Our data support the conclusion that active traders underperform investors with moderate turnover, even before transaction costs and taxes.
Before transaction costs, according to the professors' calculations, this portfolio would have produced an average annual return of more than 13percentt a year over the four decades they studied.
Portfolio 1 outperformed Portfolio 5 in each of those 14 years, and by an average of more than 16 percentage points a year, before transaction costs.
He noted that the holding period for this portfolio would be just one month, and that transaction costs for turning over the portfolio 12 times a year would most likely be higher than the 13percentt annualized return that the portfolio achieved before transaction costs.
Taken together, the 73 stocks presented in last year's International Investment Guide turned in a 20% price gain (before transaction costs).
Professor Jeremy Siegel of the University of Pennsylvania's Wharton School calculated a hypothetical return (before transaction costs) if someone had bought the 50 largest S&P 500 stocks on Dec. 31, 1950, and held on.
Van Horne and Parker ([1967]) and James ([1968]) examine MA rules and indicated that this trading strategy did not yield returns that were superior to a buy-and-hold strategy even before transaction costs were taken into account.
"When in the history of retail has a retailer ever had info about what's happening outside their walls, before transaction?" In the end, this is a gimmick – but with a serious purpose.
Its more than 2.7 million account holders can now send funds via e-mail or by using a mobile phone; Web site owners and individuals can accept credit card payments easier than ever before (transaction fees are only 1.9%, and the funds can be swept daily into a bank account).
The authors concluded that, while these variables may be useful in forecasting long-term returns, "valuation‐based strategies and the much simpler 60‐40 static portfolio have had very similar performance, before transaction and tax costs".
