How the pros invest their money.

B.E.'s Wall Street sages offer stock and mutual fund tips, hints and picks year-round. Now let's peek into their private portfolios.

WHENEVER A FINANCIAL PUNDIT dispenses stock tips or holds forth on mutual funds and bonds, some investors sprint for their checkbooks as if they were suddenly blessed with divine inspiration. Others curse, cringe and contemplate revenge by calling the SEC or FBI to report the pesky brokers for harassment.

Sage or swami, oracle or opportunist, you certainly must wonder what's in their own investment portfolios as you wade through the pages of personal finance magazines, separating the hucksters from the true seers.

Rest assured, there are some experts who put their money where their recommendations are. We are fortunate enough to feature five of them from interviews conducted in late January. But before peering into their secret caches, let's define the market our experts play in.

1994 was such a horrible year that investors almost resorted to aiming slingshots at their brokers. Why? The New York Stock Exchange slumped 3.14%, NASDAQ dropped 3.20% and AMEX fell 9.1%. Experts say it was the worst bond market in 60 years, the U.S. dollar was battered and the Federal Reserve raised interest rates a record seven times last year.

Portfolio diversification did little to ward off mutual fund losses. Domestic stock funds lost 1.67%, taxable bond funds fell 3.28% and global bond funds slumped 6.45%, according to Lipper Analytical Services.

Fortunately, the outlook for 1995 has some bright spots. Wall Street is charting the trend of investors moving from the individual stock market toward bonds, equity mutual funds and conservative fixed-income instruments. Predictions about this year's thriving industries include chemicals, computers, semiconductors and steel. The losers may be banking, defense, pharmaceuticals, utilities and, of course, the securities industry will once again suffer. Even though investment specialists may be facing leaner paychecks, let's see how they cushion their own portfolios in this daunting bear market.

NEW MANAGER ON THE BLOCK

Ron Scott Nubian Asset Management Inc.

"What's going to be my problem today?" muses Ron Scott, early each morning as he steps onto his 33rd-floor midtown Manhattan apartment balcony.

Building his one-and-a-half-year-old firm has been an uphill battle. Dubbed Nubian Asset Management, the firm is vying to mimic the commercial success of its namesake, that ancient nation in northeast Africa.

Avoiding the safe harbors, Scott's personal portfolio does not contain any mutual funds or bonds. He also manages his own account. "I pick stocks for my clients. Why would I need a portfolio manager who I don't know choosing stocks for me?" Scott asks.

His client list comprises 48 investors, with under $50 million in managed assets. The 1 1 -year investment veteran says he personally buys every stock that he recommends to his clients.

Scott, 30, was formerly a managing director at Ladenburg, Thalmann & Co., an 118-year-old New York investment bank icon. In 1992, Ladenburg anted up seed money to become a partner in Nubian. This arrangement allowed Scott to share Ladenburg's offices and research facilities in New York. After a little more than a year, however, policy differences between the young and aggressive broker and the old-line Ladenburg led Scott to remove his 25 core clients to his own downtown Manhattan hub. Now Scott's firm focuses upon creating an asset management practice that caters to high net worth African-Americans.

Scott concentrates on securities that are undervalued and are bought and sold at a discount relative to their growth rate. Candidates for his portfolio include stocks that Scott expects will have a total return above 40% over a two-year period.

According to Scott, his portfolio of bare-bones stocks brought in a 14.3% return last year. Times were tough but here are some of his better performing picks: Zenith Electric (NYSE symbol: ZE) leapt 66.1%; Union Carbide (NYSE symbol: UK) jumped 31.3%; and International Business Machines (NYSE symbol: IBM) went up 30.1%

Due to the severity of last year's market correction, Scott's profits were somewhat deflated. Among the losers: such major stocks as LDDS Communications (NASDAQ symbol: LDDS) down 19.4%; Grand Casinos (NYSE symbol: GND) down 41.3%; CCP Insurance (NYSE symbol: CCP) slumped 26.9%; and Bankers Life (NYSE symbol: BLH) slid 11.6%.

