To clarify my thoughts (or perhaps best framed as caution) for investing in 2013 is that the extremes ends of the investing spectrum, which I will define as alternative investing and technical trading on one end and passive investing on the other end.  These two styles appear to be the most prudent for 2013, a year I suspect will be the most challenging for active investing strategies in the past 3 or 4 years.

For example, in 2009, experienced traders who detected a massive turnaround from the 2008 bear market did quite well.  The passive, buy and hold investors also were rewarded for their patience as stocks began a new bull market that has nearly reached a 100% comeback.  As we approach the end of this bull market, a final leg of positive movement may transpire just before a new bear market begins.

That leaves us with the middle-of-the road investors.  These are the ones who know just enough about investing to be dangerous.  They tend to do well in years where the momentum of a strong trend makes it easy for them to believe they are actually making prudent investment decisions.  In different words, they believe they can time the market.  However, the trend is not always your friend.  They all end.

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