Excerpted from Bogle on Mutual Funds by John C. Bogle, pages 80-81

Portfolio turnover. Turnover - the purchase and sale of securities in a fund's portfolio - is too often ignored by investors. But it is an important indicator of a fund's fundamental investment strategy. Low turnover tends to indicate a longer-term investment orientation, high turnover the reverse. Turnover has a significant influence on two aspects of investment performance: (1) the cost of managing the fund and (2) the realization of capital gains. Other things being equal, the higher the portfolio turnover, the higher the fund's transaction costs, and the higher the proportion of total return represented by realized (and thus taxable) capital gains. Both factors lower the return to the investor.