WSW: Louis Rukeyser's Wall Street Summary & Discussion $treet: Re: 4-16-04

» Kirk - Re: 4-16-04

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In response to message posted by SteveT:

Thanks Steve.

For a canned reply (I believe they rehearse or have questions asked in advance) I thought this was a rather poor reply:

"Gretchen asked if Mutual Fund turn over is always a bad thing. No, selling gains to offset a loss is the good kind of turn over and is tax neutral. "

At first order, if you have a loss to match every gain, then your fund is NOT going up. You might have "good turnover" but I'd prefer a fund go up in value.

Mutual funds, in a rising market, are wise to sell their losers and take profits to take advantage of the tax matching, which might be what he was speaking of. A portfolio with a very low turnover might actually be even lower if it were not selling its losers and offsetting the loss by taking profits in winners.

Some strategies might have high turnover AND have all winners...

One problem I have with mutual funds is they might sell their losers too quick to get the tax balancing or window dressing rather than add money to buy more of a stock at a better price. Unless the fundamentals have changed on a company, selling after a stock goes down to balance a tax gain can actually hurt your future returns if the stock recovers.

I think it all points to why I like index funds and individual stocks and very few, if any, managed mutual funds in my portfolio. I prefer managed funds NOT pay attention to taxes but reather just maximize gains then I buy them with my IRAs. IF I want tax efficient, then I'll buy an index fund or even more efficient individual stocks

-- posted by Kirk