Warren Buffett’s decision to retire as chief executive of Berkshire Hathaway after 60 years has reopened the debate into the virtues of long-term investing. The buy-and-hold approach has traditionally been regarded as the gold standard in active management and a way to cope with stock market volatility.

But is this accurate? Does an extended time horizon always outperform shorter term strategies or is this an investment myth?

In this article, we analyse the two approaches, examine the impact of behavioural biases and reveal the qualities needed for effective decision-making.

Main takeaways

Buy-and-hold isn’t always right: The quality of investment decisions is more important than how long a position is held
Turnover is not a reliable indicator: Low turnover strategies aren’t always smart, while high turnover approaches aren’t necessarily reckless
Alpha has a life cycle: The best managers excel at spotting opportunities, locking in gains and knowing when to exit
Each style has its strengths: Short-term investors are more discriminating in initiating positions, while long-term investors rely on thesis maturation
Short-term strategies deserve credit: When executed with clarity and discipline, they can demonstrate skill on a par with long-term approaches.
Heading for the exit: Short-term managers act three times faster and preserve gains. Delayed exits can significantly erode alpha for long-term investors.

The pursuit of long-term goals

Long-term investing is widely regarded as the best way to achieve positive returns in volatile global stock markets. Those championing this approach point to Warren Buffett’s success as proof that buy-and-hold strategies are the most likely to outperform. Long-term investing is also associated with higher conviction and is often accompanied by more concentrated portfolios.

However, this is overly idealistic. Our belief is that longevity has almost become a virtue in itself, irrespective of the decision-making behind it.

Let’s consider the evidence.

Is turnover misunderstood?

Low portfolio turnover is seen as a positive trait because it suggests faith in the holdings chosen. Conversely, a high turnover implies short-termism and a general lack of conviction.

But is this fair? Does a manager’s attitude towards portfolio turnover really provide an insight into their skill level?

How important is turnover?

We analysed 200 distinct strategies across equity and multi-asset portfolios to explore the relationship between turnover and investment performance.

Our study, which took place in early 2025, used each manager’s actual decision making history to form the basis of analysis. The time periods covered vary by strategy, reflecting the natural cadence and turnover of each investment approach.

Our goal was to explore the relationship between turnover and behavioural metrics, based on how managers truly operate.

The research examined the dynamics such as overall strategy performance; hit ratio (the performance of winning decisions); and the win/loss ratio (the magnitude of wins relative to losses).

Our findings were clear:

Almost zero correlation between turnover and behavioural metrics
Turnover is an unreliable indicator of manager skill in itself
High-turnover strategies can be disciplined and successful
Low-turnover strategies may be passive and ineffective.

Judge managers on effectiveness

We believe it’s time to broaden the definition of an investment horizon. It shouldn’t be limited to just the initial buy and final sell decisions. Investment skill is revealed in the quality of decisions — not their frequency — and this needs to be acknowledged. Many high-turnover managers still deliver strong returns, suggesting skilful execution, timing, and adaptive decision-making can outweigh the drag of costs. That’s why they should be judged on the effectiveness of their actions, including rebalancing portfolios and scaling up/down exposures to a position. Actions taken in response to a revised assessment influences not only the overall risk-reward profile but also a manager’s realised alpha.

Understanding the Manager Alpha Cycle

A way to deepen our understanding of investment skill levels is by using a metric called the ‘Manager Alpha Cycle’. This approach analyses how they generate, sustain, and preserve alpha over various time periods. It also charts the pattern and timing of outperformance. The alpha cycle is composed of three main phases:

Alpha formation
This initial stage is shaped by a manager’s ability to capture early opportunities and respond to changing conditions. It reflects their strategic agility and market insight
Alpha preservation
Here the focus is on protecting value. This phase is where decision-making around profit-taking, risk reduction, and rebalancing becomes crucial
Alpha decay or extension
Depending on how well the position is managed in light of evolving circumstances, alpha may erode, or continue compounding.

Redefining long versus short-term investing

We believe it’s important to extend the definitions of long and short-term by including actions such as rebalancing, as well as scaling up and down. These intermediate decisions capture evolving views on a strategy and provide meaningful signals of behavioural consistency or drift. Our definition of short-term strategies are those in which 90% of investment decisions last less than a year, while long-term are around for more than 12 months. While this separation is admittedly ad hoc, it reflects a practitioner’s lens on how holding patterns manifest in real-world decision-making.

This yielded two well-balanced groups: approximately 90 strategies exhibiting long-term characteristics and another 90 demonstrating short-term orientation. By examining how managers perform across rebalancing actions, not just entry and exit points, we can better understand how investment horizons interact with skill.

Characteristics of long-term investors

Our analysis of different strategies illustrated some key characteristics of those who favour more extended holding periods. We discovered that long-term investors show gradual and steady alpha accumulation, with a lower proportion of strategies losing ground.

However, when performance turns negative, the size of the drawdowns can be significant. This suggests that while long-term strategies may appear more stable, poor manager selection can have severe consequences.

Characteristics of short-term investors

Short-term investors tend to generate alpha early in the life of a position, suggesting initial timing and market entry are key strengths.

However, positions held beyond this effective window often underperform, which can cause problems if managers are pressured into lowering turnover. The skill of these managers lies in their ability to act quickly and decisively but their edge can be diluted by forced longer holding periods.

How short and long-term investors differ

Our analysis reveals behavioural contrasts between short and long-term investors, especially in their buy decisions.

Short-term investors tend to be more discriminating in initiating positions, reflecting sharper execution and stricter entry discipline. On average, their hit ratio (the proportion of winning decisions) on buy decisions stands at 52%, compared to 49% for long-term investors.

Conversely, long-term investors may allow broader entry parameters, relying more on thesis maturation over time than early confirmation.

The role played by sell discipline

A previous study published by Fastnet AMS using SkillMetrics® , highlighted the impact of delayed selling on performance for active investors. In that analysis, we identified that, on average, investors give away 50% of their realised performance before selling.

We used this same approach in our latest study and found that short-term investors executed their exit decisions three times faster. This decisiveness often translated into better alpha preservation than those who delay cutting a position. We also discovered long-term investors lose about 60% of their peak gains on average—compared to only 40% for short-term investors. These results underscore that behavioural discipline around exits is just as important as entry and sizing decisions.

Conclusion

Short-term strategies can’t be ignored. When executed with clarity and discipline, they can demonstrate skill on a par with long-term approaches. This contradicts the prevailing notion that short-term investing is less thoughtful or effective than a longer time horizon.

Our data shows that skill can manifest over different periods, provided the process is consistent and the behavioural discipline is robust.

Short-term managers, just like their long-term counterparts, can make high-quality decisions with strong risk-reward asymmetry, adaptability, and precision.

If you’d like to explore how SkillMetrics® can support better sell decisions and behavioural insight within your investment process, we’d be happy to discuss.

About:
SkillMetrics® revolutionises investment expertise by providing advanced behavioural insights tailored for portfolio managers. Our cloud platform identifies strengths, weaknesses, and behavioural biases, leading to improved performance. CIOs/CEOs can coach teams to enhance results by focusing on the investment process. Fund Selectors benefit from skill monitoring and behavioural diversification.

Time horizons: does long-term investing pay?