Vern Hayden Chats on AOL

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Vern Hayden chatted on Sage's MarketTalk on AOL July 29 at 9 p.m. EDT.

SageLion

: Welcome, everyone, to another edition of

TheStreet.com

live on AOL. Tonight we have Vern Hayden, who is a financial planner. We'll discuss long-term investing in these volatile markets. Welcome, Vern.

V Hayden01:

Hi, everyone,

Question:

What do you think of the financial sector?

V Hayden01:

I've rotated out of the financial sector a bit to continue to focus on funds with a high-degree focus on technology such as White Oak Growth Fund. But I don't want to miss out on financials when they come back, so I hold Selected American shares where Chris Davis has a strong focus on financials.

Question:

V Hayden, so explain mutual vs. individual??

V Hayden01:

Individual stocks are bought directly and you would own a specific company where as, in a mutual fund, you hold several stocks of different companies, so one share of a mutual fund represents several stocks.

Question:

What sectors do you see advancing short term? Thank you.

V Hayden01:

In the short term, anything can happen, and I feel it's unpredictable. I instinctively like technology, particularly when there is a correction in that sector. I continue to like that but certainly couldn't predict the near future.

Question:

VH, why does the public have an aversion to educating themselves with respect to investing?

V Hayden01:

My experience in the last 5-6 years has been that the public is generally much more informed than they used to be and pay a lot more attention to investing. For those that don't pay attention, I would assume that they're preoccupied with the other pressures of life and they just don't get down to it until there's pain somewhere.

Question:

What about the new Janus Global Technology fund?

V Hayden01:

I think it's a great fund, well run, a very good company. I know or have spoken with the managers of the Janus family. While they are pure growth-oriented, I've found they will perform quite will in whatever sectors they commit to. Obviously, no guarantees, just another opinion.

Question:

Vern, thoughts on Torray fund?

V Hayden01:

I like Robert Torray, he's got an excellent track record. Having grown in the last five years by almost 190%. And, I like him.

Question:

Sir, I just joined your chat room and would like your opinion on the Van Wagoner funds and if they will continue with there success of late?

V Hayden01:

Talk about volatility! As you probably know, he's got two funds that currently have grown over 100% since Jan. 1,1999. He's a brilliant manager, but you have to be able to handle the churning stomach like a riding a roller coaster. I personally wouldn't invest at this point because he's up so much. But I would keep an eye on him going into the end of the year, starting next year.

Question:

VHayden, is this the time to buy in the health sector?

V Hayden01:

I'm still a little worried about the potential "Clinton Effect." Seems like a gift for talking down the health care sector. But some have been beaten up so bad. I've got to believe that, over the long haul, as long as you have patience, it would have to pay off at some point. When you see companies like Bristol-Myers Squibb, Johnson & Johnson and Pfizer -- solid companies for the future in this sector. I'd probably own a good health care fund. I feel the Vanguard Health Care fund, managed by Ed Owens, is the best for this sector.

Question:

What is your take on small-caps? Is there strong value there?

V Hayden01:

Some small-caps have really performed in the past 3 months, such as Baron Small Cap, which is up 33% since Jan. 1 and Freemont US Microcap, which is up 42%. These are in the pretty small- to micro-cap area, and therefore the most dangerous. But I would continue to hold some small-cap in the portfolio. As I think they, with the rebound of the Asian countries and more confidence in some of the stock markets, I think the money will continue to flow into small-caps for a while.

Question:

You don't consider dead money a detractant, then?

V Hayden01:

I guess my crazy response could be that dead money lives better during corrections.

Question:

Do you think the tech funds will continue their tremendous growth in the next 2, 3, 4, 5 years?

V Hayden01:

Obviously, this is my opinion, I expect tech overall to drive a lot of things, including some profits over the next several years. The question always is, can you handle the volatility it might serve up an any given moment. I feel it's good to own a couple of good tech funds over the long haul, and not try to time that. But I'd agree that every portfolio should have a good dose of defense because as you know, the defense occasionally scores big. In other words, risk. Last year when Legg Mason's Bill Miller was up over 40% and dropped close to zero, that was a better cushion than a more conservative fund that dropped from a high of 10% to a low of minus 5%, points well taken.

Question:

Does a person need individual stocks or is it OK to just have mutuals?

V Hayden01:

That's like serving up a menu for a gourmet dinner, it all depends on your taste as to what you order. If you're good at picking stocks, that's great. But if you're not so inclined, mutual funds can do the whole job, if that's what you prefer. It comes with instant diversification and if you pick 'em right, good management.

Question:

Are the health sciences a poor area to invest? Putnam's Health Sciences Mutual fund is down.

V Hayden01:

Almost all the health sciences are down. I feel the Vanguard Health Care fund is a less volatile fund than most of the others. I especially like that fund during bottoms in that sector. For instance, your Putnam fund is down 7%; that's an 11% spread between the two.

Question:

Where would you invest right now for retirement that's 10 years down the road?

