Active management (also called active investing) is an approach to investing. In an actively managed portfolio of investments, the investor selects the investments that make up the portfolio. Active management is often compared to passive management or index investing. Approach Active investors aim to generate additional returns by buying and selling investments advantageously. They look for investments where the market price differs from the underlying value and will buy investments when the market price is too low and sell investments when the market price is too high. Active investors use various techniques to identify mispriced investments. Two common techniques are: Fundamental analysis. This approach analyzes the characteristics of individual investments to evaluate their risk and potential return. Quantitative analysis. This approach establishes a systematic process for buying and selling investments using data about individual investments. Active management may be used in all aspects of investing. It can be used for: Security selection. Choosing individual stocks, bonds, or other investments. Asset allocation. Determining the allocation of investment among asset classes, such as stocks, bonds, and cash. Sustainable investing. Analyzing the impact of environmental, social, and governance (ESG) factors on investments. Active investors have many goals. Many active investors are seeking a higher return. Other goals of active management can be managing risk, minimizing taxes, increasing dividend or interest income, or achieving non-financial goals, such as advancing social or environmental causes. Theory Active investors seek to profit from market inefficiencies by purchasing investments that are undervalued or by selling securities that are overvalued. Therefore, active investors do not agree with the strong and semi-strong forms of the efficient-market hypothesis (EMH). In the stronger forms of the EMH, all public information has been incorporated into stock prices, which makes it impossible to outperform. Active management is consistent with the weak form of the EMH, which argues that prices reflect all information related to price changes in the past. Under the weak form the EMH, fundamental analysis can be profitable, though technical analysis cannot be profitable. There are two well-known theories that the balance between active management and passive management: Grossman-Stiglitz (1980). In the Grossman-Stiglitz equilbrium, active investors benefit from researching potential investments by earning a higher return; however, these higher returns only offset the costs of performing the research. Grossman-Stiglitz explains why both active and passive investing would exist in equilibrium. Sharpe (1991). Sharpe's proposition argues that, before costs, the average active manager