Stay on the course, top fund managers suggest

USA Today

NEW YORK — More than 99 percent of all stock funds lost money in the third quarter, Lipper says. Even the pros who haven't lost a penny the past 11 years are finding it tough to make money in this nasty bear market.

So what do you do now? Dump your dogs? Stay the course? Buy more shares?

To answer those questions, USA Today tracked down three fund managers facing their first losing year since 1990.

• Jerry Palmieri, manager, Franklin Growth:

The 73-year-old Palmieri is no stranger to bear markets. He survived the 1973-74 bear, the 1987 crash and the meltdown of 1998. He says the market will survive this bear, too.

It's too late to play defense, abandon stocks or hide in cash, he says. "Now is the time to get more aggressive," Palmieri says.

The once-cautious fund manager, who at the height of the bull market had 32 percent of the fund's assets in cash, has been buying stocks on dips for the past year. New buys include: PC maker Gateway, motorcycle king Harley-Davidson and cell phone giant Nokia. His current cash position is just 8 percent of assets.

While he admits he got back into tech stocks too early, he says many stocks have come down far enough and offer good value. "Price levels are good," he says.

The biggest risk, he says, is not the economy, but the uncertainty surrounding America's war on terrorism. "Keep the faith," he says.

• Duncan Richardson, Eaton Vance Tax-Managed Growth:

"This is absolutely the wrong time to give up on the equity market," Richardson says.

He says the terrorist acts on Sept. 11 will actually hasten the end of the bear market. Stocks will get a boost from lower interest rates, massive government spending and tax cuts, he says.

Now is the perfect time for investors to be dollar-cost averaging — a strategy in which you invest a set amount of money each month in stock funds. "You're buying shares at lower prices," he says.

• James Gibboney, Huntington Growth:

Don't do anything rash just because of one bad quarter, Gibboney says. "Any action you take will be based on emotions, not rational thinking."

But Gibboney says investors with free cash should be buyers, not sellers. His advice: Stick with quality companies with top-flight managers that will benefit most from an economic rebound. Gibboney's favorites: media companies and automakers.