This report is the second in the Tragedy of the Horizon series and focuses on the role of equity fund managers by assessing portfolio turnover.

Like drivers on their way to a destination for a certain time, we view investors as agents on a journey with liabilities to meet in the future. Their headlights are their outlook on the future and the brightness of these headlights determines how fast they are able to drive on a road at night. The faster they drive, the sooner they may reach their destination and meet all of their liabilities. If the road is full of turns, then the driver can never turn their brightest beams on and reach full speed. Similarly, high portfolio turnover makes the investors’ decision-making process full of twists and turns, obstructing their view of long-term performance and an optimal allocation of capital for the long-term.

Giving investors a straighter road, or holding assets for longer, may make them more efficient drivers and better fiduciaries in the long-term.