A few months ago, Shane Parrish of Farnam Street, wrote an excellent blog post -- "Why Clever and Lazy People Make Great Leaders." In essence, the post suggested that perhaps laziness, when paired with intelligence, can be an admirable quality. Much of the impetus for the line of thing was based on a quote by a German military strategist, who said: "Anyone who is both clever and lazy is qualified for the highest leadership duties, because he possesses the intellectual clarity and the composure necessary for difficult decisions."
That got me thinking: Could being lazy make you a better investor? Certainly, investing involves difficult decisions, and every investor could benefit from more intellectual clarity and composure. I identified three primary investment behaviors that are enhanced by laziness.
1. Focus on the essentials
More information doesn't necessarily lead to better investment decisions. In fact, too much information is more likely to muddy your mental waters than provide insight. The success or failure of an investment is typically driven by only a few key factors. Everything else is just noise and distraction. By nature, lazy investors narrow their focus to the key issues (if only to save time). But, as a result, they avoid classic "over-thinking" errors made by many investors.
2. Stick to your circle of competence
As an investor, it's vital to know what you're buying. You need to stick to your "circle of competence," to use Warren Buffett's famous phrase. If you don't understand a business or its industry, you're likely to make a mistake. If a twinge of indolence makes you unwilling to tackle problems that are too hard, too complex, or even unsolvable, that could help you investing.
Some ambitious investors think they can figure out every situation, but that's clearly not the case. Take the case of Citigroup (NYSE:C), particularly before the financial crisis. Its balance sheet was undecipherable. Five years ago, one professional investor told me that following Citigroup was so tough, at least at that time, that it required one trained analyst working on it full time, 40 hours a week, with no other responsibilities. It was so difficult that he didn't see any other way to fully understand it. I don't know if that was an exaggeration, but clearly he considered it too hard. Obviously, because of that insight and his unwillingness to put in the work to understand it, he was able to avoid massive losses in Citigroup. Unfortunately, other harder-working investors did own Citigroup, when it clearly should've been a candidate for the "too-hard" pile. Citigroup's share price is down nearly 90% over the past 10 years.;
Chipotle (NYSE:CMG) is another story. Even the laziest investor could understand the business model and quickly key in on the driving factors. The company sells tasty food to loyal customers, it operates efficiently with excellent returns on capital, and its got a first-rate founder and CEO. It's also has room to grow its store base across the country. Even a child could understand it, but investors in Chipotle have seen more than 1,200% stock appreciation over the past five years.
3. Trade less and hold longer
Some investors think that constantly trading and reshuffling their portfolios will lead to better returns. In many areas of life, more action and more effort lead to better results. In investing, that simply isn't the case. In fact, more trading typically leads to worse returns for individual investors. In a landmark paper, Trading is Hazardous to Your Wealth, Professors Barber and Odean found, using real data from 66,465 household accounts, that active traders underperformed the market by 6.5%.
Tom Gayner, chief investment officer at Markel (NYSE:MKL), has an excellent investment track record. Markel, a Richmond, Va-based specialty insurer, has generated 40-fold returns for investors since 1990, thanks in part to Gayner's investment savvy. And Gayner has often remarked that investors often make more money from their butts than their brains. In other words, in investing, you'll making more money buying a stock and holding (i.e., sitting on your butt) than using your brain to trade.
Foolish bottom line
Obviously, if you're totally lazy, you'll never get off the couch to make an investment. And I'm not advocating against continuous learning and appropriate diligence, but in certain cases, inactivity will benefit your portfolio. If embracing a bit of natural sloth helps you become a master of purposeful inactivity, that's all the better (for your life and your returns).