Be Bold -- Especially Now

Four funds returned more than 20% a year between 1997 and 2007, according to the American Association of Individual Investors. They are:

Fund

Ticker

10-Year Return

Recent Top Holdings

Matthews Korea

MAKOX

28.7%

SK Telecom, Kookmin Bank (NYSE: KB  )

CGM Focus

CGMFX

26.1%

Arcelor Mittal (NYSE: MT  ) , Vimpel Communications (NYSE: VIP  )

USAA Precious Metals & Minerals

USAGX

22.9%

Freeport McMoRan (NYSE: FCX  ) , Newmont Mining (NYSE: NEM  )

CGM Realty

CGMRX

20.4%

Annaly Capital (NYSE: NLY  )

Source: Morningstar.

Two things come to mind after looking at this list:

  1. How 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 common attributes among 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 stays in his job 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.

But, of course, the answer 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 proven 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 rip off 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

28.7%

(52.8%)

(9.1%)

CGM Focus

CGMFX

26.1%

(17.8%)

(22.1%)

USAA Precious Metals & Minerals

USAGX

22.9%

(15%)

(9.1%)

CGM Realty

CGMRX

20.4%

(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 I at Motley Fool Rule Breakers panicking, even though, at last count, 11 of our last 20 picks are losing money, and all of those are losing to the S&P 500.

We've been here before. We know that patience is required. And we know that when we consistently reup our best ideas, as I have with Akamai Technologies (Nasdaq: AKAM  ) , we'll keep beating the market as we have.

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.

This article was originally published on April 9, 2008. It has been updated.

Fool.com contributor Tim Beyers owned shares of Akamai at the time of publication. He also writes for Rule Breakers, which counts Akamai as a recommendation. Annaly Capital is an Income Investor pick. CGM Focus and CGM Realty are Champion Funds selections. SK Telecom is a Global Gains pick. Motley Fool's disclosure policy is a multibagger in the making.


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