Dear Mr. Berko: Until the middle of 2006, Legg Mason's Value Fund, the Muhlenkamp Fund and Oakmark Select had all been big winners with 10-year average returns in excess of 12 percent. In the past two years, these funds have been real laggards. But what's different about there funds is that they are the only mutuals with portfolios of fewer than 40 stocks when all others have hundreds of issues in their portfolios. So, I'm thinking of investing $10,000 in each and request your analysis of them. Should I buy them now, should I buy a small piece of each now and more at later intervals, or should I decline to invest in one or any of them? I expect to hold each fund for at least six to 10 years. I've had good success in the past buying stocks that have been beaten down and holding them long-term till they move back up. But I've never done it with funds. Have they reached bottom or do you think it will take more time before they go back up? — E.B., Fort Walton Beach, Fla.

Dear E.B.: I'm familiar with Isaac Newton's observations in his "Philosophiae Naturalis Principia Mathematica" saying anything that goes up must come down. But I'm more concerned with Sean Murphy's law and its relationship to Newton's law: "When something comes down, it won't come down where you expect unless you don't expect it to, then, at that point, it will." Albert Einstein addressed the phenomena in his discussions of quantum mechanics.

Bill Miller runs Legg Mason's Value Trust Inc., which is down 31 percent this year. I don't know how much more it will fall. Miller reduced his portfolio from 48 to 31 positions to raise cash for ongoing redemptions. Legg Mason Value Trust (LMVTX-$40.86) has bettered the S&P 500 for 15 consecutive years. But this year positions in United Health Services, Freddie Mac, Citigroup, Merrill Lynch, American international Group, Expedia and Quest, all down more than 40 percent, seem to have done him in. His other positions look like who's who on the Blue Chip Index (Amazon, JP Morgan, Aetna, eBay, Sears, GE, IBM, Time Warner, Cisco, Texas Instruments, etc) are no-brainers and will run back up only when the economy turns around. But, according to Murphy, that will happen when it is least expected to. So nibble now. It is a no-load fund and the minimum investment is $1,000.

The Muhlenkamp Fund (MUHLX-$52.76), off 26 percent this year and 10 percent in 2007. Run by Ron Muhlenkamp, it has 40 positions and an average annual portfolio turnover of just 22 percent. During the last 19 years, this large-cap value fund has had four down years. Muhlenkamp positions investments in housing stocks, United Health Services and American International Group really bombed this year. So he's recently added Chevron, Boeing, Caterpillar Tractor and Exxon to his group, plus a sprinkling of tech issues, all of which he believes will rebound soon. However, Muhlenkamp has put his money where his mouth is with $10 million of his personal cash. This fund will head back up only when there's a strong turnaround in the manufacturing sector. I don't see that happening for at least 12 to16 months. MUHLX is no-load and the minimum investment is $1,500. Some would advise waiting until January to begin taking a position. But Murphy suggests that whenever you buy a fund could be the wrong time and I think I agree with Sean.

Bill Nygren's Oakmark Fund (OAKLX-$23.42) owns only 20 issues so each position really counts. Nygren got scorched in Pulte Homes, Washington Mutual and Discovery Holdings, earning a minus-24 percent return for the last 12 months. But this year has been boosted by his canny positions in YUM Brands, McDonalds, Western Union and H&R Block. This no-load fund has a 10-percent portfolio turnover and since inception in 1998 has only had two down years. I like OAKLX and I'm impressed that Nygren has a large personal cash position in his fund. His large investment in media stocks and consumer services might give the portfolio a boost this year and next. In this instance I believe the apple fell kind of close to the tree. so I would be comfortable owning shares of OAKLX right now.

However you have failed to consider the Fairholme Fund (FAIRX -$31.40). Even though it's headquartered in Miami, this is one fund I would not bet against. The manager, Messrs Berkowitz, Pitkowsky and Trauner, managers of this 22 stock portfolio fund have handily bested the DOW and S&P since its inception in late 1999. While FAIRX may lag the market in volatile climates its minus 5.2 percent return vs. the S&P's minus 13.5 percent (2008) is indicative of its of its superb performance in a Bear market. FAIRX has a 28 percent representation in financial stocks but you won't find mainstream issues like Fannie Mae, Lehman, AIG or Citigroup. FAIRX uses the Buffet philosophy to select stocks (strong cash flow, solid assets and superior management) and its portfolio is 25 percent cash. Even though FAIRX hasn't crashed like MUHLX, LMUTX and OAKLX I'd own this Miami, Florida no-load fund in a heart beat and forget about the other three. It seems that the laws of Mr. Newton and Mr. Murphy are applicable here.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@comcast.net. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

COPYRIGHT 2008 CREATORS SYNDICATE, INC.

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