Future stock choices may include some aggressive growth selections like America West Airlines (AMEX symbol: AMW), Teva Pharmaceutical Industries (NASDAQ symbol: TEVIY), CellStar (NASDAQ symbol: CLST) and Conseco (NYSE symbol: CNC). Clearly a man on a mission, Scott is adamant about his basic investing rule: Never purchase stock in any company that has been discriminatory in its hiring practices or its policies toward female or minority employees, contractors or vendors.

SQUEEZING THE MOST OUT OF WALL STREET

Ann Lemon PaineWebber

Last spring, Kidder, Peabody & Co., the mortgage-backed securities giant, was reeling from scandal and millions of dollars in losses. By autumn, the firm had been taken over by PaineWebber Inc. During the corporate shakeup, an unflinching Ann Lemon just kept on picking investments that gave stable payouts for her clients. As testimony to her professionalism and prowess, she was asked to stay on and is now a vice president at PaineWebber.

From her office on New York's Park Avenue, Lemon continues servicing her 200 high net worth and institutional clients, whose portfolios range in size from $10,000 to $200 million. She spends her days eyeing analysts' reports and hunting the ticker tape for big bargains. But when it comes to her own portfolio, Lemon's strategy is simple: "Invest regularly." The dollar-cost averaging approach enables her to take advantage of opportunities when they arise.

"The market is constantly changing," Lemon says. "You can always look back and say 'I should have'. You can never look forward and know for sure what's going to happen. But if you are going to make money you have to take risks." As many stock sleuths say, the act of investing religiously helps you rake in bucks on Wall Street's ups, while maintaining sanity through the downs.

Lemon's professional specialty is planning for the future and focusing on retirement. And her sideline duties as an expert estate witness for New York City reinforces her commitment toward retirement and estate planning. For example, when the deceased's last will and testament states that the estate is to provide for one's spouse and the remainder is to be endowed to the deceased's alma mater, Lemon is frequently called in to help the law calculate what "provide" really means.

Because she is so involved with planning for the future, Lemon's personal portfolio is currently a mixed bag of mutual funds. At 43, Lemon's personal goal is to retire at 65 without a significant change in her vice-presidential lifestyle. "The hardest thing that happens to people is that they retire on a fixed income, but prices keep going up. I don't ever want to be caught in an inflationary squeeze," she declares. Here's a glance into her retirement cache.

Household names are the foundation of Lemon's portfolio. Individual stocks held by Lemon's basket of mutual funds include Microsoft (NASDAQ symbol: MSFT), up 51.6% last year; Motorola (NYSE symbol: MOT), up 25.7%; Disney (NYSE symbol: DIS), up 7.9%; and Johnson & Johnson (NYSE symbol: JNJ), up 22%. These stocks helped Lemon's portfolio command a hefty 14.4% return last year. Over the last five years, Lemon has scored a 12% return.

Currently, Lemon's looking into Hewlett, Packard (NYSE symbol: HWP), Novell (NASDAQ symbol: NOVL) and Oracle (NASDAQ symbol: ORCL).

Peeking into Lemon's mutual funds, we see the following: American Fund's Europacific Growth (up 1.12% last year; up 11.94% over three years); American Fund's New Economy (down 8.11% last year; up 12.02 over three years) and American Fund's Capital World Growth Bond Fund, (down 1.43%; up 5.07 over three years). Lemon is also pursuing the Templeton World Fund, up 1.88% (three-year return: 9.07%); Templeton Developing Markets, down 5.86% last year (three-year return: 14.23%); and Templeton Hard Currency, up 15.10% (three-year return 6.12%). Lemon likes investing with a solid family of funds that offer entrees into seductive overseas markets.

Lemon's investment style is conservative with a bit of the risky spritzed throughout. She revels in mid-cap or larger mutual funds that buy investmentgrade, tax-free or tax-deferred bonds.

Lemon warns her clients that they shouldn't necessarily follow her own cautious lead. "Goals dictate the securities; the securities don't dictate the goals," she says.

SETTING HIGH STANDARDS

James Francis Beal Investment Co.

James Francis, president and CEO of Beal Investment Co,. is planning to change the name of the six-year-old asset management firm to Paradigm Asset Management Co.

