Is Patience a Virtue?

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Co-authored with David L. Donoho and Robert A. Crenian, this paper uses Monte Carlo simulation to quantify the cost of institutional investor impatience in manager selection. The authors construct a model universe of investment managers with varying levels of genuine skill and simulate the outcomes for plan sponsors who evaluate managers over different performance horizons.

The findings are striking: institutions that rely on five-to-ten year performance records to hire and retain managers are substantially more likely to identify and hold genuinely skilled managers than those relying on one-to-three year windows. The paper explains why shorter evaluation periods systematically select for lucky mediocre managers over truly skilled ones — and demonstrates that even skilled managers experience deeper and longer drawdowns than most investors expect, requiring real patience to hold through.