Not all capital gains are created equal: short-term gains can cost twice as much as long-term ones. Desk note: The tax system distinguishes between holding periods. Short-term gains are taxed as ordinary income; long-term gains get a preferential rate. Why investors care: That difference can turn a mediocre pre-tax strategy into a losing after-tax strategy if turnover is too high. Translate it into behavior: A fund that turns over 100% annually may lose 1-2% per year to excess taxes compared to a similar exposure with lower turnover. Where people usually get tripped up: The mistake is comparing strategies on pre-tax returns without adjusting for the tax drag created by each strategy's turnover. Keep this nearby on the next review: Ask whether the market is mispricing the mechanism or simply narrating it loudly. The point is not to memorize the label. The point is to know what variable is actually doing the work.