Quick bite: How do active managers decide when to buy & sell?

In this quick bite, Ana-Marie Lockyer, CEO of Pie Funds reveals the decision-making process of active investment managers. How do professionals evaluate undervalued stocks? What factors determined their response to NVIDIA's recent trillion-dollar drop?How do active managers navigate market volatility compared to passive funds? Plus, her insights on filtering market noise and focusing on company fundamentals in an increasingly chaotic information environment.

This quick bite is from 'Active or passive investing? Part 1: Active'. Look out for the passive-focused episode this Thursday.

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Episode Transcript

Speaker 1 (00:01):
You're listening to a share these podcast. I guess a
few things that we would look at as an active
investment manager would be undervalued stocks, or in fact overvalued
stocks in terms of the decision to sell. But let's
take an undervalued stock. For example, there might be a
really well run company that has some temporary bad news

(00:24):
that's going to affect the share price. A passive fund
will take that bad news and it'll just hit the index.
An active manager will look at that bad news and say, hmm,
does that bad news fundamentally change the strategic price of
this company and its outlook? Take for example, in video
sold off a couple of weeks ago on the Deep

(00:46):
seek News twenty percent. I think drop on the day.

Speaker 2 (00:50):
Yeah, massive, like a trillion dollar loss.

Speaker 1 (00:52):
But absolutely however, fundamentally quite a strong company. So a
number of active managers at that point might have gone,
you know what, we might be continuing to hold, or
we might acquire a little bit over this period of
time as we see how that Deep seek news plays out.

Speaker 2 (01:07):
If we're looking at the activity that you do as
an active fund manager, you're kind of testing the market,
aren't you. You're kind of discovering prices so to some extent,
then are the passive funds kind of taking a bit
of a free ride on you.

Speaker 1 (01:22):
Well, I think the passive funds aren't really doing too much.
I mean, the passive funds, in my eyes, are like
a train getting from A to B on a train track.
You know. The active funds are probably more like having
a GPS in there and they're kind of going, oh,
my goodness, there's a bit of traffic here, or there's
a bit of weather here, and therefore we're going to
have to take this route to get there quicker or faster,
Whereas the train you kind of just actually that noise

(01:43):
in the market you're probably not making decisions on because
you are just buying the index and you're taking the
ups and downs with the index. I think one of
the bigger risks that those are in passive funds need
to consider obviously, is that you know, in periods of
under perform months, you will just take the underperformance, whereas

(02:04):
an active manager will be working hard to consider where
the opportunities are to beat the index in terms of
that underperformance. They might be doing that maybe because you know,
they've recognized the market trend. For example, one market trend.
You know that I kind of look back in our
portfolios is around Spotify. At the beginning of COVID. You know,

(02:27):
we were looking at what Spotify might do, where they're
going to play a place in streaming, where are they
going to play a place in podcasts, Through research, through insights,
through for sights, I guess on what might happen at
an industry level.

Speaker 2 (02:41):
It must be hard to filter that noise out of
the market that you were talking about there, because there
just seems to be so much going on.

Speaker 1 (02:48):
It's funny, I was reading something the other day around
the noise in the market has never been greater. You know,
take America for example. In the past, decision would be
made in the White House, they would then be well
thought about and pushed out publicly. But today decisions are

(03:09):
being discussed in real time like theater. Effectively, you're watching
you're watching what's happening out there. But it is really
important to get back down to the fundamentals of a
company that you're investing in, the fundamentals of a region,
or the fundamentals of a sector in terms of where
we might play and shuffle investments around in those spaces

(03:31):
and the noise has to be filtered, otherwise you kind
of drown. Investing involves a risk you might lose the
money you start with. We recommend talking to a licensed
financial advisor.

Speaker 2 (03:44):
We also recommend reading product disclosure documents before deciding to invest.