Broker schmoker, do-it-yourself; here's how to create your own portfolio or mutual fund.

Here's how to create your own portfolio or mutual fund

Why wait for a Wall Street bigwig to spoon-feed your investment ideas? There is, in fact, a simple way to enhance your investment holdings without paying brokerage and manager fees. Nor will you have to worry about the stock price at any particular time of the day since you'll be buying directly from the company using a formulated purchasing technique called a dividend reinvestment plan.

You can create a portfolio and trade for yourself by adopting this do-it-yourself method. Bringing in friends or family, a la the investment club concept (see "How to Start an Investment Club," April 1993), creates a mutual fund. Investing with others also provides you with a larger cash pot, which in turn allows you to start with a larger stock cache.

Your fund, of course, will be smaller than the Lord Abbett, Oppenheimer and T. Rowe Price funds that you may already have a stake in. And to keep your portfolio diversified, don't cash out of those funds. Instead, be prepared to have some fun comparing your results to those of Wall Street's managing gurus.

First, decide on the type of stocks you want in your fund. To find out if a particular company offers an automatic dividend reinvestment plan and will allow you to buy directly from it, call the investor relations department. Food, pharmaceuticals, energy and clothing stocks are among the better known industry sectors.

But for maximum efficiency and safety, pick stocks that pay a dividend. A dividend is a payout to investors that only a solid company with money left over after it pays its operations costs and debts can deliver.

For example, Johnson & Johnson (NYSE symbol: JNJ) pays a dividend of about $1.16 and recently traded around $46. Standard & Poor's has assigned an A+ rating to the company's common stock based on growth and earnings stability. S&P's assessment of Johnson & Johnson was underscored back in August when the health care product company announced it would buy Neutrogena Corp. (NASD symbol: NGNA) for $924 million in cash. Industry analysts said at the time that Johnson & Johnson would be able to complete the purchase without having to significantly alter its financial profile. This stock has a history of stability and growth.

In contrast, S&P has assigned a D rating to the common stock of Merry-Go-Round (NYSE symbol: MGR). Merry-Go-Round is in reorganizational bankruptcy, which means that even though the retail specialty store still trades around $1, it pays no dividend and owes big money to creditors.

Selecting stocks that pay a dividend has another benefit. Most companies that issue dividend-paying stock also have automatic dividend reinvestment plans. Instead of receiving a dividend check for $.72 on a $33.50 share of PepsiCo Inc., for example, PepsiCo automatically reinvests the dividend towards the purchase of more stock. Another perk of dividends is that they tend to go up. PepsiCo stock earned $1.13 in 1989, $1.35 in 1990, $1.61 in 1992 and $1.96 for the past two years.

The value to you is obvious. Like a dollar-cost averaging strategy, you are consistently investing profits to acquire larger holdings. If the market tumbles and the per-share price of the stock goes down, you still get the same dividend, which will let you buy more stock at the lower price. Buying low is precisely what your broker or money manager does, but the do-it-yourself method automatically saves you money by eliminating the middleman's fee.

Diversify your stock holdings in different industries. For that matter, don't be afraid to buy stock in your favorite company's competitor, e.g., Burger King investors vs. Rally's Hamburgers. After you've done your homework and decided to buy a stock, don't be afraid to sell it. Perhaps you've reached your investment goal or maybe the initial reasons for purchasing the stock have changed. And finally, exercise patience: This type of play in the stock market is designed for long-term growth.

WISE WORDS

Don Rice, President and CEO of GBR derivative products, co. in New York (212-432-7740) tells how to take advantage of market climate where interest rates are changing. "Many individuals and small businesses should consider diversifying their liabilities to include both fixed- and variable-rate borrowings. Despite the low level of long-term interest rates, shorter terms rates are even lower. Historically, borrowing on a variable rate basis has resulted in lower borrowing costs. One way individuals can take advantage of this is through variable mortgages."

B.E. STOCK PILE

Dwayne Taylor, senior sales associate, Smith Barney, 212-230-3400.

International Game Technology (NYSE symbol: IGT), which posted a recent close of $21.875, has more than 70% of the market share for casino slot machines. "There are 11 states considering gambling as a legal enterprise. In addition, market research indicates that the Japanese have about 800,000 machines that will have to be replaced very shortly," says Taylor.

Franklin Morton, research director, Ariel Capital Management, 312-726-0140.

Rouse Co. (NASD symbol: ROUS) is a real-state acquisition and development company that has remained strong through the market recessions of the mind 1970s, early 1980s and again in the late 1980s, says Morton. Recently trading around $19.50 with a dividend paying $.68, Rouse's property gems include the South Street Seaport in New York, Faneuil Hall Marketplace in Boston, and Harbor Place in downtown Baltimore.

Dwayne Leverett, account executive, Dean Witter Reynolds, 800-659-6665.

Trading around $27, McDonald's Corp. (NYSE symbol: MCD) is increasing its overseas presence. "We have given McDonald's an |accumulate' rating, which means that over the next 18 to 20 months we expect a 12% to 15% total return," says Leverett.