How much value should you expect to gain or lose by replacing your investment manager?

Goyal and Wahal showed that plan sponsors typically lose value when firing an underperforming manager and hiring its replacement. Experience suggests that most investors appreciate this research but then ignore it when making decisions. To redress this problem, we build a model that shows an investor its expected loss from hiring and firing its managers for performance reasons. By knowing this likely loss, we hope that investors will make fewer performance-related decisions and therefore improve their returns. Another useful part of the model is that it can also project an investor's likely gain from 'taking profits' from a manager with exceptional outperformance.