V Hayden01:

I would have funds such as Legg Mason Value, the Guinness Flight Wired Index, Thornburg Value, a fund like Longleaf Partners International and Weitz Value. Those are just examples, I can't give you specific recommendations.

Question:

So is now the time to buy international funds?

V Hayden01:

My preference is to own international funds that can invest back into the U.S. A couple that I particularly like are Janus Worldwide and Longleaf Partners International. I realize that specific or regional or country funds have skyrocketed this year, such as the Japan fund, which is up 48% but the risk in these funds for a long-term investor is probably too high for most people. I'll take a little bit lower returns for the additional safety it brings.

Question:

Which tech funds do you suggest for the long haul?

V Hayden01:

I would not specifically recommend a full-blown tech fund, but would take a close look at White Oak Growth. The manager generally has at least 50% in technology. I'm a little shy of the high octane of a tech fund such as Firsthand Technology, even though I think the managers are pretty smart.

Question:

What funds do you think should be in a portfolio for a young person for long-term growth?

V Hayden01:

Again, not specifically recommending a fund to you, but you may take a look at a fund such as Selected American Shares, Janus Fund, Legg Mason Value, Weitz Value and the Vanguard Total Stock Market Index.

Question:

What's your opinion on Profunds?

V Hayden01:

With Profunds, you're making a bet on which direction the market is going to go. They've got doses of high octane in both directions. In other words, if the market is going to go up, then the Profunds that are long will do better than the market And vice versa in the other direction.

Question:

Any comments on portfolio allocation? Also, Y2K concerns?

V Hayden01:

I like a broad allocation based on where someone is adding life. If you've got 30 years, and you can stomach volatility, I'd probably hold mostly equity funds and would allocate between large-cap funds, some mid-cap and some in small-cap -- probably no more than 15% in small-cap. And I'd be top-heavy in the large-cap funds as much as 60%. And for other people that are closer to retirement, I would have more defense in the fund in the form of mid- to short-term funds, depending on age, probably starting around 10-20%. When people retire, I feel that they generally get too conservative, especially people that are retiring in their late 50s to middle 60s. As you know, people have a much longer period in retirement these days. I would probably always keep about 50% in good core equity funds.

Question:

Don't you bet on market direction when investing in any fund?

V Hayden01:

In the short term, no one knows the market direction. I don't bet on what I don't know. What I do know is that, over time, it pays to be optimistic on the market and to have good core holdings and not try to time the market. Timers got killed last year when, on Aug. 31, the Dow fell 513 points and the very next day, Sept. 1, the Dow bounced up 288 points, the second-biggest point gain ever.

Question:

At age 52, what asset allocation would you recommend?

V Hayden01:

I need a lot more information to get specific, so I can't address your personal situation. However I personally would have at least 80% in a good core equity fund. Assuming you're not going to at least 10 years.

Question:

Mr. Hayden, do you see a recovery in Asian markets given their current monetary policies?

V Hayden01:

There's already been a recovery of sorts. I think there will continue to be a lot of volatility in these markets. But the paradox in my thinking is that over the next 10 years, that could very well be where the most money is made. But you need a good dose of seasick pills to handle it.

Question:

Do you like any of the bearish mutual funds like Rydex Ursa or the Prudent Bear?

V Hayden01:

I don't use them because I look at that as a form of timing and you virtually have to be able to call a bull or bear market to benefit from investing in the funds. If you're ingenious enough to make that bet accurately, of course you could do very well. But I don't attempt to do it

V Hayden01:

All the Internet funds are volatile in the short term. Monument is currently up 87% since Jan. 1, and another, Munder NetNet, is up 48%. That implies the volatility of investing in Internet funds. Again, like you believe in the Internet into the indefinite future, but I'd look at that like I'd look at a very focused sector play and make sure I could stomach the volatility.

V Hayden01:

In my opinion, the safest play is take a look at the Guinness Flight Wired Index. About half of that index is in technology and some of the technology is in the Internet. There are a total of 40 stocks in that index as you may know. Guinness Flight adapts that index from the supersmart people at

Wired

magazine. I really like their work.

Sage Lion:

Whom do you consider to be some of the best mutual fund managers in the business right now?

V Hayden01:

Bill Miller, Bill Fries, Chris Davis, Scott Schoelzel, Jim Craig, Robert Torray, the flamboyant Mario Gabelli, Michael Fasciano, Irene Hoover, Hayes.

Question:

Which Fidelity funds do you like for the long haul?

V Hayden01:

Fidelity Blue Chip, Fidelity Dividend Growth, Fidelity Low Priced Stock Growth and Income and Retirement Growth.

Question:

Which Hayes?

V Hayden01:

Oh, Helen Hayes. That Hayes, I think she's absolutely brilliant and would definitely add her to the list considering her worldwide funds. I would also include her sister at Janus Olympus. I'll be darned if I can think of her first name.

Sage Lion:

Thank you for joining us tonight, Mr. Hayden. Any thoughts for us going forward?

V Hayden01:

Thanks for joining us tonight as always.