The Discipline of Passive and Judgment of Active- Diversify

Rules make things simple. Do the right thing - if you apply this rule, you don’t have to judge a situation or person from its fairness perspective. Just keep it simple by doing the right thing and keep moving.

- Shaily Gang

This is at the core of Passive investing. In an active portfolio, the Fund Manager’s basis of decision is ground-up with bottom-up criteria being possibly different for different stocks at one point in time or different criteria at other points in time for the same stocks, at times taking a top-down macro approach too. In a passive portfolio, the index is rigid about the top 2 or 3 rules and lets in flexibility about the rest. This makes things simpler this simplicity gives room for consistency and discipline as it takes away the judgement from the act. The returns in passive investing are a function of this discipline.