Forum Topics Costs of Overtrading
Byrnesty
Added 2 years ago

An interesting (if not already obvious) conclusion in a published research paper and summarised in an article by Scott Francis on the Intelligent Investor website that overtrading leads to diminished returns.

To gauge where you fit into the portfolio turnover trading hierarchy:

1.      The lowest 20% turnover approximately 0.19% of their portfolio per month or 2.2% per year.

2.      The top 20% turnover approximately 8.7% of their portfolio per month which equals 104% of their portfolios every year.

The portfolio returns from the various trading frequencies are summarised below:

6ebfcb541e1fbbed8b19d5d1340c8aeea70676.png


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Solvetheriddle
Added 2 years ago

@Byrnesty very interesting i suspect there is a bit of correlation involved, that is, if they are doing well they will trade less. to add some context from a different point of view, Over the years i Have worked with institutional managers that have had turnover ranges from 20%pa to 1000%pa. defined as total sales / ave fum. these figures are of real interest to me as they, imo, help define the type of investor they are, ie are they investors or traders and if so where do they get there edge. Most institutional managers would like to be around 40%pa, imo (for credibility), anyone over 100% is really a trader so i keep that in mind when i hear their thesis or strategies etc. interesting stuff, to me anyway

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