From Miles Udland at Business Insider:
[James O’Shaughnessy of O’Shaughnessy Asset Management] relays one anecdote from an employee who recently joined his firm….
O’Shaughnessy: “Fidelity had done a study as to which accounts had done the best at Fidelity….They were the accounts [of] people who forgot they had an account at Fidelity.”
There are numerous studies that explain why this happens. And they almost always come down to the fact that our minds work against us. Due to our behavioural biases, we often find ourselves buying high and selling low.
I have always called this “the Siemens effect” from an example I came across, in a completely different field, about 30 years ago. German electronics giant Siemens built a telecommunications exchange in a sealed container, with no human access and all maintenance conducted from an outside control panel. The exchange experienced only a small fraction of the equipment failures experienced in a normal telecommunications exchange, leading to the conclusion that human intervention by maintenance staff caused most of the faults.
Likewise in investment, if you build the equivalent of a sealed system. Where there is no direct human intervention, you are likely to experience better performance than if there is constant tinkering to “improve” the system.
The caveat is, during an electrical storm it may be advisable to shut down the telecommunications exchange from the control panel. Likewise, with stocks, when macroeconomic and volatility filters warn of elevated risk, the system should move to cash — or assets, like government bonds, with low or negative correlation to stocks.