It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change. - Charles Darwin
The strongest current meme in asset management is passivity. It is baked into the index business. It is manifested in the ETF growth. Index growth is based on the passive buying of a basket of assets. The ETF growth is an extension of the index business that delivers asset baskets instead of skill-based fund management. This meme may be changing with smart beta, but there is still is an air passiveness based on the idea that there should be strict rules and structure not a dynamic response to events.
A world of passive decision-making is rational when the quality of decision-making is poor. Investors should not take action if the potential action is likely to be wrong.Yet, in a complex unconventional world, being passive may lay the foundation for disaster.
The factor-based revolution gives investors a better chance to adapt to change. By following trends in factors, there is the opportunity to avoid a major market drawdown. Adaptability to avoid principal loss may be the only choice that investor needs to make and that decision requires vigilance and action.
Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally. -John Maynard Keynes