Don't Be Afraid of Aggressive Mutual Funds -- Yet.

LOOKING at the stock market these days, you can scare yourself right out of your aggressive growth mutual funds.

Everybody from Federal Reserve Chairman Alan Greenspan on down worries that Internet-related stocks are at the center of a speculative bubble that could burst at any tune.

In one fit of nerves in mid-March, the composite index of the Nasdaq market, where many computer and telecommunications stocks trade, plunged 11.7 percent in three and a half days.

At that rate, you could have a full-blown bear market in two weeks.

This tests the resolve of people who call themselves long-term investors. After an exhilarating ride up in a stock fund loaded with Internet and biotechnology stocks, the temptation gets very strong to try to jump off before all the gains vanish, and park the money someplace less adventurous.

The trouble is, even if that turns out to be a timely decision, what do you do next? One good market-timing move demands another, and once you start trading on emotion it's no easy trick to stop. The more you trade, the more mistakes you're going to make.

To earn your spurs as a long-term investor, you sometimes have to stick with your positions even when their short-term prospects look shaky. That means staying diversified, keeping some money in a safe haven such as a money-market fund, and making sure your stock funds own a broad range of stocks.

It also requires remembering why you've invested in stocks at all. For a pep talk on that subject, listen to Edward Kerschner, chief investment strategist at PaineWebber Inc., whose "highlighted list" of 30 stocks makes up the portfolio of the $2.1 billion Paine Webber Strategy Fund.

"The benefits of the Internet are for real," Kerschner writes in a current bulletin to investors. "A sharp correction in the prices of some egregiously overvalued Nasdaq stocks -- were it to occur -- would likely not indicate the end of the bull market. The U.S. economy would continue to reap the benefits, namely a muted business cycle, productivity gains and low inflation."

Kerschner's picks at last report include no upstart little Internet or biotech companies, but several big computer and telecom stocks, among them Cisco Systems Inc. and Lucent Technologies Inc.

Paine Webber Strategy Fund's shareholders are all new to the fund, having come aboard at its initial offering last fall. So it's way too early for them to agonize over whether to stay in or cash out.

But in many other funds, investors are sitting on gains built up over a period of years. Take the hypothetical case of a $10,000 investment made several years ago in a fast mover like the $18 billion Janus Mercury Fund, which would have since grown to more than $60,000. The example sprang to mind because I own a few shares of Janus Mercury myself.

Under the management of 38-year-old Warren Lammert, a soft-spoken Clark Kent type who has been getting Superman-style results, the fund has returned an average of 36 percent a year since it opened for business in 1993. Assuming your wish to pursue longterm growth of your money hasn't changed, a strong argument can be made for staying with a fund like this rather than cashing out now.

Could Lammert hit a cold streak? Sure, any manager can. In 1997, Janus Mercury rose just 12 percent, trailing the Standard & Poor's 500 Index by 21 percentage points.

For the last five years, though, Janus Mercury's average return beats the S&P by 16 percentage points.

One of the services you pay for when you invest in a fund like Janus Mercury is management. If you don't think Lammert can do well consistently in the future, maybe your money belongs in an index fund.

But if you're impressed with what Laminert has achieved in the past, it's illogical to fire him now because you think conditions might change.

Any time you invest in an aggressive fund like Janus Mercury, it makes sense to keep a close eye on it. It also makes sense to give the fund every chance to do its stuff.

Chet Currier is a columnist for Bloomberg News.

Bargain-Minded Fund Managers Are at Risk

These are high-risk times to be a conservative mutual fund manager.

It can cost you your job, no matter how good your past record. Both George Vanderheiden of Fidelity Investments and Robert Sanborn of the Oakmark Fund have left their prominent posts since the start of 2000 in a hostile climate for so-called "value" stocks and funds that invest in them.

How hostile? Approaching the end of the first quarter of 2000, the Bloomberg average of one bargain-minded group, equity-Income funds, is up just 3 percent. In contrast, Bloomberg's average of technology stock funds shows a 30 percent gain year-to-date.

"I'm seeing net redemptions this year for the first time in my life," says Hersh Cohen, who runs the $5.4 billion Smith Barney Appreciation Fund and has been a value-seeking money manager since 1969. "People think I'm a dinosaur."

These are all veteran managers who built up noteworthy records of success by concentrating on out-of-favor or conservatively valued stocks. From 1992 to the end of 1997, for instance, Sanborn at Oakmark averaged a 27 percent annual return, trouncing the Standard & Poor's 500 Index's 18 percent.

In the late 1990s and so far in 2000, though, the only type of investment enjoying any consistent success has been Internet-related or biotechnology stocks trading on hopes for the distant future. Investors have shunned conservative investments to get in on that action.

The 59-year-old Cohen has fared quite a bit better at the Smith Barney Appreciation Fund, which gained 15 percent in 1999 and is about unchanged so far this year. The fund owns a sprinkling of computer stocks, including Intel Corp. and Microsoft Corp., while maintaining a "below average" risk rating from Morningstar.

For years now, fund investors have been debating whether value investing is dead or can revive at some point.

There's no disputing the conservative managers' basic point, that sooner or later the value of a stock is determined not by the whim of traders but the present and future earning power of the business that underlies it. "Ultimately, there has to be a connection," Cohen says.

Chet Currier