"Investing is where you find a few great companies and then sit on your ass" -- Charlie Munger
Most of us are taught from a young age that effort leads to results. But if you take effort to mean activity, the lesson doesn't apply for long-term investors. The message here is simple: investors often make changes to their portfolios—with the best of intentions—that do not add value. This is as true for sophisticated institutions as it is for the unsophisticated individual. Doing less can leave you with more.
We examine two kinds of decisions that are deleterious to long-term results. The first is the reallocation of the weightings of the portfolio from one asset class to another. The second is the swapping of active managers within an asset class. The sources of these mistakes include applying a time horizon that is too short, failing to recognize reversion to the mean, seeking job preservation, and succumbing to recency bias—the tendency to overweight what has happened in the recent past.