Open Book: Mutual Fund Investors Beware

I have always been a devotee of Benjamin Graham and David Dodd's value approach to investing. After the dot.com bubble burst, I wondered whether the value funds -- ones that invest along the lines of a Warren Buffett -- had bitten on the tech and media stocks that had been all the rage in the late 1990s.

Remember, it was the New Economy, and no one needed an excuse to buy Broadcom (BRCM Quote), Enron, Oracle (ORCL Quote) and the like. An excuse? You needed an excuse not to be in such stocks.

Given the names of 10 true-blue value mutual funds by a manager who himself is deeply committed to investing on fundamentals , I decided to see, first, if the group had steered clear of a Fortune list of high-flying stocks -- ones selling at prices that bore little relationship to earnings , if indeed they had earnings. And then, the acid test, to see how the group performed over a five-year period that encompassed both the bubble and the collapse.

As it turned out, they passed both tests with A+ grades. They had stuck to their principles, uniformly avoiding the Enrons of the day. And over the five-year test period, they far outperformed the market, each and every one of them. ...