Every visit costs more than the last

Once a position has been opened it either starts to out-perform or under-perform. This note focuses on how Managers behave and the outcomes for the subset that under-perform.

We track when these Managers add to positions on a second bite, then a third bite and the subsequent ones. The success or otherwise is captured by the subsequent 12 month relative performance after these trades. The results are given below.

-0.9%

First top-up into a failing position, full record

-1.2%

Adding to the position in the second month

-1.8%

Adding to losing positions in subsequent months

All values are post-trade relative returns over the subsequent 12 months

The important point is that each subsequent buy is worse that the last, as indicated by the decline in the average relative returns. Clearly the strategy of continuing to buy into weakness costs performance from this group of Managers.