Matt asked a good question in the comments here, and I wanted to post some thoughts on the boards in response.

Matt asked specifically about trade execution on FolioFN, which has some overlap with this question I'd gotten previously from a poster on my Cale in the Keys blog:

“Do you see any issues or limitations with the window trading as your AUM grow? Also, with the market these days even a Mega cap like Apple can move 5% between when you submit a trade and the window opens up.”

And I answered...

“Don't think it will be too big an issue given the liquidity of the shares of the kinds of companies we own. That said, I suppose it could be more of a potential issue if you were trying to do a lot of special situations/nanocap investing - but the way to avoid the issue then is to just use a limit order. Not locked into using the trading windows by any means. I just like using them to save that money on commissions.

Orders in the window seem to be filled from anywhere from 5 to 20 minutes, I'd say. I typically wait to submit a window order until a few minutes before the window opens to try an minimize any surprises about what the likely price will be. I'm also buying or exiting a position in several transactions over several days, so even big intra-window moves like in that Apple example aren't as big a deal as they might otherwise be if taking a full position at all once. And those kind of moves are fairly rare - although I agree they seem much more frequent lately.

In my mind, issue also relates to having a big margin of safety in the shares. If the average cost of full positions bought in windows after all that ends up being 50 bips higher than it might otherwise be, it's less than ideal, but I'm okay with that if something is undervalued by 50%. I don't think that average cost is higher, mind you, but the possibility exists that it could be. With a big margin of safety plus all else above, that's why it's not such a huge concern to me.

Now when we hit $10 billion under management...”.

As I re-read my original response, it dawned on me that I should also clarify that using limit orders in a spoke fund on Folio can be a pain once you get beyond a certain number of investors. It can be done, mind you, but you have to enter each limit order manually on a per account basis. In other words, you can't sync investors to a limit order, like you can a market order during a window.

So while that extra effort might be worth it for a limit order related to, say, a single transaction in a liquid security - like for merger arb in a mid-cap that you can get a full position in with one transaction - you probably don't want to get into doing multiple limit orders as part of just building a position in a thinly traded stock. Would just take too long. To me, anyway.

In any case, hope that helps, Matt! Thanks again for bringing it up.

Cale