The name change is perceived by many in the industry as a bid to distance the firm from possible complicity in a sweeping FBI probe of minority-owned municipal underwriters. Bernard Beal, founder of Beal Investment, is among those targeted by the probe.

For Francis, the literal meaning of Paradigm--a role model, pattern or example--is what he wants the New York firm to exemplify. The ambition to set the standard by which all others are judged may be a lofty goal, but the impetus for choosing that name may have come from the performance of Francis personal portfolio.

An advisor to himself, Francis has a whopping 90% of his portfolio in the stock market, with the rest in cash.

His stock selections include Syntellect (NASDAQ symbol: SYNL), an interactive voice-response systems maker, whose stock skyrocketed 86.4% last year. Francis says the stock is still a bargain at the recent selling price of $7. Another pick is GrowBiz International (NASDAQ symbol: GBIZ), a value-oriented company setting up retail franchise shops to sell new and used children's products. Francis expects the stock to recover from its 40. 1% loss last year. The company's Play It Again line offers new and used sporting equipment, and the Once Upon A Child line displays new and used children's clothes.

"With two children [of my own], this is important to me," says Francis, touting an age-old investment adage of investing in what you know. With that, Francis says his holdings brought in a terrific 35% return, despite last year's market slump. Over the last five years his portfolio has generated 25% returns.

Francis digs for undervalued stocks that will "double, triple and even quadruple." However, he is not into churning his portfolio, admitting, "I want stocks that I can hold on to for the long haul." Francis has recently started looking into mutual funds offering investments in emerging markets. He is attracted to industries that should benefit from the burgeoning globalization of world economies as well as certain industries that have been undervalued and poised for recovery. Currently, Francis is assessing three top-notch fund families to see which will be the first he joins. He's weighing the Templeton Developing Markets fund, which hit investors with a negative 8.58% total return last year. His second choice, Vanguard International Equity Index Emerging Markets, invests in India, Malaysia and Singapore; it had a six-month return of 9.81%. His third pick, Advantage Special Fund, was down 4.86% last year, but its three-year tally hit 9.40% returns.

Institutional investors have been the mainstay of this firm's business, but in the future, Paradigm will be looking to become a full-service firm offering opportunities to individuals or retail clients. Currently, Paradigm's 15 clients have entrusted $500 million to Francis' management.

Francis considers himself to be a contrarian investor, with a growth approach designed to minimize downside risk while seeking aggressive long-term returns. It must be working. "I don't even open my statements," quips Francis.

PORTFOLIO PARTNERS

Glinda Bridgforth Bridgforth Financial Management Group; Marjorie Grace Grace Financial Management

For Glinda Bridgforth, president of Bridgforth Financial Management, and Marjorie Grace, president of Grace Financial Management, it's the old story of one hand washing the other. For the last four years, hundreds of salary-squandering professionals have been relying on the financial guidance and debt management services of Glinda Bridgforth. They have come to the right place since she was once one of them.

After she helps her clients dig their way out of debt and establish prudent money management practices, Bridgforth usually passes the ball to Grace. Her partner then takes them into the future with sound investment advice.

Grace's specialty is focusing on the equity market. Timing the market's ebbs and flows, Grace says her personal portfolio snagged returns varying from 8% to 25% last year. She says 1993 was one of her better years because her portfolio delivered more than 30% in total returns. "Prior to last year, my dog could have picked [winners]," jokes Grace. "The three years after Desert Storm were fantastic."

Grace's stockpile includes Mirage Resorts (NYSE symbol: MIR), down 14.1%; Robert Half International (NYSE symbol: RHI), up 82.9%; Wall Data (NASDAQ symbol: WALL), down 0.9%; Lancit (NASDAQ symbol: LNCT), down 5.4%; and Airtouch Communi-cations (NYSE symbol: ATI), up 17.1.

This year's mutual fund pickings will be slimmer, but Grace is standing by her portfolio, which is chockful of funds like FPA Capital; it had a total return of 10.37% last year and 19.28% over the last three years. Two other funds in Grace's "plus" column are Putnam New Opportunity, which inched up 3.25% in 1994 and has returned 24.21% in three years, and Templeton Foreign, which rose just 0.3% last year and offered an 11.18% three-year total return.

