Getting Ahead in Traffic - An Analogy for Active and Passive Investing

Heather recently shared a great analogy between changing lanes in traffic and active and passive management.

In the same way that active management seeks to get ahead (beat the index), lane changers are trying to get ahead in traffic.

In the same way that studies have shown that those who stay in their lanes finish ahead of those who are always jostling for position, studies have also shown that those who stick to passive index funds typically do better than the average investor over the long term. 

Just as active management incurs lots of costs, so to trying to get ahead in traffic incurs lots of costs (psychological, emotional, physical).

The different speeds of the various lanes encourages drivers to jump from one lane to the next. Sounds familiar, as when investors use hindsight bias to jump into the latest investment craze.