At an annual turnover rate of 0%, the value of the portfolio would have grown to an astounding $38,337,600; at 3% turnover, $34,211,200, at 10%, $27,808,500, at 30%, $20,250,200, at 85%, $15,695,500, and at 100% turnover, $15,264,800. In other words, you’d end up with 150% more money as a result of a 0% turnover portfolio than you would be investing in the 100% turnover portfolio, which lowered the compound annual growth rate (CAGR) to 14.6%. Hence the attractiveness of the buy-and-hold method of investing – because of frictional expenses, you can actually come out ahead with more money in your pocket by holding investments that compounded at slightly lower rates.
It is the demonstrable superiority of this approach that led Charlie Munger, Vice Chairman of Berkshire Hathaway, business partner of Warren Buffett, and an extraordinarily respected and accomplished money manager, to coin the rather colorful phrase of “sit on your a** investing” to describe the secret of growing really wealthy over long periods of time. It allows you to do the things that really matter to you such as going to your kids’ little league games, school plays, reading, having coffee with friends, vacations with your spouse, or whatever else it is that you value highly.