Grace plays the stock market according to the following mantra: "Get in. Take your profit. Get out." In other words, as she puts it, "It's all about market timing."

With 90% of her portfolio squirreled away in mutual funds and 10% backing stocks, Grace admits she will never invest in low-return U.S. savings bonds, and fears for those who use nonspecific life insurance policies as an investment vehicle. Right now, Grace is steering toward socially responsible instruments such as the Calvert and Parnassus fund families, and steering clear of ones that invest in alcohol, tobacco, gambling or nuclear power companies. In addition, the funds she favors cater to firms with strong environmental ties, like recycling programs.

Currently, Grace is looking at Lancit Corp. (NASDAQ symbol: LNCT). "It's sitting on $11 million in assets, has no debt and already has millions in vendor commitments," she comments.

Since this working wife and mother is raising a two-year-old, she swears her money won't go into anything exploitative."

Even though her personal style displays a high level of risk, Grace advises her clients according to their own individual goals and risk tolerance. As a matter of fact, she even advises her partner, Bridgforth, who is much more conservative with her investment dollars.

About 10 years ago, Bridgforth was managing $90 million in assets as a branch manager of a Wells Fargo bank in Alameda, Calif. Sudden attrition by key employees caught her by surprise. Overwhelmed by the extra work and spending money recklessly, she left her job and tried to survive on a smaller income comprised of disability payments and a shrinking savings account. Getting her own act together inspired Bridgforth to create her own financial counseling practice.

Now Bridgforth plays it safe. Her portfolio sports 80% in mutual funds and 20% in a money market fund. A fan of dollar-cost averaging, her monthly deposits are going into the Putnam Fund Growth & Income, which last year reported a -0.3% total return. But the fund delivered a respectable 8.5% total return on investment over the last three years.

Understandably wary about risky investments, the 42-year-old Bridgforth has no qualms about going outside of her debt-management specialty and seeking long-term fiscal guidance. "It's important to move ego out of the way and go out to get help, especially regarding your savings plan," she says. "The future is all you have."

IN HIS OWN BACKYARD

John Rogers Ariel Capital Management

John Rogers, president of Ariel Capital Management, likes to keep his money close to home. So when he fishes for investment vehicles, his favorite place to look is not necessarily in a stock or mutual fund but in the city he calls home, Chicago.

Rogers likes to invest in "my own backyard." That 228-square-mile yard includes investments in First Chicago (NYSE symbol: FNB), McDonald's Corp. (NYSE symbol: MCD) and Aon Corp. (NYSE symbol: AOC). Last year, First Chicago gained 10.4% and McDonald's total return equaled 2.6%. Meanwhile, Aon lost 0.8% and Morrison Knudsen (NYSE symbol: MRN), the exception to his "backyard" rule, lost the most--49.3%.

Rogers, who "almost never sells a stock," won't invest in the airline industry, but everything else on the major stock exchanges is fair game. But stocks take up just 10% of his investment portfolio. For now, Rogers places 90% of his investment dollars into mutual funds.

However, the base requirement before other fund managers get his check is a proven track record. Furthermore, Rogers insists that "there has to be a name [he knows] on the door." So, hobnobbing with top fund managers gives Rogers (and his 40 institutional clients) a personal edge. Last year, his personal portfolio's return hit 12%.

Rogers' 12-year-old asset management firm has $1.8 billion under management and an additional two mutual funds of his own design. And Rogers is looking to start a fixed-income fund. Last year, Ariel Capital took control of the Ariel Growth fund from Calvert Securities for $3.1 million (see Moneywise, February 1995). "It was tough to buy them out," he reflects. But now, with its no-load status, things may turn around for the fund whose 1994 return was down 4.22%. Rogers' money is also tucked away in a few other fund tills: the Yacktman Fund, which commanded an 8.80% return; and Longleaf Partners, which offered 8.96%.

However, his other picks, Acorn International and Strong Common Stock, lost 3.80% and 0.50%, respectively.

Although the investment marketplace blew off many Wall Street watchers, a self-proclaimed "patient investor," Rogers expects to come out ahead by continuing to invest in the Windy City.