Avoid Self-Destructive Investor Behavior



Emotions can wreak havoc on an investor's ability to build long-term wealth. This phenomenon is illustrated in the study below. Over the period from 1990-2009, the average stock fund returned 8.8% annually, while the average stock fund investor earned only 3.2%.

Why did investors sacrifice almost two-thirds of their potential return? Driven by emotions like fear and greed, they engaged in such negative behaviors as chasing the hot manager or asset class, avoiding areas of the market that were out of favor, attempting to time the market, or otherwise abandoning their investment plan.

Great investors throughout history have understood that building long-term wealth requires the ability to control one's emotions and avoid self-destructive investor behavior.


Average Stock Fund Return vs. Average Stock Fund Investor Return
(1990-2009)

Source: Quantitative Analysis of Investor Behavior by Dalbar, Inc. (March 2010) and Lipper. Dalbar computed the "average stock fund investor" returns by using industry cash flow reports from the Investment Company Institute. The "average stock fund return" figures represent the average return for all funds listed in Lipper's U.S. Diversified Equity fund classification model. Dalbar also measured the behavior of a "systematic investor" and "asset allocation investor". The annualized return for these investor types was 3.4% and 2.3% respectively over the time frame measured. All Dalbar returns were computed using the S&P 500® Index. Returns assume reinvestment of dividends and capital gain distributions.

There is no guarantee that the average stock fund will continue to outperform the average stock fund investor in the future. Equity markets are volatile and average stock funds and/or average stock fund investors may lose money.



This material is authorized for use by existing shareholders. A current Davis Funds prospectus must accompany or precede this material if it is distributed to prospective shareholders. You should carefully consider the Fund's investment objectives, risks, charges, and expenses before investing. Read the prospectus carefully before you invest or send money.

Davis Advisors investment professionals make candid statements and observations regarding economic conditions and current and historical market conditions. However, there is no guarantee that these statements, opinions or forecasts will prove to be correct. All investments involve some degree of risk, and there can be no assurance that Davis Advisors' investment strategies will be successful. The value of equity investments will vary so that, when sold, an investment could be worth more or less than its original cost.

Dalbar, a Boston-based financial research firm that is independent from Davis Advisors, researched the result of actively trading mutual funds in a report entitled Quantitative Analysis of Investor Behavior (QAIB). The Dalbar report covered the time periods from 1990-2009. The Lipper Equity LANA Universe includes all U.S. registered equity and mixed-equity mutual funds with data available through Lipper. The fact that buy and hold has been a successful strategy in the past does not guarantee that it will continue to be successful in the future.

The S&P 500® Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalizations and represents approximately two-thirds of the total market value of all domestic common stocks. Investments cannot be made directly in an index.

The chart in this report is used to illustrate specific points. No graph, chart, formula or other device can, by itself, guide an investor as to what securities should be bought or sold or when to buy or sell them. Although the facts in this report have been obtained from and are based on sources we believe to be reliable, we do not guarantee their accuracy, and such information is subject to change without notice.

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