Originally Posted by
KW
Well, yes. Isnt that exactly what you are paying an active fund manager to do? If they are doing nothing but buying and holding regardless of performance, then you would be better off in a passive index fund with low fees. I keep saying that buying shares is easy - selling them is the hard part. But knowing when to sell is equally (if not more) important than knowing when and what to buy. If you cant get a handle on it, you will incur capital losses (or will watch your profits disappear) and worse, the opportunity cost of not being invested in something profitable while you are stuck in a dud stock for months/years. If you want to buy and hold you are better off in bigger companies which are more stable, and as Snoopy says, more resilient. Small caps are not resilient - one hiccup and their working capital requirements are buggered, and their share price crashes. One earnings miss and you can kiss goodbye to 20-30% of your capital. So any small cap fund manager should be very active - far more so than if they were managing a mid-cap portfolio. That's the nature of the game.
I think some fund managers think that every small cap they buy is going to turn into a mid cap then a large cap company, so all they have to do is buy it and wait. It doesnt work like that in this space. Very few small cap companies go on to become mid caps, and only a tiny handful become large caps. Most of them simply muddle along with some good years and some bad, and a large percentage disappear altogether.