Picking a share to buy and deciding to sell a share you already hold look like two versions of the same task, and the same person performs both. A study of measured each of them separately against a simple alternative. What came out?
The buys beat the benchmark and the sells did not. The purchases were relatively successful against a simple alternative, while the sales produced a weaker result than used for comparison. The authors identified a pattern consistent with paying less to selling and using . This does not mean a private investor should sell by lottery; it is a research comparison isolating the quality of managers’ choices.
The authors separated two actions usually reported together as portfolio performance: choosing a security to buy and choosing a security to sell.
Comparing real transactions with alternatives drawn from the same portfolios showed skill on the buying side and a marked gap on the selling side. The sales actually chosen lagged behind a random selling alternative.
An analysis of the pattern suggested attention is divided unevenly. Managers tend to focus on a few prominent holdings when deciding what to sell, instead of examining all the options with the same thoroughness.
The work does not establish that any single sale was wrong. Client constraints, taxes and cash flow can all play a part, and the comparison is meant to illuminate average judgement rather than replace an investment plan.
wat. An experienced manager can be good at choosing an entry into an investment and less good at deciding when to leave it.
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Even expertise does not divide attention evenly between two decisions that look symmetrical.
How do we know?
Transaction and holding data from portfolio managers were compared with alternative buying and selling scenarios inside the same portfolios.
What is still unknown
The result rests on particular managers and portfolio structures; a performance comparison after the fact is not a practical instruction to sell at random.
Learn something?
Where to next
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