Voice of Experience Assesses Today's Market

Robert Brody has seen a more than a few high-profile financial collapses in his 50 years as a fund manager. Bear StearnsBSC is just the latest.

"Bear Stearns was an important, large firm and they got into trouble," says the 82-year-old Brody, who started the American Growth FundAMRAX back in 1958. "Bear's failure is a serious problem, but it depends on what happens to other firms. If other large companies fall, then it will likely get much worse."

The longest-tenured active fund manager will be watching for a domino effect from Bear's collapse from his offices in Denver, Colo. He says one need not be on Wall Street to understand the root causes of Bear's demise.

"The problem started with subprime loans, which were sold in an unethical manner. The mortgage companies led people astray. And it flows into other areas," says Brody. "Home values go down, and that's psychologically important to people's spending habits since it's their largest financial holding. People don't feel as wealthy anymore."

He favors less economically sensitive stocks like Coca ColaKO as a result of the newly constrained consumer, as well as health-care related stocks like AmgenAMGN, Cardinal HealthCAH and CephalonCEPH.

"There are certain products that people just have to have, like drugs and consumer staples," says Brody. "You can drive your car a little while longer instead of buying a new one, but you can't delay taking your medicine when you need to."

Brody also likes technology stocks like CiscoCSCO and IntelINTC because they are not exposed to the problems in the subprime arena. Plus, in his long career, he has learned that the forces of technology and innovation in America are amazingly powerful.

"There are always new things coming out, so in the long run, tech stocks will do better," says Brody. "That said, of all the financial crises I have traded through, the tech collapse was one of the toughest."

He readily admits that he fared much better during the inflation crisis and ensuing commodity bull market of the late 1970's than the current one.

"The last time we headed into a period of high inflation I went into gold stocks," says Brody. "Unfortunately, this time we did not have them. So even with all my experience I don't always get it right."

Brody's fund is down 14% year-to-date and has returned an average of 7% annually over the past five years, underperforming the S&P 500 by four percentage points. His overweighting of technology stocks during the Internet bubble severely hurt his 10-year returns, as well as his Morningstar rankings. The fund garners a lone star from the fund-tracking company.

"Most of my career has been in a bull market," says Brody, a buy-and-hold investor with less than 20 names in his portfolio. "Over the long run, stocks tend to go up."

And politicians tend to come and go. The fund manager who opened his doors during the Eisenhower administration warns the presidential candidates not to raise taxes as the nation heads into a downturn.