Fund Consultant, can I ask you a few questions?


What would you like me to do when a holding hits fair value?

Sell of course

And what do you expect our win/loss ratio to be?

Well, the data shows that if you win 50% & don’t lose much on the other 50% you’ll pump alpha


And when we get it wrong, what should I do?

Sell of course!

And what should I do with my weakest idea when we find a great new idea?


And what do you think brokerage rates have done?

They’ve completely collapsed, haven’t they?


Sorry, where are we going with all of this?

Well, I’m trying to “square the circle” in MBA speak

Because you’ve just said you want us to:

Sell if we hit fair value,
Sell if we’ve got it wrong,
Sell if we have a better idea and

Yet at the same time you want


I’ve seen the data, you all screen for it!

And yet you know brokerage rates are down circa 90% in 10 years

It makes no sense

Because by implication you effectively want us to:

Hold onto overvalued positions,
Hold onto errors, and
Forgo better ideas

No, I want you to “have conviction”

Conviction in what?

In your ideas

But you’ve just told me you expect me to get 50% wrong!

And if we hold onto the “convicted errors” (the wrong 50%)

we could go down with the ship, with you on board!

I don’t want that!

But the academic studies all show…

Those studies are decades old and calculated at higher brokerage rates!

Have you heard of Paul Tudor-Jones, Bruce Kovner, & Stanley Druckenmiller?

Of course, some of the best money managers of all time

Have you EVER heard ANY of these fellas EVER tell you turnover is a bad idea?

I don’t think so

No, the answer is No

In fact, they all credit their success to correcting errors fast

Impossible without high turnover, right?

But Warren Buffett..

oh, the guy who sold Taiwan Semi & a few US banks last quarter..

Yes, but some top-performing funds tell us Buy & Hold is the answer

Maybe they don’t like admitting errors or

maybe they’re sending you a subliminal message to Buy their Fund & Hold, I don’t know…

Look, high turnover can be costly if you’re a momentum chaser, because the true “cost” of turnover = brokerage + market impact, and “Momo’s” Buy on the Offer & Sell on the Bid so their market impact is higher


Value investors Buy on the Bid & Sell on the Offer – our impact cost is minimal

Besides, any “cost” is in performance anyway

Please tell me you understand that investing in a Buy & Hold fund AFTER good performance, means you’re buying those shares that generated the performance


a key reason why most fund investors underperform!

Whereas if you buy funds with HIGH(er) turnover, you’re buying into the Team’s best ideas at any point in time

You’re buying a Process, not a Portfolio of previous winners

those previous winners probably hit fair value & were sold

Ok, I get it

Great, now please tell your friends!