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Portfolio Turnover

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It depends.  There is always a cost to trade.  BRK is about 20% of our portfolio.  With the recent put Warren gave us, I expect it will continue to increase or at least outperform by 20 % in the next few months, based on what happened the last time Warren said he would buy back stock.  Therefore, we will almost certainly hold it for some time, probably past the point it becomes a long term gain.  However, if an amazing opportunity should present, we could trade out of it at very low frictional cost, especially in tax free accounts.


That would not be the case with a sizable position in a small or midcap stock.  With Lancashire, our biggest holding, it's almost all long term, but why should we want to trade it with the wind in their sails and the stock still selling way below IV?  We like holding it now just as much as we did when the stock sold for BV, especially now that future dividends will be conforming.  :)


So, are we traders or long term investors?  Are we hopelessly at risk with our lack of diversification?

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Assume you have a 1 stock portfolio. Your stock (Stock A) has seasonal bias, usually doing well in Q1 & Q2, poorly in Q3, & a crap-shoot in Q4. You’ve noticed that another stock (Stock B) also has seasonal bias, but it usually does well in Q3 & Q4, & more poorly in Q1 & Q2. Stock A & B are in totally different & unrelated industries – & you view yourself as a long term holder of both Stock A & B.


The wise man would sell Stock A in Q2 & buy Stock B - then sell Stock B in Q4 & buy Stock A.  He would systematically capture the seasonal gains of both stocks, as well as the long-term appreciation which is the reason for his investment.  However, the portfolio turnover of 200% translates into an average holding period of 1 quarter. Most would say that you are trading, not investing – when the reality is very different.


High portfolio turnover is not necessarily a bad thing




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