Originally created 04/30/01

Stock picking tricky even for professionals in unpredictable market



NEW YORK -- With the Dow Jones industrials up nearly 10 percent during April, many individual investors are trying to decide whether to jump into the rally. But buying stocks can be dicey in an uncertain economy and fragile earnings environment.

So, how do you put together a strategy for a fickle stock market?

Cautiously and without impulse buying, according to Allan Meyers and Art Bonnel, who each steer mutual funds with hundreds of millions of dollars in assets. Their funds differ in size and approach, but the advice they offer individual investors is similar. Focus on a company's growth prospects and don't try to time the market.

"We look for those companies that are going to have the best earnings going forward, rather than the flyers," said Meyers, manager of the $600 million Kent Growth and Income Fund, which features a mix of growth and value stocks. "Take a longer-term perspective, and don't buy the hot stocks just because everyone else is."

"It's very difficult to be in the right place at the right time all the time, even when you're a professional manager," notes Bonnel, who manages the $150 million U.S. Global Investors Bonnel Growth Fund. He likens the last nine months, particularly for tech stocks, to the devastation caused by the stock market crash of 1929.

In a step that paralleled moves by some individual investors, Bonnel pulled his aggressive growth fund partly out of the market in the first quarter of 2001, shifting more than 80 percent of its assets into cash.

But in April, the combination of interest rate cuts by the Federal Reserve and data suggesting the economy was healthier than anyone had thought lured him back. Today, about 20 percent of the fund's assets are in cash, with the rest in stocks.

The makeup of his stock holdings has changed radically from a year ago, though.

About 3 percent are in technology, compared with 70 percent in the spring of 2000, when tech stocks were still roaring and the fund's assets reached $350 million.

Today the fund is down about 23 percent for the year, despite its emphasis on the types of stocks considered safer investments in a questionable economy.

"We've been going into soaps, cleaners, petroleum ... chewing gum, beverages and ammunition," said Bonnel, a 30-year veteran of the industry. He'd still like to buy technology, but he's waiting for the earnings picture to get a little clearer. Although the sector has enjoyed a nice run-up, he's not convinced the worst is over.

His advice: If you're going to buy, focus on earnings and a company's long-term perspective, rather than hype or emotion.

A year ago, he said, technology earnings prospects were still strong, but even when they weren't, the momentum and euphoria surrounding the sector made it impossible to resist.

"Things just got totally out of hand, but you had to keep riding it," he recalled. "I would tell individual investors today that you have to look at company and say, 'Are they good?' and 'Will they continue to be good?"'

That focus on performance is shared by Meyers, although the Kent Growth and Income Fund he manages took a different strategy to survive the market's hemorrhaging.

The fund of mostly large, blue chip stocks stayed with equities throughout 2000 and in 2001, although Meyers did some selling and buying to minimize losses. The fund is currently down more than 6 percent for 2001.

In February and March, he bought utility, financial and retail stocks. Technology has had less appeal - nearly 19 percent of the fund's assets are already in tech, in line with the technology weighting on the Standard & Poor's 500 index.

"We want to see the earnings prospects turn around on these stocks first," Meyers said, suggesting individual investors do the same. "You'll still get a chance to buy them - everyone's trying to get the low price, but you have to remember that for the last year these stocks have been making new lows."

He prefers to hold on to stocks for years and hedge his bets by spreading his money across several sectors - two strategies he contends work especially well for individual investors.

Individuals also have an advantage over professional money managers, Meyers notes.

A fund often sells strong stocks to avoid too much concentration in specific sectors or to compensate for other poor performers that might pull down rates of return, a competitive measure used to assess fund performance. Investors don't face that pressure, though, with their own portfolios.

"Don't overweight in any one sector, like technology. Buy different stocks, so that when some are down, others are up," Meyers said. "And don't panic. Keep your wits about you no matter what."

The market's major indexes ended the week mixed.

The Dow finished the week up 230.20, or 2.2 percent, at 10,810.05 on a 117.70 gain Friday.

The Nasdaq slipped 87.73 or 4.1 percent for the week. It closed Friday at 2,075.68 on a gain of 40.80.

The S&P 500 index ended the week up 10.07, a 0.8 percent change, after rising 18.53 to 1,253.05 on Friday. The Russell 2000 rose 6.41 to 483.97, ending the week up 17.26 or 3.7 percent.

The Wilshire Associates Equity Index - which represents the combined market value of all New York Stock Exchange, American Stock Exchange and Nasdaq issues - ended the week at $11.508 trillion, up $99 billion from the previous week. A year ago the index was $13.541 trillion.