Be Bold -- Especially Now

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

Fund

Ticker

10-Year Return

Recent Top Holdings

Matthews Korea

MAKOX

25.4%

LG Electronics, CD Networks

CGM Focus

CGMFX

25.7%

Nucor (NYSE: NUE  ) , Washington Mutual (NYSE: WM  ) , Monsanto (NYSE: MON  )

USAA Precious Metals & Minerals

USAGX

23.3%

Barrick Gold (NYSE: ABX  ) , Kinross Gold (NYSE: KGC  )

CGM Realty

CGMRX

22.5%

General Growth Properties (NYSE: GGP  )

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:

  • Tenure. The average tenure among lead managers of these funds is 12 years and three months. By contrast, the average equity fund manager stays in his job just 3.8 years.
  • 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 $12.3 billion in assets.
  • Patience. Every one of these funds has suffered a year of double-digit losses. Yet none were as bad as the beating Matthews Korea took in 2000. The fund lost 52% of its value that year.

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 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 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.

All of them were clobbered at least once. Yet they held firm to their chosen strategies and, consequently, produced a decade of better-than-20%-annualized 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, 14 of our last 20 picks are losing money and all but one 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 Charly Travers has with Vertex Pharmaceuticals (Nasdaq: VRTX  ) , we'll continue to beat 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.

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

Fool.com contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. He also writes for Rule Breakers.CGM Focus and CGM Realty are Champion Funds selections. The Fool's disclosure policy is a multibagger in the making.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 30, 2008, at 10:10 PM, WantToRetireFool wrote:

    When I look at the latest N-Q filing for CGM Realty it shows fertilizer companies, Potash and Mosaic, as the two largest holdings in the fund, representing over 25% of the funds assets.

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