Scanning the newsrack, the magazine covers scream with confidence: The 10 Stocks to Own. The Best Investments. Where to Invest Now.

        But had you invested in those portfolios recommended for 2000 at the beginning of the year, you would have lost money. Lots of it.

        An Enquirer analysis of popular personal finance magazines shows that while some individual stock picks struck gold, others bombed. Portfolios as a whole generally finished in the red.

HOW THEY DID

If you had bought what the personal finance magazines recommended as the ŒŒhot stocks¹¹ for 2000, you would have lost money. Here¹s how each of their selected portfolios performed over the last 12 months: ŒIndividual Investor¹ magazine Loss on 100-share investment -37.69% ŒFortune¹ magazine Loss on 100-share investment -24.69% The Cincinnati Enquirer Loss on 100-share investment -21.99% ŒMoney¹ magazine Loss on 100-share investment -16.20% ŒSmartMoney¹ magazine Loss on 100-share investment -8.45% ŒMutual Funds¹ magazine Loss on 100-share investment -5.36% Standard and Poor¹s 500 Index -10.10% Enquirer 80 Index -7.23% Dow Jones Industrial Average -6.18%     Click here to see the individual portfolios.

        To be fair, 2000 was a difficult year all around, with major indexes having their worst years in two decades. And investors shouldn't altogether disregard what the magazines and their headlines scream — just read them with a more savvy, discerning eye.

        “The data shows us certain magazines outperformed others,” said Justin Carbonneau, content director at Validea.com, a Web site dedicated to rating media pundits' stock picks. “You have to drill beneath the covers.”

        Consider this sample:

        • Fortune's “Investors Guide 2000” recommended for the year 10 stocks, which averaged a 4.43 percent loss through 2000. Actually buying the 100 shares of each would have generated a $29,475 loss.

        • Individual Investor magazine's “Magic 25, Best Stocks for 2000” picks lost an average of 14.7 percent. Investing in 100 shares of each would have lost you $43,200.

        • Mutual Funds magazine's “Top 10 Funds for 2000” lost an average of 3.5 percent. Investors would have lost $2,300 had they invested in 100 shares of each, or $353 had they put an equal $1,000 in each.

        Two magazines' picks actually had average returns in positive territory. But price-weighting the returns — or figuring what their picks actually cost at the end of 1999 versus what they actually would be worth at the end of 2000, including splits and spinoffs — and you still lost money.

        Price-weighting is important, versus just averaging returns, because some stocks cost so much more. A 10 percent loss on a stock costing $100 a share far outweighs a 10 percent gain on a $10 stock. While the average of the returns would show that you broke even, you actually lost a net $9.

        • SmartMoney's “Best Investments for 2000,” a selection of 12 stocks, gained an average of 15.9 percent. But had you bought 100 shares of each stock one year ago, you would have lost $5,133.

        • Money's “The Best Investments for 2000” averaged a gain of 13.6 percent but would have generated a loss of almost $12,600 on 100 shares each.

        “It was not a good year for most of these pubs,” Mr. Carbonneau said. “But some did better than others.”
       

Individual Investor
        Editors and analysts at several of the the magazines are quick to point out that their picks' average returns still beat the Standard & Poor's 500 Index, which lost 10.1 percent during 2000. Others say they carry a different time horizon than the Enquirer analysis in judging themselves.

        Individual Investor Web site editor Luciano Siracusano says the magazine measures its 2000 return from Dec. 10, 1999, to Dec. 8, 2000. Plus, it updates its 25 picks through the year.

        “Every once in a while, a stock will blow up,” Mr. Siracusano said. “We will tell people to get out of a stock.”

        Indeed, before the end of 2000, seven of the Magic 25 were re-rated to “sells” — such as Novell, down 87 percent in 2000, and PSINet, which bought Metamor Worldwide and thus produced a 98 percent loss for 2000. Still, had investors held all 25 stocks from December to December, Individual Investor says they would average a 4.5 percent gain.

        But again, that number is the average of the individual stock's total returns, not taking into account that a big loss on a high-priced stock outweighs an equal percent gain on a lower priced stock. An investor who bought equal number of shares of each, however, would have lost 15.8 percent — or about $16,000 for 100 shares each.

