Should investors evaluate a fund manager’s performance over time, or at a moment in time?

The former would seem the obviously correct approach.

Yet the assumptions of our system of investing—on top of powerful behavioral biases that magnify recent performance in investors’ minds—may block investors from the achievement of long-term investing success.

This novel advice comes from FPA Crescent Fund manager Steve Romick and product manager Ryan Leggio in a brief commentary published on their site called, “The Importance of Full-Market Cycle Returns.”

Indeed, the authors have a point. The SEC mandates that mutual funds report performance in terms of three-, five-, and 10-year returns, as well as calendar-year returns.

But such reporting periods may obscure rather than clarify how a fund manager stacks up against “the market.”

To get a clearer view, Romick and Leggio pluck a definition of long-term investing out of “The New York Times Dictionary of Money and Investing” (2002).

According to this textbook definition, a full market cycle is defined as a peak-to-peak period in a broad market that includes a decline of at least 15% from the previous market peak, followed by a rebound that establishes a new market high.

While fund prospectuses and consumer-oriented publications are not typically looking at performance through this prism, legendary long-term investor Warren Buffett certainly does.

Romick and Leggio quote the Berkshire Hathaway chairman’s 2013 letter thusly:

“Over the stock market cycle between year ends 2007 and 2013, we overperformed the S&P. Through full cycles in future years, we expect to do that again. If we fail to do so, we will not have earned our pay. After all, you could always own an index fund and be assured of S&P results.”

The FPA team notes that because Buffett beat the S&P 500 over this 7-year full-market cycle, it doesn’t matter than he underperformed the S&P 500 in four of those seven years (or five out of eight if you want to count 2014 as well).

Recency-biased investors looking at strong three- or five-year returns prior to market highs in 2000 or 2007 soon got decimated by funds whose managers failed to shield them from the coming bear-market onslaughts.

Similarly, loss-averse investors who bought the funds of managers who had a record of protecting principal but not one of committing capital back at the market lows of 2009 never got to enjoy the long bull run since that time.

The FPA team, whose funds are known for their value orientation, say they are committed to manage their shareholders’ investments through the full market cycle.

And indeed, a quick perusal of the FPA Crescent Fund’s fact sheet seems to underscore their point.

An investor looking only at the last 5 years might get the impression that the fund is a laggard. After all, the S&P 500’s average annual return averaged 14.47% over that time, trouncing the fund’s 9.73% returns.

Yet as anyone who has been awake over the past few years knows, the past 5 years has been anything but a full market cycle; rather, each year’s returns have been positive.

But the past 15 years have included two full market cycles, with peak to peak cycles from 2000 to 2007 and from 2007 to the present. The first period included a 49% drop between two peaks and the second included a 57% plunge between market highs.

During those 15 years, the FPA Crescent Fund has returned just under 11% per year compared to the S&P 500’s average annual return of just over 4%. Touche.

As Romick and Leggio conclude:

“If you are a long-term investor, what happens in between market peaks may be nothing more than noise…If you owned shares in good businesses or invested with capable managers [during the past two market cycles], you were better off covering your ears (and sometimes eyes) through the volatility….”