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Sam Sivarajan is a behavioural scientist, keynote speaker and consultant. His latest book is The Uncertainty E.D.G.E., which helps leaders successfully navigate an increasingly uncertain world.
For investors, the temptation to outsmart the market is constant. Complex trading strategies, hot stock tips and sophisticated portfolio tactics promise superior returns. But decades of evidence tell a different story: Simplicity wins, especially when the future is uncertain.
Consider David VanBenschoten, who managed General Mills Inc.’s pension fund for 14 years with a strategy so unremarkable it looked boring. He never ranked above the 27th percentile in any single year. He never won awards. He never made headlines.
Yet when those 14 years ended, his fund landed in the fourth percentile overall, outperforming 96 per cent of his peers. How? He avoided complexity, maintained steady above-average returns and sidestepped the catastrophic mistakes that destroy long-term value. While other managers swung for the fences – sometimes winning big, but often losing bigger – Mr. VanBenschoten played a different game entirely.
The California Public Employees’ Retirement System (CalPERS) story highlights the opposite lesson. As the largest public pension fund in the United States, managing more than US$500-billion, CalPERS employs sophisticated investment strategies and experienced managers dedicated to beating market benchmarks. Over a specific 10-year period ending 2020, CalPERS’s actively managed portfolio underperformed a simple passive benchmark by 114 basis points annually – consistently, in each of those 10 years. That was approximately US$5-billion per year in foregone returns.
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CalPERS matched its own custom benchmark – the one it created and regularly tweaked. But compared to a straightforward mix of broad market indexes, the underperformance was statistically significant. All those resources, all that expertise and all those active management decisions still resulted in consistent underperformance against doing nothing other than holding the index.
Clearly CalPERS employs talented people. But that talent doesn’t address the fact that complexity creates an illusion of control while simultaneously introducing costs, risks and failure modes that simple strategies avoid.
Three cognitive patterns drive investors toward complexity when facing uncertainty.
First, there’s action bias. When outcomes are unpredictable, doing something feels better than doing nothing. Complexity signals effort, and effort feels like control. But effort doesn’t equal results.
Second, there’s the narrative fallacy. Complex strategies generate compelling stories. “I identified undervalued opportunities through proprietary analysis” sounds more impressive than “I bought the index and waited.” But markets don’t reward better stories, they reward discipline in the face of randomness.
Third, there’s survivorship bias. We remember the few complex strategies that worked and forget the many that failed. This creates false confidence that perhaps we can be the exception. Meanwhile, simple strategies work consistently because they don’t require being exceptional – only disciplined.
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So what actually matters for investors?
Research shows that 80 per cent of long-term returns come from 20 per cent of decisions: asset allocation, contribution consistency, cost minimization and tax efficiency. Yet investors often spend 80 per cent of their energy on the remaining 20 per cent – tactical trades, timing strategies and chasing hot sectors.
Even Harry Markowitz, the Nobel laureate who created modern portfolio theory’s complex optimization framework, confessed he didn’t use it for his own retirement account. He split his contributions 50-50 between stocks and bonds because simple strategies are easier to stick with when markets test your conviction.
Victor De Miguel’s research demonstrated that a simple equal-weighted portfolio often outperforms Mr. Markowitz’s complex mean-variance optimization – even when you know the true parameters. Why? Complex strategies are fragile and optimize for past conditions that rarely repeat. Simple strategies are robust and work across a wider range of futures.
Here’s the insight: We add complexity precisely when uncertainty is highest. Yet that’s exactly when simplicity has the greatest edge. Complexity multiplies failure modes, is harder to execute consistently, obscures whether you’re winning or losing, and scales costs without scaling value.
So how can investors resist this temptation?
First, resist the urge to add complexity when outcomes are unclear. Ask: “What’s the simplest version that could work?” The client who earns 7 per cent annually for 30 years outperforms the client who earns 12 per cent for 10 years and sits out in panic for the next five.
Second, focus on what you can control: asset allocation, investment consistency, cost minimization and rebalancing frequency. You can’t control which years deliver exceptional returns, but you can control your discipline.
Third, recognize that your edge isn’t sophisticated strategies you can’t stick with. It’s executing simple strategies consistently when emotions scream to do otherwise. The investor who stays the course through multiple market cycles beats the investor who optimizes for the last cycle.
Mr. VanBenschoten never made headlines. He made history by avoiding the mistakes everyone else couldn’t resist. CalPERS employed thousands of professionals and sophisticated strategies – and underperformed a simple index by US$5-billion a year.
For do-it-yourself investors who are navigating market volatility, the lesson is clear: Complexity often signals fear masquerading as thoroughness. Simplicity signals confidence in what actually matters. The next time a sophisticated strategy feels necessary, ask yourself: “Am I adding this because it improves outcomes or because it makes me feel in control?”
Uncertainty doesn’t reward complexity. It rewards clarity about what matters, discipline in execution and the courage to stay simple when everyone else chases sophistication.
As investor Jack Bogle, founder of Vanguard Group Inc., put it: “Don’t look for the needle in the haystack. Just buy the haystack.”