Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Now's When You'll Make the Most Money

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

You always want to earn the best returns you can. But while many people look to speed past the hottest performers at the peak of bull markets, aiming instead to limit your losses when the bear growls can contribute more to long-term market-beating results.

As hard as it may be to remember, just a couple of years ago, many investors had just about forgotten that stocks could lose value. Any investments that hadn't produced double-digit returns from the 2002 lows were being written off as chronic underperforming wealth-destroyers. Only by aggressively seeking out the biggest gains possible could a stock or fund get investors' attention.

But after suffering through the worst bear market in generations, investors have a brand-new perspective on what makes a great investment. Moreover, many stocks and funds that languished outside the market spotlight from 2003 to 2007 have come into their own over the past two years.

A fund example
Take, for instance, the Yacktman Fund (YACKX). If you had looked at this fund back in early 2007, you probably would have dismissed it as a hopeless case. After all, its returns fell in the bottom quarter of all large-cap value funds during each of the three years from 2004 to 2006. And it even managed to lose money during 2005 -- while the S&P 500 gained nearly 5%.

It would have been easy to forget just how well the fund did during the tech bust. In 2002, the fund didn't just avoid the big losses in the broader market; it posted double-digit gains, beating its benchmarks by 30 percentage points.

Moreover, many investors likely believed that the fund's overall strategy was completely outdated. In its 2006 annual report, the fund's management touted its long-term holdings in Coca-Cola (NYSE: KO  ) and Kraft Foods (NYSE: KFT  ) , and was happy about new acquisitions like Microsoft (Nasdaq: MSFT  ) , Home Depot (NYSE: HD  ) , and PepsiCo (NYSE: PEP  ) -- hardly the big-growth stocks that many investors seemed to prefer during the bull market.

Preserving capital
Yet when the market turned south, Yacktman Fund investors remembered why they had chosen the fund. In 2007, the fund returned to the top half of its peer group, eking out a small gain. And in 2008, Yacktman really shined, limiting its losses to just 26% -- a double-digit percentage-point advantage over other value funds and the S&P 500. Now, the fund sports a 10-year performance record that puts it squarely at the top of its class.

The fund didn't entirely dodge the bear-market bullet -- it had held shares of AIG (NYSE: AIG  ) and AmeriCredit (NYSE: ACF  ) , which took significant hits. But the same strong blue-chip defensive strategy that had made its returns look ugly in comparison with high-octane competitors during the bull market vaulted Yacktman into the stratosphere when those aggressive bets by other funds came crashing down.

What to remember
Unfortunately, many investors have short memories. It's easy to say that you'll never make the mistake of thinking a high-flying fund's returns justify its higher risk, given your experience from the past two years. Yet when the next bull market starts -- if it hasn't already -- those top performers will again try to tempt you away from the less compelling funds that did so well during the bear market.

To be a successful long-term investor, though, you need to get past the short-term crazes that seduce less disciplined shareholders into making decisions they'll later regret. Once you make the smart decision to buy a fund based on its overall long-term track record rather than how it has performed in the past year or two, you still have to avoid the pitfall of dumping it when it's out of favor. If you can do that, however, you'll be well on your way to financial independence.

For more on mutual fund investing:

Learn more about mutual funds and exchange-traded funds in our Motley Fool Champion Funds newsletter. A 30-day free trial is yours for the taking. Yacktman Fund is a Champion Funds recommendation.

Frustrated with your 401(k)? Even if your employer's plan isn't the greatest, you don't have to give up your dreams of a happy retirement. Get the tips you need to turn your retirement savings around in our special report, "How to Make the Most of Your 401(k)" -- just click here for instant free access.

Fool contributor Dan Caplinger looks forward to the next bull market -- but he's holding on to his defensive investments. He doesn't own shares of the companies mentioned. Home Depot, Coca-Cola, and Microsoft are Motley Fool Inside Value recommendations. Kraft Foods, Coca-Cola, and PepsiCo are Income Investor recommendations. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy wants you to succeed.

Read/Post Comments (0) | Recommend This Article (15)

Comments from our Foolish Readers

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 888394, ~/Articles/ArticleHandler.aspx, 10/22/2016 4:22:01 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 19 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
ACF.DL2 $0.00 Down +0.00 +0.00%
AmeriCredit Corp. CAPS Rating: *
AIG $60.00 Down -0.07 -0.12%
American Internati… CAPS Rating: ****
HD $126.60 Up +0.35 +0.28%
Home Depot CAPS Rating: ****
KO $42.13 Up +0.20 +0.48%
Coca-Cola CAPS Rating: ****
KRFT.DL $0.00 Down +0.00 +0.00%
Kraft Foods CAPS Rating: *****
MSFT $59.66 Up +2.41 +4.21%
Microsoft CAPS Rating: ****
PEP $105.62 Down -0.25 -0.24%
PepsiCo CAPS Rating: ****