Over the years, I have written and had published any amount of inflammatory material, without few commenting, for or against. Now, a brief mention of mutual funds has kicked off the beginnings of what looks like being a firestorm. All I said was that I thought mutual funds are a good idea.

Two readers? letters on the subject should be brought to your immediate attention.

The first is an extract from an article entitled ?Does Having A Harvard MBA Make Someone A Better Stock Picker?? published by TradingMarkets Research: ?We?re now two weeks into the TradingMarkets/Playboy 2006 stock-picking contest and four of the 10 Playboy models are beating 11,705 out of the 11,739 equity mutual fund managers in the United States. Yes, that?s right, four of the Playboy models would be ranked in the top one percent of all mutual fund managers if Morningstar tracked their performance!

Here are the highlights of the contest so far:

?1. Nine of the 10 contestants are beating the S&P 500.

?2. The average performance of all ten models is plus 6.45 percent, more than double the S&P 500.

?3. Half of the contestants are beating the S&P 500 by a two-to-one margin.

?4. Morningstar lists 11,739 US stock funds. The average return to date is 3.50 percent, well below the average return of the Playboy contestants. Only 12 funds out of 11,739 funds are outperforming our contest leader Christine Smith (who is plus10.05 percent), and our four best-performing contestants rank in the top 34.

?5. One of the top performing stocks this year is WebMD. This was one of Pilar Lastra?s top picks. She chose it because she?s a ?hypochondriac? (her words, not ours), and it?s one of her favourite sites. Her reasoning for selecting the stock is obviously as good as ? ok, better than the thousands of money managers who rely upon PE ratios, cash flow projections, and all the dozens of other financial tools which have absolutely no statistical validity to prove they can beat the market averages (or the Playboy models!).

?So what does all of this tell us? Well, obviously Harvard wouldn?t agree, but it clearly says you don?t need an Ivy League MBA to pick great stocks. Famed money manager Peter Lynch, who successfully ran Fidelity Magellan?s Fund for years, used to preach buying companies that you know. And that?s what our smart contestants have done ? they have selected companies they know. And two weeks into the contest, this strategy has proven to be the best buy-and-hold strategy of the year. We?ll see what the rest of the year brings ? but we expect more brains to go along with the beauty.?

(You can keep updated on the TradingMarkets/Playboy 2006 Stock Picking Contest at www.TradingMarkets.com.) What that proves is that over the short-term, anyone can pick a winning stock, or for that matter a losing stock.

Would I invest my money on the whims of a woman so low in self-esteem that she parades around naked for the punters? I would ? but only if she could show five or ten years of solid market performance. By year?s end, these bunnies will have dropped down the rankings, and over any five-year period, the chances are that they would all lose their shirts, or perhaps more appropriately, their cottontails.

Picking stocks on paper is one thing. Investing is another. The second, more technical letter came from a reader who wrote to the Editor as follows: ?Coincidentally, The Economist?s edition of the same date as Mr. Crombie?s article (on mutual funds) notes that only 55 percent of large cap mutual funds beat the S&P (index average) last year. A mere 24 percent of mid-cap funds beat the S&P mid-cap index and only 40 percent of small cap funds beat the corresponding S&P index.

?This is embarrassing performance in exchange for two to five percent plus management fees.

?All the energy (Mr. Crombie) recommend(s) being spent on fund selection is mis-spent. Better, investors should be careful researchers and selectors of industry sectors (tech, mining, consumer goods, manufacturing, pharmaceuticals, banking, etc) and asset classes (energy, bonds, real estate, equities, precious metals, commodities, currencies, etc) and invest in their corresponding indexes or ETFs, in combination with investment in broad indeces like those mentioned above.

Careful investment in ascendant sectors and classes increases potential returns by an order of magnitude, doing so through ETFs and indexes dramatically reduces risk and cost.

?Preferred stores of wealth (asset classes) rise, fall and rotate throughout history. It is a mutual fund lie that the market ?always goes up?. Astute investors know that history doesn?t repeat itself, but it rhymes. Figuring out which stanza we?re in can be a lucrative pastime.?

I don?t have much to argue with there. The writer and I are in agreement that you should research as much as possible before committing your money. All we differ on is the direction in which your research should go. Frankly, if you do the research, I don?t care in which direction you search. The writer is correct about asset classes and the lie that the market ?always goes up?.

There is great truth in this letter?s suggestion that you should tailor your research to fit your needs, and a lesser truth in the notion of the first article, that anyone can be a winner.

Your money is a serious business, and if you accumulate some, you should treat it with all the respect you can muster, and absolutely no emotional input whatsoever. The moment emotion interferes, you will almost certainly lose.

I stick to my original advice: when you have some money to invest, look at alternatives, look at your needs and your plans and dreams, and then research the decision into the ground. Then be prepared for the roller coaster that is investing. Oh, and don?t marry a Playboy girl, because as you will have heard, a fool and his bunny are soon parted.

crombie@northrock.bm