Confidence can play a big part in success. The six research analysts making up the management team of the Davis Opportunity Fund (RPEAX) work within what they call their "circle of confidence." When looking for portfolio ideas, each analyst (who specializes in a couple of different industries) comes to the table with companies he or she knows and believes can make money over the long haul.
"It gives us an advantage," says Chip Tucker, one of the fund's analysts. "I may have only six or seven companies in the portfolio, but they're the ones in which I have the highest convictions and [which] are trading at the most attractive prices."
The idea has paid off for the Davis Opportunity Fund. Last year alone, the fund was up 40.9 percent, exceeding the 28.69 percent return on the S&P 500 Index.
As for risks, Tucker says an investor's time horizon is the biggest risk to investing in this fund. "In any equity investment, anything can happen in the short term," he says. "We look at what a business can earn four to seven years out, not a few months out."
Dian Vujovich is an author, syndicated columnist and publisher of fund investing site www.fundfreebies.com.