'10 Questions' Goes Back to School

Take money off the table in the classes that did well, and put it back in the classes that have underperformed. People normally do it the other way around, throwing more money into hot asset classes. This is what leads us to the Dalbar results.

We remain unequivocal in our advice on fixed income: Avoid long bonds. Long bonds are not in a position to do well in the next long while. To quote Floyd Norris, we're going from a period of risk-free return to a period of return-free risk.

Use intermediate-term bonds as your longest bonds. Bring your durations in shorter, to about three years. Interest rates are going to go up, and bonds are going to go down. They will not give you protection. Stick with intermediate-term bonds and lower. Besides, intermediate-term bonds offer better diversification. When equities have been negative, intermediate bonds have done better. So the historical numbers would say that intermediate-term bonds are better anyway.

Getting Minnesota Nice With Mairs & Power Growth fund's William Frels

How about a geography lesson? On July 28 we chatted with Frels, a congenial Midwesterner who manages Mairs & Power Growth, a fund that has a special fondness for stocks in its Minnesota backyard. It just so happens that the Land of 10,000 Lakes -- in addition to verdant countryside, the hipness of Minneapolis (Prince's hometown) and the friendly populace -- has a preponderance of great companies, such as Target(TGT Quote), 3M(MMM Quote) and Medtronic(MDT Quote). Garrison Keillor might call it the state "where all the companies are above average." In the following passage, Frels explains how the Minnesota bent works, and names a recent favorite.

Frels: We consider ourselves fortunate from the standpoint that there are a lot of attractive companies around the Twin Cities, which is where we're based. While the fund has a national charter, we find we have plenty of attractive opportunities right in our own backyard.

Since most of the people at Mairs & Power have grown up in this area, we're familiar with these companies and the people managing the companies. That's helpful when we want to have access to management. You know who to talk to.

Of course, since we've had some success, we have national companies that visit us on a regular basis. Our funds tend to be long-term holders. The companies we own appreciate the fact that we are invested in their businesses for the long haul.