Be Bold -- Especially Now

Four funds have returned more than 20% a year since 1997, according to the American Association of Individual Investors:

Fund

Ticker

10-Year Return

Recent Top Holdings

Matthews Korea

MAKOX

28.7%

Samsung Electronics, Hana Financial

CGM Focus

CGMFX

26.1%

Mosaic (NYSE:MOS), Petrobras (NYSE:PBR)

USAA Precious Metals & Minerals

USAGX

22.9%

Goldcorp (NYSE:GG), Yamana Gold (NYSE:AUY)

CGM Realty

CGMRX

20.4%

Mosaic, Potash Corp. (NYSE:POT), Companhia Vale do Rio Doce (NYSE:RIO)

Source: Morningstar.

Two things come to mind after looking at this list:

  1. I wish I had been invested in (a) Korea, (b) metals, and (c) real estate over the past 10 years.
  2. How did these funds produce such outstanding returns?

The answer to the second question is simpler than you might think. An analysis shows three attributes common to these four winners:

  1. Tenure. The average tenure among lead managers of these funds is 11 years and four months. By contrast, the average equity fund manager lasts just 3.8 years.
  2. Focus. Whereas most mutual funds hold hundreds of stocks, none of our top four hold even 50. CGM Realty doesn't even manage 20. And this for a group that, combined, manages $9.5 billion in assets.
  3. Patience. Every one of these funds has suffered a year of double-digit losses. None, however, were as bad as the beating Matthews Korea took in 2000 when the fund declined a breathtaking 52%.

Let's take a closer look at this last desirable trait.

The will to power your portfolio
Bear markets test the willpower of investors. It's a game of chicken. The hard part is knowing when to flinch.

The answer, of course, is "at the very last second." Top investors employ a long-term strategy and put most of their money into their very best ideas. And then they wait, unafraid to be proved wrong because they know, most often, their research will prove them right. And when they're right, they'll be really right -- so much so that they'll more than compensate for any significant losses they incur.

Did you catch the gratuitous movie reference?
Yes, the opener from the last section was a blatant ripoff of Capt. Bart Mancuso from Tom Clancy's "The Hunt for Red October."

But the point remains: Great investors exercise uncommon patience. Witness the worst year each of these funds experienced:

Fund

Ticker

Year

Return

S&P 500

Matthews Korea

MAKOX

2000

(52.8%)

(9.1%)

CGM Focus

CGMFX

2002

(17.8%)

(22.1%)

USAA Precious Metals & Minerals

USAGX

2000

(15.0%)

(9.1%)

CGM Realty

CGMRX

1998

(21.2%)

28.6%

Source: Yahoo! Finance.

Each of these funds was clobbered at least once, but these returns didn't cause them to sway from their chosen strategies or prevent them from achieving 20% annual returns. Such is the life of an investor. Losses come but returns, eventually, return.

With great patience comes great profit
These stories aren't unique -- rare yes, but not unique. That's why you won't find my colleagues and me at Motley Fool Rule Breakers panicking, even though, at last count, 14 of our last 20 picks are losing money and all but one of those is losing to the S&P 500.

We've been here before. We know that patience is required. And we know that when we consistently re-up our best ideas, as David Gardner has three times with surgical robot leader and enviable operator Intuitive Surgical (Nasdaq: ISRG  ) , we'll keep beating the market.

Want to find out more? A no-obligation guest pass gets you 30 days of unlimited access to the team's research and recommendations. Click here to get one now.

Fool contributor Tim Beyers didn't own shares in any stocks mentioned in this article at the time of publication. Intuitive Surgical is a Rule Breakers recommendation. Petrobras is an Income Investor pick. The Motley Fool's disclosure policy is a multibagger in the making.


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