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In investment game, learn how to play out your hand

A skillful mutual fund investor, like a good poker player, has to know when to hold 'em and when to fold 'em. There's nothing worse for an investor's self-confidence or bankroll than getting into a fund just before the price plunges or getting out of a fund just before the price takes off.

Yet it happens all the time _ so often, in fact, that many investors feel that they are their own jinx. "The minute I put money into a fund, it goes down" is a complaint one hears frequently from investors.

Bad planning, not bad luck, is more to blame, investment experts say. When investors get burned on timing, it is usually because they have not decided whether they want to be long-term investors or in-and-outers looking for quick profits. Worse yet, they often try to apply short-term investing techniques to long-term funds and vice versa.

The most important thing for an investor is to "decide ahead of time what you want to do _ and stick with it," said Michael Hines, senior vice president for marketing at Fidelity Investments in Boston.

Although long-term investing is the basic credo at Fidelity, Hines said he has no objection to a short-term investor buying a single-industry fund and selling it when it goes up 30 percent or down 15 percent. On the other hand, he said, investors putting money into a fund to be used to pay college tuition in 10 years should vow "not .


. to sell it until the kid goes to college."

Without such forethought, investors frequently make costly errors of timing.

One investor bought shares in the Fidelity Select Savings & Loan Fund in 1989, shortly before the fund began a 38 percent decline that started at the end of 1989 and lasted through 1990. With the fund falling and thrift disasters all around, our hapless investor decided to flee and moved what was left of his money elsewhere.

It is now clear that he left too soon. In 1991, the Savings & Loan Fund came roaring back. It rose 64.6 percent, as interest rates fell and thrift industry profits began to improve. Then, in the first half of this year, the fund gained 29.3 percent.

"Normal mortals do things at the wrong time," observed veteran investor Jay Schabacker, editor of the Mutual Fund Investing newsletter in Potomac, Md.

Even so, the intriguing question is: What ideas or information would have prevented the investor from making his ill-timed move out of the S


L fund? The answers would apply to many other single-industry or specialized funds.

There were, perhaps, two considerations that might have kept our investor in the fund, although few U.S. industries have suffered through the financial ruin and despair that overtook the thrift industry in the mid-1980s.

First, there was the question of what would happen in the thrift industry. It was in deep trouble, but was the industry going to die? No, even in the midst of a $500-billion bailout, it was likely that strong thrifts would survive _ and their stocks eventually would recover. Admittedly, on this kind of question, an investor is going to have to do some homework.

Second, our investor overlooked the fact that the S


L fund is run by a professional money manager, whose reputation was at stake and whose own money, in this case, was invested in the fund.

While that is not unusual, it meant there was at least a reasonable chance that the fund manager, with his intense focus on the thrift industry, would be able to find enough bargain stocks to restore his fund to health.

Finding out the track record of a fund manager takes some homework, too, but an experienced manager in a situation like this should have enough savvy to use the downturn as an opportunity to pick up the stocks that will make the fund a winner again when the industry turns around.

The S


L fund experience has been repeated time and again as hot funds have cooled off and then come back to life, only to cool again.

Riding these cycles of investor sentiment have been science and technology funds, junk bond funds, international funds, small company funds and even gold funds. Although most sectors come back, investors sometimes have to wait a long time.

Investment experts generally agree that the best way to minimize the risks of getting in or out of a fund at the wrong time is invest for the long term _ at least five years or longer _ and to pick a broad-based stock fund. Time tends to smooth out the peaks and valleys of the financial markets.

"The long trend of the market is up," said Maria Scott, editor of the AAII Journal, published by the American Association of Individual Investors, which favors long-term investments.

Newsletter editor Schabacker said investors should not only invest for the long term, but diversify their holdings by putting part of their savings in stocks and part in bonds. Within those categories, he said, the investor should own foreign stock and bond funds.

"Diversification lowers your risk and won't hurt your returns" over the long term, Schabacker said. It also helps an investor learn how to ride out the changing business and economic cycles by giving the individual experience with a broad range of fund types, he said.