Investment Derby

Here's the first update on the stock picks our experts made, plus an introduction to the three physicians we've chosen to go head-to-head with the pros.

By Leslie Kane
Senior Editor

The investing pain we've suffered for three years seems to have eased recently, as the Standard & Poor's 500 Stock Index rose 7.6 percent from February through April.

Two of the three stock portfolios we began following on Feb. 3 did even better.

We'd challenged three financial pros to a year-long "race," tracking their model portfolios for a $100,000 investment. Now, at the quarter pole, Joe Duarte, a physician turned investment pro, is in the lead. His portfolio rose an impressive 15.0 percent. Eight of his 10 holdings had positive returns, and one of his choices, Business Objects, had the highest growth for this period—a three-month total return of 35.4 percent.

Michael Goldston's selections are a length or so behind, up 10.1 percent. One of his choices, Gilead Sciences, was the next highest performer, with an increase of 32.2 percent. Ram Kolluri's portfolio, which contains 45 stocks, is still in the race at a positive 6.9 percent, but missed the market return. Still, with an eye toward minimizing risk, his results were respectable. And one of his picks, CH Robinson Worldwide, rose 31.6 percent, making it the third highest performing stock. Three months is an extremely short term; both the market and our three portfolios could wind up very differently in our update after another quarter.

When we introduced the Derby in our April 25 issue, we challenged readers to see if they could beat the pros. More than two dozen physicians sent in their model $100,000 portfolio by the May 9 deadline. As promised, we chose three at random. You'll meet them and get a look at their stock picks below.

We'll follow all six portfolios—the docs' and the pros'—and update them next in our Oct. 24 issue. Now, here's a look at how the pros' picks did, and their explanations for the results they got.

Joe Duarte, MD

River Willow Capital Management • Dallas, TX

What happened?

"I was fortunate to catch the beginning of an upsurge in biotech and technology, and weighted the portfolio slightly in that area," says Duarte.

"I picked stocks that looked like they had relative strength, meaning that they had bottomed or were starting to move higher, before the market turned around. I also picked what I thought were the strongest stocks in the strongest sectors," says Duarte.

"Strength in a weak market usually turns into greater strength in a strong market, which is what I'm anticipating," Duarte adds.

Michael Goldston

Cambridge Equity Advisors • Brentwood, TN

What happened?

"My portfolio performed up to my expectations in a very volatile market that likely signalled the end of the bear market," says Goldston. "My strategy is to outperform the market over time, without taking undue risk.

"This portfolio had no exposure to small-cap stocks and their volatility, although I did include some low-priced mid-cap companies that used to be larger companies. Assets were split among several different industries, to spread the risk. So, I was able to beat the S & P 500 Stock Index without being too aggressive," says Goldston.

"I also had no turnover, so no transaction charges were incurred and there were no tax implications," he adds.

Ram Kolluri

GlobalValue Investors • Princeton, NJ, and New York City

What happened?

"The market got a large influx of cash, which ignited a market rally," says Kolluri. "As investors began putting money back into the market, this fueled large gains. The market moved up sharply from its bottom in anticipation of an upturn in the economy and a resumption of technology investment.

"More aggressive equities, such as those in the Internet software and services sector, came back into favor," Kolluri adds. "Yet, we still prefer to be somewhat conservative, waiting to see how the economic picture unfolds while holding a diverse portfolio of companies with strong underlying businesses that will grow consistently over the longer term.

"We feel that our broad diversity also helps insulate investors somewhat against erratic and volatile market movements," Kolluri says. "We're happy with our performance, given the conservative cash position and the characteristics of our holdings."

Meet the physicians

Of the more than two dozen physicians who answered our challenge to enter their own "horse" in the race, we picked three whose portfolios we'll track right alongside those of the investment pros. They're a diverse lot, but all have a keen interest in investing.

Warren B. Shaffer, a family physician, has been working in an urgent care center since he started practicing about five years ago. He's currently in the process of opening his own family medicine center. "I became interested in investing because I was thinking ahead to retirement," says Shaffer. "I recognized that now is the time to start preparing financially."

Rajendra R. Shroff, an internist, has had a solo practice for 19 years, and has been investing since he started residency. "I spend from seven to 10 hours a week on investment-related business," he says. "Initially, I invested only in mutual funds; then I started focusing on individual stocks. I enjoy researching companies."

Michelle Taube, a family physician in a 70-doctor group, has been practicing for 13 years. She and her husband, Dave, share an interest in investing. Together, they make stock selections to add to their portfolio. "I recognize that investments play an important role in our future security," says Taube. "I look for a diversity of holdings that will increase our net worth and withstand market bumps."

Our doctor investors gave us their stock picks selected as of April 30, 2003. We'll track and update the portfolios over the coming months; you can compare the physicians' portfolio returns to those of our investment pros. The rules for our physician investors are the same as those for the professionals.

Warren B. Shaffer, MD

Family Practice • Alexandria, VA

Rajendra R. Shroff, MD

Internal Medicine • Centralia, IL

Michelle Taube, MD

Family Practice • Eugene, OR

Leslie Kane. Investment Derby.

Medical Economics

Jul. 25, 2003;80:48.