What are Naval's views on "Active Investing" and "Passive Investing"?

Sure, here is the English translation, maintaining the original markdown structure and adhering to your requirements:

---

Naval's Take on "Active Investing" vs. "Passive Investing": A Simple Yet Profound Perspective

Buddy, Naval's position on this can be brutally summed up in one sentence:

For nearly everyone, passive investing is the way to go; but truly massive wealth almost always comes from some form of active investing.

Sounds contradictory? Hold on, let's break it down – it's actually super easy to understand.

1. For the Vast Majority of Us Ordinary Folks: Choose "Passive Investing" (The Set-It-and-Forget-It Choice)

Picture this: You're an amateur basketball player, and you think you're pretty decent. Now, how likely are you to win against an NBA pro player?

Zero, right?

Naval argues that ordinary people engaging in "active investing" (picking individual stocks, trying to "beat the market") is exactly the same scenario.

• You're competing against the "pros": Those Wall Street fund managers and analysts – their sole job is studying the market. They have the fastest data feeds, the best analytical tools, and the deepest industry connections. Using your free time to glance at candlestick charts on an app? How could you possibly outplay them?
• Even the Pros Can't Beat the "Market" Most of the Time: Here's the kicker: Data shows that the vast majority of so-called "professional" fund managers fail to outperform the average market return (like the S&P 500 index) over the long run.

So, Naval's advice for ordinary people is blunt:

Stop messing around. Buy a broad-based, low-fee index fund (like one tracking the S&P 500 or the global market), and then forget about it.

This, is passive investing. You're not trying to be the smartest "stock-picking genius." You're simply acknowledging you're "ordinary," so you choose to ride the coattails of overall market growth. It demands less mental energy, less effort, yet over the long term, its returns often exceed those achieved by most people who frantically try to be "smart."

2. For the Few with "Specific Advantages": "Active Investing" is a Wealth-Generating Nuclear Weapon

Alright, so why is Naval himself a highly successful "active investor"? He's one of Silicon Valley's most famous angel investors, after all.

The key lies in a term he constantly emphasizes: Specific Knowledge.

Naval believes that active investing is only justifiable if you possess "specific knowledge" or an "informational advantage" that others lack and that is difficult to teach.

• What is a Specific Advantage?
  • Naval himself is a top expert and entrepreneur in the tech industry. When he invests in a tech startup, he can evaluate the founder, assess the technology, and understand the business model. This is "specific knowledge" accumulated over 20-30 years. He's not gambling on charts; he's leveraging his professional expertise to make informed judgments.
  • Example: If you're a leading cardiologist, your understanding of the medical device industry might be deeper than a Wall Street analyst's. Your investments in this field then have a "specific advantage."
  • If you're a top salesperson with 10 years deep inside a niche industry, your grasp of its supply chain and customer needs is your "specific advantage."

For this group, active investing (especially within their domain of expertise, like angel investing or investing in related companies) is the path to creating enormous wealth. Because this type of investment offers asymmetric returns – the maximum loss is 100%, but the potential gains could be 10x, 100x.

The Core Difference: Are You "Gambling" or "Leveraging an Advantage"?

So, you see, Naval's criterion is actually quite simple:

• If you lack a specific advantage, your so-called "active investing" is essentially gambling in a casino of information asymmetry. Your best move is to get off the gambling table and buy the "passive index fund" that represents the casino's overall profits.
• If you possess a genuine specific advantage, then "active investing" is the optimal way to convert your knowledge and judgment into wealth. This is leveraging an advantage to create wealth.

---

To Summarize: A Clear-Cut Table

So, next time you agonize over active versus passive investing, first ask yourself Naval's crucial question: "Do I possess a specific advantage here that others don't have?"

If the answer is no, then dutifully buy index funds. Redirect your time and energy towards building your "specific advantage." That’s likely far more reliable than obsessively checking your stock portfolio all day.