AUGUST 2025 Cardinal Update
Overtrading might look harmless, but it’s one of the surest ways to rob your portfolio of compounding.
Frequent trading drives higher expenses, higher taxes, and behavioral slip-ups that countless studies have shown are a serious drag on long-term returns. Our antidote? Cardinal Rule No. 12: Don’t Over Trade.
Our Canadian Equity portfolio had a 12 percent turnover rate in 2024 and typically turns over between 10 percent and 20 percent annually. In other words, our average holding period for our stocks is five to 10 years. With about 20 stocks in the portfolio, this is the equivalent of buying and selling a position an average of two to four times a year.
In stark contrast, Morningstar Inc., a Chicago-based global investment research company, recently researched more than 3,000 U.S. and international funds.
It found that the 50th percentile large-cap fund – the very middle of the data set – turned its book over 32 percent last year while holding 67 equities. This equates to a three-year holding period or the equivalent of 21 buy-and-sell decisions a year.
High turnover raises three costs that investors seldom see on their statements. They are – fees (every trade generates spreads and commissions); taxes (capital gains are triggered more often); and timing costs (Morningstar’s Mind the Gap study found investors earned an average of 6.3 percent annually for the 10 years ending Dec. 31, 2023. The returns from the mutual funds and exchange traded funds (ETFs) that they owned, however, were 7.4 percent. The 1.1 percent was lost to jumping in and out of the market.
While seemingly small on a year-to-year basis, these costs can be significant drags on your wealth creation over the long term.
For example, if you had a portfolio worth $100,000 and earned 7.4 percent instead of 6.3 percent every year for 30 years, it would be the difference between having $851,000 versus just $625,000, a disparity of more than $225,000.
Overtrading springs from overconfidence, FOMO (fear of missing out), and the illusion that doing something means that you are in control. Remember, markets don’t pay you for activity; they pay you for patience.
Cardinal Rule No. 12 helps to fight against these underappreciated costs and maximize returns. It also allows us to own companies through full business cycles, not news cycles, lets our winners
run (avoiding triggering taxes), and enables us to focus on the quality of our investment ideas rather than the quantity.
Limiting turnover isn’t a sign of laziness; it’s an indication of discipline.
COMPANY FOCUS: UNITED RENTALS
United Rentals is the world’s largest equipment rental company with more than 1,600 branches and an industry-leading fleet of about one million units. This market-leading position provides it with scale advantages over smaller players, including better negotiating power with equipment suppliers, a greater ability to invest in technology, and a wider array of equipment.
Even though it’s the industry leader, it still only has about 15 percent of the entire U.S. market, leaving significant room for further market share gains.
The rental equipment industry is attractive because of the growing shift towards renting over ownership. Renting is the preferred option to owning for many businesses, as it reduces the initial investment and prevents owned equipment from collecting dust when not in use. In addition, customer projects are becoming increasingly complex, and United Rentals is expanding the breadth of its offering to ensure it remains a one-stop shop for customers’ entire equipment needs.
United Rentals has an exceptional long-term track record of growth and there are currently strong tailwinds from large projects in the U.S., including the build-out of data centers.
The company has been active on the acquisition trail for more than a quarter-century and we expect this to continue. It started paying out dividends in 2023 and has increased its dividend by 10 percent in each of the last two years.
DIVIDEND INCREASES
Company Increase
Cummins 9.9%
Stanley Black & Decker 1.2%
Wells Fargo 12.5%
For the month ending July 31, 2025
