Defining “long term”
Before delving into the research that led to these conclusions, it’s worth considering the meaning of “long term.” We asked about 250 asset owners for their definition, and the answers varied greatly, given different starting points and policy constraints. Roughly 45% said “5 to 10 years,” just under 45% said “over 10 years,” and about 10% said “three to five years.”
Ultimately, though, I think being long term is less about a specific time horizon and more about making good decisions. Investment success can happen across a range of time horizons. Plenty of hedge funds trade very actively and achieve good results, for example. But institutional asset owners, constrained by size, structure, and governance, generally can’t run their portfolios like hedge funds. For these organizations, there is real “alpha” in creating structures and practices that allow for good decisions through a longer-term lens and help avoid falling victim to short-term pressures. With that as my premise, I next considered the advantages of being longer term, from an intuitive and a quantitative perspective.