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Investment Consult: How'm I doing?


Our investment expert examines his track record. Bottom line: Pretty darn good.


Investment Consult

How'm I doing?

Our investment expert examines his track record. Bottom line: pretty darn good.

Lewis J. Altfest, CFP

The folks at Medical Economics asked me to grade myself on how well the investments I've recommended have done over the past three years.

Since I usually emphasize mutual funds in this column, I've excluded individual stocks and focused instead on returns for funds, across four broad categories. And I've measured the performance of stock funds against that of the S&P 500, rather than the benchmarks the funds themselves aspire to beat. That's because my aim is to outperform the overall market.*

Growth stocks. Three years ago, I urged you to shift some assets out of large-cap growth stocks because I was concerned that too much money was flowing into them and they wouldn't be able to sustain their lofty prices. Moreover, in a separate column, I explained that you'd be wise to purchase shares of funds that invest in mid-cap stocks.

All three mid-cap funds I recommended outperformed the S&P 500. Among them was T. Rowe Price Mid-Cap Growth Fund, which beat the index by 10.4 percentage points annually over three years. I was drawn to this fund because its portfolio manager didn't get caught up in buying technology companies, even though shareholders undoubtedly put great pressure on him to do so. The size of the fund ($6.2 billion) bears watching, because too much money can hamstring the managers' ability to find enough good stocks. For the time being, though, it remains a smart choice.

Value stocks. In July 2000, I recommended selling some shares of growth funds and moving the proceeds into value. I can't blame you if you hesitated: Growth funds had enjoyed a strong run in the 1990s, including a 32 percent gain in 1999.

However, if you took my advice, you're probably smiling about that today. While growth funds, on average, posted small losses in 2000 and dropped more than 13 percent in 2001, mid-cap and small-cap value funds realized some nice gains. One of the mid-cap funds I recommended, Longleaf Partners, returned 10.3 percent last year, topping the S&P 500 by more than 22 points.

As a group, large-cap value funds didn't do quite as well, but the average annualized returns for my two picks—Vanguard Windsor II and Neuberger Berman Partners Fund—were better than those of the broad index. Vanguard Windsor II topped it by more than 11 percentage points a year.

My record wasn't perfect, though. A fourth pick, Selected American Shares, has struggled. Big hits to American Express, Merck, and Tellabs caused the fund to lose more than 8 percent in 2001. Nevertheless, talented co-managers Kenneth Feinberg and Christopher Davis use a buy-and-hold strategy that has proven effective over the long term. I still recommend owning the fund.

International stocks. My biggest mistake in the past three years was having too much faith in Japan. A fund I touted a couple of years ago, Matthews Japan, lost a total of 54 percent in 2000 and 2001. I had a longstanding belief that an economy as large as Japan's couldn't stay mired in recession for long. Wrong! Although I still think Japan stocks are cheap, the country doesn't seem any closer to turning things around today.

Another disappointing pick was Warburg Pincus International Small Company Fund, which was rolled into Credit Suisse International Focus Fund after Credit Suisse began managing the funds in the Warburg Pincus family. In November 2000, right around the time I endorsed Warburg Pincus International Small Company Fund, Credit Suisse lost a second influential manager and the fund's performance tailed off severely early in 2001. I no longer recommend it to my clients.

On the bright side, Longleaf Partners International Fund gained 10.5 percent last year, after a 26 percent gain in 2000. As value players, the managers buy only those companies they believe are trading at a discount to their true worth. They also invest a great deal of their own money in the fund, which means their interests are aligned with yours.

Bonds. In early 2000, I thought it made the most sense to focus on short- or intermediate-term bond funds because any sudden rise in interest rates would cause bond prices to fall. Even though rates didn't soar, the Vanguard funds I recommended—Vanguard Short-Term Corporate and Vanguard Intermediate-Term Corporate—fared very well, averaging 7.2 percent and 9.7 percent respectively over the past three years. Those returns were aided in part by Vanguard's famously low expenses.

Finally, if you took the advice I gave in September 2000 and moved some of your money into a mutual fund that focuses on "inflation-indexed" savings bonds, you're probably happy you did. Vanguard Inflation-Protected Securities Fund has returned 13.8 percent annually since I wrote about it; my other pick, Pimco Real Return Bond Fund, rewarded investors with an 8.2 percent return in 2001 and 13.8 percent since I recommended it. All of these bond funds remain good picks today.

In summary, virtually all of the mutual funds I endorsed did better—many materially so—than the S&P 500, which dropped sharply. My advice to shift some of your assets into bonds and more reasonably priced stocks, especially value stocks, may have seemed old-fashioned or too conservative a few years ago. But in a rocky market, a diversified, conservative approach often proves to be the best one.


*Unless otherwise noted, all performance figures are through Sept. 30.


The author, a fee-only financial planner, is president of L.J. Altfest & Co. ( ), a financial and investment advisory firm in New York City. This column appears every other issue. If you have a comment, or a topic you'd like to see covered here, please submit it to Investment Consult, Medical Economics magazine, 5 Paragon Drive, Montvale, NJ 07645-1742. You may also send a fax to 201-722-2688 or e-mail to


Lewis Altfest. Investment Consult: How'm I doing?.

Medical Economics


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