Christopher Davis used to be jealous of his father and grandfather. Sure, they had gone through some of the most bruising bear markets ever recorded. But the upside of those painful experiences was that they were able to pick up high-quality stocks at unfathomably low prices. "They could make fortunes by buying companies like Coca-Cola at 12 times earnings and high-quality financials at five times earnings," Davis says. "They just had to buy the great ones and hold them for 10 or 15 years."

Now price-earnings ratios on many stocks are nearly as low as they were in the late 1940s and the mid 1970s. "We finally have the same chance they did," says Davis. "And it feels like hell."

Despite the pain, Davis and Kenneth Feinberg, co-managers of Selected American Shares (symbol SLASX), understand the importance of sticking to their discipline. "Lower prices today will create higher returns in the future," Davis says.

But the ride is gut-wrenching. Selected, a member of the Kiplinger 25 plunged 39 percent last year -- two percentage points more than Standard & Poor's 500-stock index. Year-to-date through Feb. 6, the fund dropped 6.4 percent, lagging the S&P 500 by nearly three points. Over the past five years, the fund has lost 4.1 percent annualized, lagging the index by an average of 0.6 a percentage point per year.

Over the past decade, the fund is flat. That, however, beats the index by 2.7 points per year and is good enough to put Selected in the top 17 percent of large-company blend funds (those that invest in stocks that have both value and growth attributes), according to Morningstar.

Clipper fund (CFIMX), a concentrated version of Selected that Davis and Feinberg took over at the start of 2006, has also been performing miserably. It's roughly even with Selected so far this year, but it tumbled 50 percent in 2008. In theory, Clipper should do better than Selected over time, but because Clipper holds fewer stocks (24 at last report, versus 103 for Selected), it should be more volatile. Unfortunately, most of the volatility has been on the downside so far.

Despite the wretched recent results, I think Selected is the best large-company, no-load fund you can buy today (Davis New York Venture is a nearly identical load version of Selected). Davis, Feinberg and their team of analysts do a terrific job of identifying great companies selling at cheap prices. And when they find those kinds of companies, Davis and Feinberg hold them for lengthy periods. Selected's turnover last year was just 8 percent, implying that the managers hold stocks for more than 12 years, on average.

Expenses are 0.88 percent for the version of Selected that you buy at many online brokers, but just 0.57 percent for the share class (under the symbol SLADX) that you buy directly from Selected (800-243-1575) and from certain brokers (the initial minimum for the cheaper class is $10,000). Moreover, the Davis family has billions of dollars invested in Selected and other funds run by Davis and Feinberg.

Selected's biggest loser last year, and the one Davis can't forgive himself for, is American International Group (AIG). The federal government had to rescue the insurance giant to prevent its collapse, and its share price plunged from nearly $60 to nearly nothing. AIG cost Selected six percentage points in performance. "AIG was the biggest mistake we've made in years," Davis laments. Merrill Lynch, which was taken over by Bank of America in a deal that required government assistance, was another big loser.

Lots of fine managers have lagged the S&P during this brutal downdraft, and Davis points out that the same thing happened during the 1973-74 bear market, when stocks declined almost 50 percent. Notable losers from the 1970s mega-bear market included Charlie Munger (Warren Buffett's vice chairman and alter ego), Sequoia fund and New York Venture fund (then managed by Davis's father, Shelby Davis.) Continued...