A man of letters.

It's always a pleasure to be able to sit down and chat with one of the most persistently successfull mutual fund managers in the industry, and that's just what I had a chance to do recently when the legendary Robert Appleton was in town. Appleton, who has managed the fabulously successful, $13-billion XYZ Fund for the past 23 years, has generated average returns of 23.4 percent (after expenses) on an annualized basis over that period, including a whopping 76.3 percent in 1991. This makes him, arguably, the most successful mutual fund manager in history.

Appleton's techniques are the stuff of legend. Unlike most of his fund manager colleagues, who select stocks on the basis of rigid formulas, such as price/earnings ratios, internal growth rates, comparative-store sales, sales-per-employee, or even overall profitability, Appleton believes in only buying stocks with names or principal lines of business involving acronyms.

"We were in IBM and DEC early, long before the PS-1, the PS-2 or OS/2," explains Appleton over lunch at a fine Manhattan eatery. "We bought GE because of NBC, and went long AT&T while shorting ITT; we bought CBS when its relatinship with the NBA and the NFL were good, but decided to get out after it signed that long-term contract with the AL and the NL."

Sprinkling MSG on his rich chunks of beef stroganoff, Appleton delineates his investment philosophy carefully.

"Not every acronym-based product or corporation is going to be a winner; we know that. The VCR was helped by ESPN and MTV, and to a lesser extent by NICK and VH-1, so we got into JVC and NEC early. I felt good about VHS, but I didn't feel the same way about HDTV: If it was going to be A-OK for ABC, somebody was going to have to prove it to me before I committed my clients' capital. It's the same with DAT and CD-ROM; someday these things may take off like MS-DOS, but if they don't, you could be left with another CPM on your hands."

Sipping his RC Cola, Appleton elaborates the byzantine yet rudimentary investment principles that have stood him in such good stead in the mutual fund industry for so many years.

"We knew that the 33-RPM LP would eventually be superseded by the CD, and that acts like R.E.M. and M.C. Hammer would eventually replace AC-DC and ABBA. So we went long MCA, RCA, and CBS. And we knew that if Ted Turner's TBS was successful, if it was only a matter of time before. TNT followed suit. We were always a lot more interested in CNN than FNN, even before FNN became part of CNBC, and generally we preferred BRAVO to A&E. The thing that a lot of novice investors forget is that you have keep your portfolio fully hedged: If you're going to be buying HBO, then you have to be shorting MAX; if you're going to go long ESPN, you have to go short WGN."

Tucking away a heaping portion of tapioca, Appleton discusses his investment plans for the immediate future. Much of this depends upon unforeseeable developments in the American economy, but such challenges hardly deter him.

"I was at a GOP convention at UCLA last month, and a guy from MIT got up and read a paper about the future of M-1, M-2, and M-3. Basically, his feeling was that unless the AARP would agree to give in a little on COLAs, it was going to be RIP for the U.S.A. It's the same thing with the S&Ls; I'm all in favor of the FDIC and all, but this RTC bailout situation has gotten completely out of hand. Another thing: the GAO says that there's still plenty of fat to trim from the USDA and HEW, but as far as I can see Congress is just catching a few Z's. Hey, I'll probably get in trouble with the ACLU for saying that."

Although Appleton is fairly pessimistic about the likelihood of the U.S. getting its financial house in order anytime soon, he still sees a good number of buying. opportuinities on the NYSE and NASDAQ, and, to a lesser extent, AMEX. (Though Appleton regularly trades OTC, and has a trading unit handling CBOE and COMEX transactions, he generally avoids wildcat exchanges such as the VSE, which have regularly been target of SEC. investigations.)

"We're buying some of that GMAC short-term paper, which is rated A-, and also looking at some of the BBB-rated Ford long-term stuff - we always liked the Ford LTD. We're always interested in GNMAs and FHMLC paper. NEC has come out with a hand-held PC that has an excellent LCD; it uses a 386-SX, operates at 17 MZ, and runs Q&A 4. And we're hot on TRW; the guy who runs that outfit looks like he just walked off the pages of GQ. And, of course, any firm seeking FDA approval to do R&D on HIV-4 or DNA or any kind of STD is worth a gander. Especially if they can get NIH money."

Still, Appleton warns individual investors to be very careful when adopting an investment philosophy such as his.

"A TGIF is not the same as a TCBY; an AT&T is not the same as an AT&E. Heck, just look at ZZZZ Best, I've made a fortune on GE, then turned around and got my clock cleaned shorting GTE. After you've taken a bath on a TWA, it makes you wary of a UAL. And you have to bear in mind that one year an EDP can earn you 78 percent, and the next year it could kill you. As for foreign stocks, if I can buy BP cheap, I'm going to buy it, even if I have to purchase ADRs."

Does Appleton have any special advice for investors in terms of attitude, mental preparation, that sort of thing?

"You don't need an IQ of 185 or 1500 in your SATs to succeed in this business," Appleton says. "Just get lots of R&R, never forget your ABCs, and, above all, stay out of trouble with the IRS."