The newsletter that is in fifth place for performance over the last 18 months is the Closed End Country Fund Report.

According to the Hulbert Financial Digest, it has produced a 52.4 percent annualized return over this period, in contrast to 14.7 percent annualized for the Dow Jones Wilshire 5000 index (TICKER:DWC).

What makes this performance worthy of a column? Because the newsletter has not been published at all during this entire time -- not once.

The editor, James Libera, last published an issue of this newsletter in October 2004 and has been in extended hibernation ever since. However, Mr. Libera has not formally discontinued his newsletter, so the Hulbert Financial Digest continues to keep watch over his portfolio’s last known sighting.

Furthermore, note carefully that the returns the Hulbert Financial Digest reports do not take taxes into account. On an after-tax basis, the Closed End Country Fund Report would rank even higher.

There are undoubtedly numerous lessons to draw from in this unusual situation. But, two that jump out to me are: You don’t have to constantly be doing something to your portfolio in order to make money, and you may very well perform better if you do not.

These lessons have emerged on any of a number of occasions during my 26 years of tracking investment newsletters though never as spectacularly as in the case of Libera’s service. On several occasions, for example, I have compared newsletters’ returns in a given calendar year with hypothetical portfolios that simply bought and held whatever those newsletters were recommending at the beginning of that year.

I have found that these hypothetical frozen portfolios came out on top far more often than not.

The implication, as hard as it is to believe, is that the average transaction undertaken in these portfolios lowers its return.

You don’t have to be a rocket scientist to draw the corollary: If the average transaction lowers returns, you should undertake as few of them as possible.

Lest you think that newsletter editors are unique in this regard, consider a major study of individual investors’ behavior. The authors, finance professors Terrance Odean of the University of California at Berkeley and Brad Barber of the University of California at Davis, studied the trades made for 10,000 randomly selected accounts at a major discount brokerage firm between January 1987 and December 1993.

They focused on all cases in which an investor bought a stock in less than 30 days after selling another. It seems reasonable to expect that the investor in these cases believed the stock being bought would outperform the stock being sold. Yet, the professors found just the opposite.

In fact, it wasn’t even close. They found that, over the 12 months following the transactions, the stocks that were sold did 3.2 percent better than the stocks that were bought. Investors would have been far better off doing nothing. (You can read an abstract of the professors’ study and / or download the full study here.)

None of these results denies that doing nothing can be psychologically difficult. Holding a stock that is falling takes courage, just as it can seem irresistible to jump on a stock that has already risen.

Nor do these results mean that we should never trade in our portfolios.

Sometimes, it makes sense that we do so.

But, what these results do suggest is that we should place a large burden of proof on making a change to our portfolios. Unless the arguments in favor of such a change are particularly compelling, we probably should simply do nothing.

Who knows? Maybe by doing nothing, you will perform as well as Libera’s newsletter has over the last 18 months.

Mark can be contacted via email at mhulbert@marketwatch.com.

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