        The magazine's big winners were Ivax Corp., gaining 123.1 percent, and Elan Corp., gaining 58.7 percent. Ivax, Schwab Corp. and Trimble Navigation were Magic 25 2000 picks that continue on the 2001 list.

        Still, Mr. Siracusano said his magazine is apart from others offering annual picks because it has beaten the S&P 500 each year since 1992, with an average annual return since then of 28.8 percent, twice the S&P. And the selections are diverse, balanced in high growth and value-oriented categories.

        “We try to give people a wide variety of stocks to choose from” Mr. Siracusano said, adding that the stocks are chosen by in-house analysts, contrary to his competitors. “We're not financial journalists, but people with backgrounds in the industry.”
       

SmartMoney
        On the other hand, other publications do look to outside professionals to help make their picks. SmartMoney editor Pete Finch said the magazine's in-house staff selects the stocks for its yearly “Best Investments,” published in the January issue, with the help of research firms.

        They'll use that research to pick undervalued sectors, then use a series of growth and value screens to select companies within those sectors. Then SmartMoney reporters call analysts and fund managers for further input on their selections.

        But they had a few missteps in 2000 as well — among them Novell, Health Management Associates and Computer Associates International, all of which lost about three-fourths of their value. SmartMoney's big winners included Bindley Western Industries, gaining 176 percent, and Cardinal Health, up 108 percent.

        Mr. Finch said his magazine also makes updates throughout the year, but readers following the magazine's advice should also be diligent on their own.

        “That's good advice for anybody,” he said, “You should keep up on them in as many ways as you can. We don't claim to have all of the answers.”
       

Mutual Funds magazine
        John Curran, managing editor of Mutual Funds magazine, doesn't claim to have all the answers, either. He said the top 10 funds touted each December for the following year are not necessarily the best 10 funds overall, but the best in their categories.

        “The top 10 funds are not the funds we think are going to be the 10 best funds of the year ahead,” he said. “We look for the best fund in each category. On the whole, we think this is better for investors because this encourages diversity.”

        And its fund picks did have a diverse set of total returns in 2000, ranging from a gain of 20.7 percent to a loss of of 31.8 percent. Averaging a loss of 3.5 percent, they beat the S&P 500 index losing 10.1 percent. Still, even those that lost generally outperformed their peers, Mr. Curran said.

        That's how the magazine chooses the funds it recommends, by looking at historical performance of the funds within their peer groups and how the manager has stacked up overtime. They also look at the stocks held in the fund to ensure diversification.

        Mr. Curran said readers of Mutual Funds shouldn't necessarily invest in all 10 of its picks, but they shouldn't just pick one either — at least three, again in the name of diversification.

        Mr. Curran said magazine editors do most of the selecting through outside advisers and analysts.

        “We are financial journalists,” he said. “We rely on the investment insights of professionals, retaining our discretion as experienced financial journalists to decide which investment adviser makes the strongest case and the keenest insights.”
       

Making the case
        Editors at magazines — and the experts who track them — all agreed that investors should take a similar tack when reading their publications. (Editors at Fortune and Money did not return calls from the Enquirer.)

        Validea.com's Mr. Carbonneau said readers should pay close attention to the magazine's sources. The resulting recommendation is credible if the analyst agreeing with it is, he said.

        He also strongly recommended looking at the performance of regular columns within the magazine, which can vary from the performance of the cover stories evaluated here. He pointed to the Contrarian column in Forbes and Barron's Up and Down Wall Street column as generally outperforming the rest of their own publication during 2000.

        Mr. Curran agrees that one or two stories can't be followed blindly, but he advocates that investors take in several sources in addition to his own magazine.

        “We don't think you can easily identify a single publication to believe in at the exclusion of others,” he said. “Each publication carries different financial journalists.”

        SmartMoney's Mr. Finch agreed, adding that it depends on the readers' goals and time horizon as to how skeptically or faithfully they follow the advice.

        “Readers use our stories and other people's stories in a lot of different ways,” he said.

        And Mr. Curran recommended readers follow the example of his own reporters in considering the source when choosing what advice to follow.

        “Readers should be persuaded by the argument along with the pick,” he said. “It's the strength of the argument they advance along with that recommendation.”

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