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:

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 12 years and three 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 $12.3 billion in assets.
3. 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.

You have a reserve, don't you?
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:

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. We've been here before. We know that patience is required. And we know that when we consistently reup our best ideas, as David Gardner has with Take-Two Interactive (NASDAQ:TTWO), we'll keep beating the market as we have.

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

Fool.com contributor and Rule Breakers analyst Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. Take-Two Interactive is a Rule Breakers recommendation. Turkcell is a Global Gains pick. Both CGM Focus and CGM Realty are Champion Fund selections. The Motley Fool's disclosure policy is a multibagger in the making.