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| dallyn |
 Posted: Wed Mar 14, 2007 2:09 pm Post subject: okay, dumb question, but what is churn? |
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Investing Sr. Associate
Joined: 11 Mar 2007
Posts: 57
This Month: 0
20872.82 e$
Net worth: 28,457.16
Portfolio Value: 3,948.34
Monthly Return: 3.43%
Trades this month: 0
Churn Rate: 0.00%Items
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| okay, dumb question, but what is churn? and how does it effect a portfolio? |
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| Dave Rathbun |
| Posted: Wed Mar 14, 2007 3:41 pm Post subject: |
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CFO
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Churn doesn't affect your portfolio return at all. It's simply a measure of how often you turn over your funds. If you don't trade at all during a month your churn percentage is zero. If you only buy during the month then your churn percentage is zero. But if you buy and sell your churn percentage is based on the value of those transactions compared to your total funds available.
If you buy - sell - buy - sell - buy - buy - buy - sell - sell - sell like Da Reaper  then you're going to have a high churn percentage.
That ratio was added to the site a while back after I read an article about ranking mutual fund managers based on their churn percentage. In their case the calculation was done based on a year time frame. Since the game here is based on monthly results, our churn percentage resets each month.
So if you see someone with a high churn percentage it just means they're moving in and out of positions fairly often. You could get that by looking at the number of trades they make too, but the churn percentage is based on the value of the trades, not just the number. If someone owns e$10,000 worth of stock and makes 10 trades worth e$1,000 each, their churn percentage will be much lower than a person that makes ten trades at e$10,000 each.
I posted the formula sometime back, I'll see if I can dig it up. |
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| Grimreaper |
| Posted: Thu Mar 15, 2007 12:57 am Post subject: |
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CFO
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| Dave Rathbun wrote: | Churn doesn't affect your portfolio return at all. It's simply a measure of how often you turn over your funds. If you don't trade at all during a month your churn percentage is zero. If you only buy during the month then your churn percentage is zero. But if you buy and sell your churn percentage is based on the value of those transactions compared to your total funds available.
If you buy - sell - buy - sell - buy - buy - buy - sell - sell - sell like Da Reaper then you're going to have a high churn percentage.
That ratio was added to the site a while back after I read an article about ranking mutual fund managers based on their churn percentage. In their case the calculation was done based on a year time frame. Since the game here is based on monthly results, our churn percentage resets each month.
So if you see someone with a high churn percentage it just means they're moving in and out of positions fairly often. You could get that by looking at the number of trades they make too, but the churn percentage is based on the value of the trades, not just the number. If someone owns e$10,000 worth of stock and makes 10 trades worth e$1,000 each, their churn percentage will be much lower than a person that makes ten trades at e$10,000 each.
I posted the formula sometime back, I'll see if I can dig it up. |
Churn em n burn em baby!  In reality however, da majority of my trades are in maybe 5 or 6 stocks on a munthly basis as only a handful of stocks on my personal watchlist each week make it to a price where I kin buy. And selling once you buy is easy ifn ya know where suppote anna ray-ziss-tance areas are....cep't it gits tougher ifn ya can't use limit orders.  The reason churn really is not a valid measure fo this site is becuz ov the fact dat we are forced to monitor our plays to generate decent returns (cuase we can't use sell limits). It forces me personally to trade in and out alot more than necessary.....especially in Naz stocks where ya hasta play the 5 minute lag betwixt reality and SIM time.  Lot's of times I just cxl a trade out ifn I can't get a reasonable fill becuz my stock is trading 5%+ higher/lower than where it was when I intended to buy/sell. Limit orders solve da problum fo sho but since we ainna got em  I'll just keep churnin along....chuggin along too! |
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| dallyn |
| Posted: Thu Mar 15, 2007 1:13 pm Post subject: |
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Investing Sr. Associate
Joined: 11 Mar 2007
Posts: 57
This Month: 0
20872.82 e$
Net worth: 28,457.16
Portfolio Value: 3,948.34
Monthly Return: 3.43%
Trades this month: 0
Churn Rate: 0.00%Items
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| So, would it be fair to say that the higher your churn, the more active you are in your portfolio? A low or no churn rate you would tend to buy and let it alone? |
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| Grimreaper |
| Posted: Thu Mar 15, 2007 1:43 pm Post subject: |
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CFO
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| dallyn wrote: | | So, would it be fair to say that the higher your churn, the more active you are in your portfolio? A low or no churn rate you would tend to buy and let it alone? |
Yazzum. |
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| Dave Rathbun |
| Posted: Thu Mar 15, 2007 5:05 pm Post subject: |
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CFO
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| dallyn wrote: | | So, would it be fair to say that the higher your churn, the more active you are in your portfolio? A low or no churn rate you would tend to buy and let it alone? |
Okay, take my long-winded explanation and boil it down to the essense of what it is. 
If you want to read the post where churn was first introduced and see the actual formula, it's here:
http://www.einvesting.com/viewtopic.php?t=2717 |
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