My Worst Calls of '98 -- and a Few Good Ones

A few <I>mea culpas</I> to start the new year.
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You hear a lot of language (much of it not repeatable here) on Wall Street. But there's one thing rarely said: "I made a mistake." So last year, when my colleague

Jim Cramer

fessed up in a column titled

Mea Culpa, I took notice. Everyone in his business makes mistakes; few admit to them. He always has been open about what he does wrong and deserves a lot of credit for sometimes taking some blame.

In that same spirit, I decided to do some New Year soul-searching myself. Unlike the people I profile, I can't give you numbers. I don't manage anyone else's money, and as

TSC

makes quite clear after each of my columns, I don't give recommendations on buying or selling stocks or funds.

But I do offer opinions, and it's worth taking a look at some from this past year to see how they held up. Which managers whom I introduced to you went on to do well? Which ones had trouble I didn't foresee? Did I remember to remind you of some important, if unpopular, "must-dos" to your portfolio? What advice was just flat-out wrong?

Gulp. Here goes. You be the judge.

Bypass Bonds

I started 1998 off with a doozy. I resolved not to repeat my worst mistake of '97: bowing to the god of diversification. I

wrote that I should not have changed my asset allocation to add more bonds to my portfolio. Of course, come August, when stocks sank and everyone was bullish on bonds, those bonds would have come in quite handy.

Over There, Over There

Not only did I decide I could take on Cramer in a

Faceoff, arguing for international investing just as the emerging markets were submerging faster than the baht took a bath, I gave a big "I told you so!" to those who thought returns needed a "Made in the USA" label. Right before the market peaked, I

wrote, "Asia's tigers may have a thorn in their paws -- may even be turkeys in disguise -- but those focusing on Europe, despite the record run they've seen of late, still have fundamental reasons to move up."

Now, this distinction is an important one. The performance of the average international stock fund last year was nothing to brag about, up just 4%. But the average European stock fund delivered 18% in 1998, not bad compared with the average U.S. diversified stock fund, which returned 15%.

Of course, most European funds gathered their gains during the first half of 1998. In the past six months, they actually lost 6%. Yes, I am facing this fact (both in print and in my portfolio), but I admit that I still think that there is good reason to put money overseas. Powerful forces are at play that should push European stocks higher: privatizations, corporate restructuring, merger mania, a strengthening shareholder culture and lots of liquidity. Call me stubborn, but I haven't given up on international investing yet. I think it can be just as risky to stick close to home.

Value in Value?

Yes, I introduced you to some little-known no-loads that stood out in a category that can't get any respect these days: value. (The

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First Eagle fund, which I said "quietly put up big returns," gained 21% in 1998, No. 2 among mid-cap value funds;

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Weitz Value, again "quietly putting up huge numbers," gained a whopping 30%.) But I failed to predict that another value champion, David Schafer, would hit a rough patch. In May, I wrote, "Ask veteran investor David Schafer to describe his fund and you don't hear many superlatives. ... Well, maybe he doesn't have to brag, because the numbers pretty much speak for themselves."

They do now; that's for sure.

(SCHVX)

Strong/Schafer Value lost 7% last year, putting it well into the bottom quartile of mid-cap value funds, according to

Morningstar

. That performance has pulled down his long-term numbers, too; the fund ranks in the bottom half of its peers for the three- and five-year time periods.

OK, now that I've engaged in some serious self-flagellation, it's only fair that I bring up a few columns that hopefully helped you this past year.

I may have had the privilege of bringing to your attention some of the top money managers in the business, such as Tom Marsico, who have taken their funds to the top of the charts this year. But this column isn't about the hottest of the hot funds. It's not titled "Invest Here Now." It's "Under the Hood," and as advertised, it is designed to help you look into the engine of this most popular investment vehicle around. So the columns I'm most proud of tend to be the ones that give some important, if not always popular, advice.

Don't Sell!

When the markets started their free fall last summer, here's what you heard.

On Aug. 5, I

wrote: "Are you aching to act? Hard not to feel that way. Seems everybody's doing something -- and with the pundits predicting even faster than the

Dow

is dumping, why wouldn't you want to grab the phone or seize the mouse to make a trade on your mutual funds? Simple answer. Because, in most cases, it's the dumbest thing you can do. ... Don't just bail blindly out of the funds that have the biggest negative marks this week." Later that week, I showed you my money was where my mouth was and invited you to peek into my personal portfolio to show you why I WASN'T selling funds such as

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White Oak Growth.

On Sept. 1, I wrote a column titled

Want to Sell? Don't Look to Buttner for a Blessing. That's right. I said, "Sorry, I'm not here to win a popularity contest. I'm here to remind you of things you probably know in the back of your mind but might like to forget as fear starts to replace greed on Wall Street, as panic takes the place of better judgment." Unless your time horizon or risk tolerance had changed, or your fund was seriously underperforming its peers, you should hold tight, I advised.

Back to Basics

Maybe that saved you some money, because, as we all know, the market made quite a U-turn. But hopefully, in the preceding months, when it looked like the Dow simply didn't obey laws of gravity, I offered a few tools you needed to really get under the hood.

We took a tour of those available to help you assess your mutual fund's risk (and its close cousin, volatility) in

Which Mutual Fund Risk Measures Really Matter. We looked at the best way to use them to better understand your investments, and perhaps more importantly, why none alone will give you a truly full picture of your portfolio.

Then, we looked at

Advice on How to Choose Funds,

How Many Funds Should You Own? and

How -- and Whether! -- to Read Your Prospectus. Those are the columns I hope you'll remember from last year. More to come -- as well as, no doubt, a few "oops." (Just don't forget that I owned up to them first!)

Brenda Buttner's column, Under the Hood, appears every Thursday. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds.