Markets today celebrate speed: rapid data, fast trades and nonstop headlines. Yet many of the most effective investors quietly rely on a different talent — choosing carefully, then waiting.

New evidence suggests that pairing selectivity with patience can materially improve long-run results.

The Hidden Edge

Most people know the basic divide between index funds and actively managed funds. Index funds mirror a benchmark, while active managers try to beat that benchmark by choosing different stocks. A sharper question than “which is better?” is this: when active managers do win, what exactly are they doing?

To answer that, researchers now study portfolios rather than just returns. They look at how far funds deviate from their benchmarks and how long they keep those distinct positions. A clear theme emerges: the managers most likely to add value tend to be genuinely different from the index and in no rush to trade.

What Active Share Shows

Earlier research by Martijn Cremers and Antti Petajisto introduced Active Share, a metric that captures how distinct a fund’s holdings are from its benchmark. A high score means the portfolio looks very different from the index; a low score indicates a “closet indexer” charging active-level fees for almost passive exposure.

When funds were ranked by Active Share, the pattern was stark. Low-Active-Share portfolios usually lagged their benchmarks once expenses were deducted. By contrast, the highest-Active-Share funds, on average, slightly outpaced their benchmarks after costs. That gave investors a first filter: avoid funds that closely hug their index while charging high fees, and focus instead on managers whose portfolios truly depart from the benchmark.

Why Patience Matters

A later study by Martijn Cremers and Ankur Pareek adds a second, crucial dimension: time. The authors examined more than two decades of data on U.S. stock funds serving everyday investors, grouping them by both Active Share and how frequently they traded.

The outcome was striking. Only funds that combined high Active Share with low trading activity tended to beat their benchmarks by a meaningful margin after fees. Stock pickers who churned their portfolios, even when they looked different from the index, did not show the same persistent edge. On an annual basis, the patient, high-conviction group outpaced comparable funds by a couple of percentage points. Over an investing lifetime, that modest gap compounds into a much larger account balance.

Measuring Patience

Investors have long glanced at turnover ratios to judge how active a manager is, but turnover reflects just one year and can be skewed by short bursts of trading. The study proposed a more intuitive gauge: Fund Duration. Fund Duration estimates how long one dollar invested in the portfolio has, on average, stayed in the same stocks over the prior five years. A short duration signals frequent reshuffling; a longer one suggests that the manager tends to hold positions through several market swings instead of jumping in and out.

How Patience Wins

Benjamin Graham, an investor and author, writes, “In the short run, the market is a voting machine, but in the long run it is a weighing machine.” In practice, that idea supports a simple point: time can help fundamentals show through, but only if the portfolio is built around real differences from the benchmark.

The edge appears to come from a specific behaviour pattern. Patient, high-Active-Share managers often favour companies that other investors overlook, with steadier business models, reasonable valuations and improving profitability. They then hold those positions long enough for business results to show through in share prices. This approach resembles classic long-term investing: buy carefully chosen businesses at sensible prices and let time and compounding do the work.

Putting It To Work

For anyone choosing among active funds, the research points to a two-step checklist. First, avoid products whose holdings look nearly identical to their benchmark while charging full active fees. Second, among differentiated funds, prefer managers who run patient strategies rather than trading constantly.

Many providers now report both Active Share and holding-period statistics, and independent research firms track these figures. Even without formal metrics, investors can review fact sheets and annual reports. If the same core holdings recur year after year and commentary emphasises multi-year business fundamentals, that is usually a sign of patient capital at work. Expect rough patches, even with a strong manager. Strategies focusing on neglected or value-oriented companies can lag when speculative themes dominate. The key issue is whether the process is consistent and sensible, not whether the fund tops the charts every single year.

Conclusion

Beneath the noise of daily market moves, successful active investing often rests on two habits: building portfolios that truly differ from the benchmark and having the patience to hold those positions through full cycles. For individual investors, that means favouring managers who act with conviction yet are comfortable waiting. Patience works best when it is deliberate: paired with clear differentiation, a repeatable process, and the willingness to hold through cycles.