Don't Let Emotions Guide Your Investment Decisions



Building long-term wealth requires counter-emotional investment decisions—like buying at times of maximum pessimism or resisting the euphoria around investments that have recently outperformed. Unfortunately, as the study below shows, investors as a group too often let emotions guide their investment decisions.

The line in the chart below represents the amount of money investors added to domestic stock funds each year from January 1997-December 2009, while the bars represent the yearly returns for stock funds.

  • Following three years of stellar returns for stock funds from 1997-1999, euphoric investors added money in record amounts in 2000, just in time to experience three terrible years of returns from 2000-2002.
  • Following these three terrible years, discouraged investors scaled back their contributions to stock funds, just before they delivered one of their best returns ever in 2003 (30.1%).
  • After stocks delivered a terrible return in 2008, fearful investors became cautious and pulled money from stock funds in record amounds, missing subsequent double-digit returns.

Great investors recognize that an unemotional, rational, disciplined investment approach is a key to building long-term wealth.


Stock Fund Net Flows vs. Stock Fund Returns
(1/1/97-12/31/09)

Source: Strategic Insight and Morningstar as of December 31, 2009. Stock funds are represented by domestic equity funds. Past performance is not a guarantee of future results.



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.

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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