Pitt and the Portfolio: Dagen Helps Harvey With Fund Picks

As head of the Securities and Exchange Commission, Harvey Pitt has some problems.

First, Pitt was accused of not being quick enough to go after corporate crooks. Then he seemed to be favoring old cronies from the corporate world by taking meetings with them. More recently, he lost even more supporters when he dropped his backing of TIAA-CREF head John Biggs to run the new board overseeing the accounting industry.

People want him to hit the road.

But Pitt's image isn't the only thing that needs a makeover. His portfolio needs one, too.

I figured that Chairman Pitt could use some help. So I thought I'd drop him a line.

Dear Harvey,

I know that when the Senate confirmed you last year you had to sell all of your family's stocks. And a recent report filed with the Office of Government Ethics shows that you then plowed that money into mutual funds.

Well done.

I think you'll find that owning funds is a lot easier than trying to keep track of individual stocks. And with all that added diversification you get with funds, your portfolio probably won't be as volatile. That gives you one less thing to worry about.

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Too, you rarely see a fund manager stealing money directly from shareholders, which obviously hasn't been the case with some corporations over the past few years. (Not to rub it in.)

Looking over the disclosure report, I noticed that, among others, you bought five American Funds.

Not bad.

Capital Research & Management, one of the biggest money management firms in the country, runs these funds. The company is solid. So are their funds. You bought (AMCPX)AMCAP, the (AGTHX)Growth Fund of America, the (AMRMX)American Mutual Fund, (CWGIX)Capital World Growth & Income and the (AMECX)Income Fund of America. You've got two large-cap growth funds, a large value fund, one global fund and a balanced fund. All of them have solid records and are cheap to own.

Another bonus: This firm is known for letting a fund's members of its management team invest independently. So you're avoiding the kind of groupthink that got Janus into trouble in the late '90s.

But these funds are awfully big. They've got billions upon billions of dollars in them. You'd be well served to go out and find a small, small-cap fund that has only a few million dollars in it instead.

And you probably didn't need to buy both of those large-cap growth funds. Remember: A lack of diversification was one of the reasons investors lost so much money when the market collapsed. Of course, thieving executives and conflicted, boneheaded analysts were part of the problem -- as I am sure you know.