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Wednesday, December 9, 1998

Periodical Education

by Phoolish1

For a long time now I've had a strange attraction-repulsion attitude toward financial magazines. I've never subscribed to one. And yet I can hardly resist browsing through any one that's in reach. I can't say I've ever gained any stunning insight into any financial matter reading such magazines. There's just something in me that keeps hoping, I guess. Kind of like playing the lottery.

I picked up the Dec. '98 issue of Kiplinger's last week. As I was paging through, I noticed a full page advertisement from Gabelli Funds. The ad proudly proclaimed Mario Gabelli as the 1997 Domestic Equity Fund Manager of the Year. And just below that, it showed the Gabelli Asset Fund rated 4 stars (out of 5 but the ad only says that in the lawyer print at the bottom). Let's see... The fund isn't even in the top 10 percent, yet the manager is given an award. How does that work?

Gabelli was recently "eyed" by The Motley Fool in the Cash-King Portfolio, so I knew enough about him to know that for at least five years none of his funds beat the S&P. Maybe I should take a look at some of the other funds advertised in Kiplinger's.

There's Babson Funds on the page opposite Gabelli. How about them? Ten funds with the highest three- or five-year return falling short of the S&P by almost three points.

Let's try Robertson Stephens Funds. In its full page ad, the photo of fund manager Ron Eijah exudes confidence. Hmmm. No winners there either -- out of 19 funds.

Then there's the fund family that keeps popping up throughout the magazine, nine ads in all: T. Rowe Price. The company has 68 funds. It must have a couple that beat the S&P, right? Nope, not a single one. But there's a couple that came close. At least T. Rowe Price's funds are "100% no-load." It seems T. Rowe will manage my money just for the fun of it!

Let's, cut to the chase: Fidelity. The Mother of all Fund Families -- 229 funds according to the Morningstar screen. Seven of them beat the S&P for three-year returns and seven for five-year returns. For both three- and five-year returns, Fidelity has just four funds beating the benchmark. Four out of 229. Well, some of those are bond funds. (By the way, why is Peter Lynch trying to convince Don Rickles to convert his IRA to a Roth? I gotta believe that Don Rickles is above the income limits for converting.)

Maybe Kiplinger's content has some bite. Kiplinger's isn't an investment mag, per se. It's a "Personal Finance Magazine." So the articles on investing seem to be in a minority.

Here's one though: "Why to Buy Stock Before the Split." It starts out pretty good. It says that splits don't really affect anything about the company. And that you should never buy a stock just because it's going to split. But if you're planning on buying a stock that has announced a split, they explain, you should try to buy it before the split because "stocks tend to spike on the day they split." That's fine I suppose, if you like to pay short-term capital gains on minuscule increases.

But, they also say, "the upward price trend continues over the following year, with split stocks outperforming their nonsplit peers by another eight percentage points." Maybe a good portion of the stocks that split are simply good stocks. Maybe since splits don't change the fundamentals of the company, we should just analyze the company and see if revenue, margins, and profits are increasing while debt is decreasing.

Another article solicits stock picks from mutual fund managers. The kicker says, "From ten top fund managers, the stocks they love the most." These are "long-term" stock picks "... the ones they're most excited about for at least the next year or two." Makes me wonder what they call stocks that you'd like to hold for 20 years.

Some quick research reveals that of the nine active fund managers, two of their funds haven't even been around for three years. Of the remaining seven, only two have trailing three- or five-year returns that beat the S&P. One has a trailing 3-year average annual return of just under 13%. The S&P annual return was double that for the same time period.

So, I'm supposed to take advice from managers of generally underperforming funds who pick stocks to hold for the "long-term" of one or two years? Maybe I AM starting to get some insight from these magazines.

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