No one can accuse us, in these pages, of not being diligent in using our words, though we have been accused at times of using too many. So this review switches modalities somewhat, with more exhibits and fewer words. What won't switch are the themes, which are as relevant as ever: 1) the important and dysfunctional ways in which indexation is affecting security valuations, risk, and returns; and 2) the antithesis of indexation—active management and individual security selection, of which we, certainly, are practitioners.
Prices in the marketplace are made by the marginal, or last, buyers or sellers—it's not the 99%+ of Apple (AAPL
)'s shareholders who determine its price, but the net buying or selling pressure of the fractional percent who are transacting on a given day. It's certainly not us: we've been accused of harboring really long-term holding periods—years and even decades. Granted, we inhabit one end of the spectrum. So, here are some recognizable benchmarks: the annual turnover rate for IBM (IBM
)(the proportion of its outstanding shares traded each year) is about 83%; the figure for ExxonMobil (XOM
) is 68%. The average mutual fund has 68% annual turnover. Continue Reading »