hebel. today · 5 November 20265 / 74

Money · Investing

The high cost of active trading

Performance drag from activity. Stephen Mandel’s Lone Pine fund exited and re-entered Mastercard six times since 2008, missing out on $5.9 billion in potential gains had the firm simply held the original position. An…

Performance drag from activity. Stephen Mandel’s Lone Pine fund exited and re-entered Mastercard six times since 2008, missing out on $5.9 billion in potential gains had the firm simply held the original position (René Sellmann from Compound with René). An investor attempting to time the market in 2022 by switching between growth and value indices finished with $7,901, while a passive investor who held a growth portfolio throughout the same period ended with $10,110 (The Market Memo). S&P Dow Jones Indices reports that only 6.9% of top-performing large-cap equity funds in 2021 remained in the top half by 2023, demonstrating the difficulty of staying ahead (📈 TKer by Sam Ro).

Volatility as a price. The S&P 500 has historically risen in three out of every four calendar years since 1945, yet the long-term annual return of 10% requires investors to endure periodic market crashes and corrections (Grow or Die, Analyzing Good Businesses). A momentum rotation strategy backtested over a century involving the 10 strongest S&P 500 stocks yielded a 22% annual return, though returns declined to 16% after the year 2000 (Quantified Strategies). Investors who maintain a cash buffer protect their ability to buy during market dips, ensuring they avoid selling at the worst possible moment (Graham Stephan from Graham’s Newsletter).

  • The S&P 500 CAPE ratio of 41 remains near the peak levels seen during the dot-com bubble, suggesting investors should prioritize earnings growth (Graham Stephan from Graham’s Newsletter).
  • Only 19% of S&P 500 stocks outperformed the average index return between 2001 and 2025, highlighting the statistical challenge of picking individual winners (📈 TKer by Sam Ro).

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Sources

  1. Graham Stephan, Graham’s Newsletter ✎ Written by a personGraham Stephan details the current S&P 500 CAPE ratio of 41 and the case for maintaining a cash buffer to avoid forced selling.

  2. The Market MemoThis analysis compares the final returns of active market timers against passive investors during the 2022 market volatility.

  3. Grow or DieChris Reilly provides historical data on S&P 500 performance since 1945 to illustrate the reliability of long-term holding.

  4. 📈 TKer by Sam RoSam Ro shares S&P Dow Jones Indices data showing the low probability of professional fund managers maintaining top-quartile performance.

  5. René Sellmann, Compound with René ✎ Written by a personRené Sellmann examines the performance cost of trading around winners by reviewing the history of Lone Pine's Mastercard position.

  6. Quantified StrategiesThis backtest evaluates the historical performance of a momentum rotation strategy applied to the 10 strongest S&P 500 stocks.

  7. Analyzing Good BusinessesYoungHamilton explains that volatility is the necessary price of admission for achieving long-term market returns.

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