To print article, click Print on your browser's File menu. Go back Posted 12/6/2000 Start Investing Portfolio Track the progress of the Start Investing Portfolio.	Advertisement Start Investing Let a pro pick the 'boring' stocks I'm fascinated by tech but painfully aware that I need to hedge my bets. I'm turning to Ameristock, a young, large-cap fund full of well-known names and a low hot-tech-stocks-to-own-now quotient. By Mary Rowland We've been hearing a lot of talk about the fabulous values to be found in the beaten-down tech sector. (See, for example, Jim Jubak's column, "Finding gorillas in the midst of a meltdown.") I agree. I bought some of them myself. (See, "Diversify with bargain blue chips.") But I'm going to timidly suggest here that one lesson we should learn from the tech disaster is to take a look at some other sectors of the market and add a little balance to our portfolios. Banks and insurers check your credit. So should you. The problem, at least for me, is that I don't have a clue about how to buy consumer stocks or chemicals, for example. Or what about metals and mining and manufacturing companies? How do we go about adding these diversifiers to our portfolios? A couple of weeks ago, I interviewed financial planner Ram Kolluri about asset allocation. For the most part, he thinks it's an overblown idea. He sticks to blue-chip growth stocks. Yet he puts one-third of client portfolios in the Standard & Poor's 500 Stock Index ($INX) as a hedge, using SPDR Trust shares (SPY, news, msgs) on the American Stock Exchange. That's one way to skin it, because the S&P 500 includes all the market sectors. The problem for me is that a big chunk of the S&P is in the tech stocks I already hold on my own. I also own the Nasdaq 100 Trust (QQQ, news, msgs), which is heavily weighted to tech. So if I buy the S&P, I'm getting an overlap. Value is a winner While I was mulling this over at the beginning of December, I took a look at my own portfolio and found it to be full of holiday colors. I zeroed in on the greens, where I found Dodge & Cox Stock Fund (DODGX) and Longleaf Partners Fund (LLPFX). So, loosely speaking, the winners were value stocks. Or maybe we could call them big companies in boring industries. We've all heard the arguments for and against value, including the idea that the structure of American business has changed and that the place to be going forward is in growth. But we see what happened to growth-oriented portfolios last April and again in October and November. There is something to be said for a hedge. So when I received my third-quarter report from Dodge & Cox Stock the other day, I examined it carefully. Because I own 20 stocks, mostly in the tech sector, I wanted to know how much tech this fund owns. I found that just over 9% percent of the fund is in technology, and there is not a single stock I own on the list. The fund holds companies like Motorola (MOT, news, msgs), Xerox (XRX, news, msgs), NCR Corp . (NCR, news, msgs) and Pitney Bowes (PBI, news, msgs). You've got to have guts to buy a company like Xerox! That got me to look at the rest of the portfolio. The biggest chunk is in finance, followed by consumer-goods companies like Whirlpool (WHR, news, msgs), General Motors (GM, news, msgs), Kmart (KM, news, msgs) and Mattel (MAT, news, msgs). In the entire list of 80 stocks, there was only one that I own: Sony (SNE, news, msgs). I've made lots of arguments against mutual funds in this column. If I'm going to make an argument for them, I think it's got to be that funds allow you to invest in a group of stocks that you don't have the guts to buy on your own. And if you're going to buy a managed fund rather than an index, then I think you've got to believe that a manager can add some value. A study in other sectors I'm not urging you to buy the Dodge & Cox Stock Fund. Part of my fondness for it no doubt comes from loyalty and the fact that I've interviewed John Gunn, Dodge & Cox president and chief investment officer, a number of times and found him savvy and charming. But I will argue that tech lovers should take a look at other market sectors. Value stocks are certainly less exciting than tech. I bought this fund in 1995, and I've roughly doubled my money. That's pretty feeble compared to the 2,000% return I got on Qualcomm (QCOM, news, msgs) last year. But one of the goals of investing is capital preservation -- to hold on to what you've got. Dodge & Cox Stock looks a lot better than a couple of recent purchases I've made. Take the 50% hit I took in Sycamore Networks (SCMR, news, msgs) over the first couple weeks I owned it and the 70% "dip" in Lucent Technologies (LU, news, msgs) since I bought it last spring. What a way to preserve capital! So I decided to add to my value holdings. But what to buy? I hate small-cap value, the dogs of the stock universe. If you're going to buy small companies, then I think you ought to buy growth. When I bought Dodge & Cox Stock, it was a big-cap value fund. But no longer. The median market capitalization for its holdings is under $10 billion. So it's now a mid-cap fund. Longleaf Partners, too, is a mid-cap value fund. Looking for a new name If I was going to add to my value holdings, I figured I needed a large-cap fund. I looked at this category on the Fund Screener at MoneyCentral and came up with a large-cap value fund called Ameristock (AMSTX) that knocked my socks off. Not only did it blow away the competition in terms of performance, but it's got reasonable expenses (99 basis points), low turnover of around 30% and just $100 million in assets. The fund gets five stars from Morningstar. Nicholas Gerber has been managing it since inception in the fall of 1995. Naturally, I was curious about what was in it. Sometimes I see a value fund with a dynamite record but, when I look under the hood, I see that it's half tech stocks. That doesn't provide me with any diversification. But when I checked the top holdings of Ameristock , I saw stocks like PNC Financial Services (PNC, news, msgs), Ford Motor (F, news, msgs), Allstate (ALL, news, msgs), Sara Lee (SLE, news, msgs), Sears , Roebuck (S, news, msgs) and Fannie Mae (FNM, news, msgs). Here's another list of stocks that I'd never buy on my own. Why has this fund been undiscovered? The only thing I can figure is that it just passed the five-year mark that's required to show up on some fund lists. I decided to buy it. That's when I discovered, once again, that investing is about emotions. I called up the trading screen at Charles Schwab (SCH, news, msgs) and filled in the buy information. Then I sat there and looked at it. Could I buy something that I know for a fact will not double in six months or a year or two years? Because that's what we're looking for in tech, aren't we? The stocks that have made people rich.
Start Investing Archive • Gain a bundle from others' losses , 11/29/00 • Diversify with bargain blue chips, 11/22/00 • Know when to hold 'em and fold 'em , 11/15/00 More…	But then I also remembered that those are the same stocks that have made people poor. So I bought the Ameristock fund. It will give my portfolio some diversification so that I can feel comfortable being aggressive with the money I put into individual stocks. I'll let Gerber pick the boring stocks for me. At the time of publication, Mary Rowland owned or controlled shares of the following equities mentioned in this column: Ameristock, Dodge & Cox Stock, Longleaf Partners, Lucent Technologies, Qualcomm, Sony and Sycamore Networks. Data providers MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances. Copyright © 2009 Thomson Reuters. Click for Restrictions. Quotes supplied by Interactive Data Real-Time Services.