%0 Journal Article %A David L. Donoho %A Robert A. Crenian %A Matthew H. Scanlan %T Is Patience a Virtue? The Unsentimental Case for the Long View in Evaluating Returns %D 2010 %R 10.3905/jpm.2010.37.1.105 %J The Journal of Portfolio Management %P 105-120 %V 37 %N 1 %X In this article, Donoho, Crenian, and Scanlan report the results of their study into the cost of institutional investor impatience. Using Monte Carlo simulation techniques, the authors construct an idealized world with a universe of investment managers of precisely quantified skill, with skill levels varying among the managers. Although many institutions base manager hiring decisions heavily on the manager’s performance in the most recent months or years, the authors’ simulations show that institutions that rely on longer performance horizons of 5–10 years are more likely to find and stick with the better managers. This happens because on shorter time scales, the relatively few highly skilled managers are often temporarily outperformed by one of the many lesser-skilled managers, specifically, unskilled managers who have recently happened to simply be lucky. Hence, if a plan that previously was long-term oriented starts to hire managers based on short-term results, it will often find that the newly chosen manager underperforms both his own previous performance and also the manager previously managing the plan’s funds. It can, however, truly take patience to keep a skilled manager in a fund portfolio. In the authors’ simulations, skilled managers have deeper, longer, and more frequent drawdowns than many investors would expect.TOPICS: Manager selection, simulations, portfolio management/multi-asset allocation %U https://jpm.pm-research.com/content/iijpormgmt/37/1/105.full.pdf