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The Unsentimental Case for the Long View in Evaluating Returns


Is Patience a Virtue?
The Unsentimental Case for the Long View in Evaluating Returns

David L. Donoho, Robert A. Crenian, and Matthew H. Scanlan



Are investors too impatient with their underperforming managers? Would they benefit from a longer time horizon in making manager hiring and firing decisions? Or, on the contrary, are they too patient? We observe that decision makers – plan CIOs, investment committees, and staff are becoming less patient with the outside managers they hire to steward plan assets. Many plan executives speak as though short-term recent performance is the only thing that matters, and
advocate “throwing the bums out” after relatively short periods of manager underperformance. This attitude is intended to benefit the plan. But does the trend towards impatience help plan returns?

We think not. In this article, we show that for a plan that hires outside managers, the plan's degree of patience with its managers plays a significant role in its realized returns. We also show that the most profitable degree of patience is very different than current industry practice.





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