Merely picking stocks won't cut it as an investment strategy, money manager says.

Merely picking stocks won't cut it as an investment strategy, money manager says

Managing $2.5 billion and hawking a book on investing is James Owen, partner at downtown Los Angeles-based NWQ Inc., an 8-year-old money management shop.

To manage more than $1 billion is the goal of many money managers; to reach the level of $2.5 billion in less than a decade is a rare achievement.

Not overpromising is a key to his success, says Owen. "I tell clients I can achieve 15 percent annual returns. Then I hit my targets. Word gets around," he says.

Local clients include grocery-store chain Vons, the Motion Picture Industry pension fund, the Directors Guild and the Irvine Health Foundation.

After 22 years in the business, Owen has penned a book "The Prudent Investor," by Probus Publishing, in which he advises pension fund trustees, foundations and wealthy individuals how to select money managers and what to expect.

A big lesson: Most of a portfolio's return depends upon asset allocation, not stock or bond selection. Therefore, the most important decision an investor, or trustee, can make is how to allocate a portfolio among stocks, bonds, real estate, and foreign investments. "Only about 7 percent of a portfolio's return reflects stock selection," says Owen. The rest is determined by the general direction of the market.

Another big lesson (for trustees): Hire an independent consultant to help evaluate money managers. Most money managers will present a blizzard of professionally prepared reports, in which they always look fine. Trustees need to hire an outside consultant to rank and rate money managers on the basis of objective criteria, says Owen.

In parting, Owen quotes comic Marty Allen: "A study of economics usually reveals that the best time to buy anything is last year."

PHOTO : Owen: He wrote the book on money managing