At the end of the June reporting period, smart money man Warren Buffett sold a portfolio of long-term US government bonds worth more than $9 billion (not million), just before mortgage market interest rates jumped about a percentage point. Buffett, of course, made a substantial profit on the Berkshire Hathaway (BRK/A:NYSE) bond positions nicely pushing up second quarter results.

BRK's sale is small potatoes compared to the Liquid Treasury market with the US government selling $60 billion in new bonds just in the last few weeks. Considered one of the greatest investors of all time, Mr. Buffett's moves are closely followed and his liquidation of a large bond position may be interpreted as a bias towards owning stocks. BRK very seldom buys individual shares these days, preferring instead to purchase the entire company. You may have read of the share value controversy involving major shareholders Orbis Asset Management and others over BRK's impending purchase of Clayton Homes Inc. While the small investor cannot trade on a Warren Buffett level, he/she may consider buying stocks again, but what stocks may be favoured and why?

Select blue chip value stocks are now receiving a second look - those that pay dividends and are cheap relative to their own history. Paying, as well as increasing a dividend sends a very positive message to investors, particularly if the company has significant free cash flow.

Interestingly, Berkshire Hathaway has never paid dividends, but with an overall gain in more than 30 years in excess of 214,000 percent (yes, that is correct) BRK shareholders are not complaining. See Warren Buffett's 2002 shareholder letter at: www.berkshirehathaway.com/letters/2002.html.

It's not poker yet.

A fundamental principle of success in poker (and investing) is the proverbial adage, "know when to hold, and when to fold." Geraldine Weiss, founder of Investment Quality Trends (IQT) has been practicing this simple message successfully for more than 35 years.

Co-Author of "Dividends Don't Lie", she has received much media attention of late and was recently a guest on Louis Rukeyser's Wall Street Week. Investment Quality Trends is the number one performing investment letter on a risk-adjusted basis over the last 15 years, with a total return exceeding 12 percent on average per year.

IQT's secret is in its proprietary strategy of selecting high yielding dividend stocks. Since its founding in 1966, IQT (www.iqtrends.com) has been providing timely insightful investment information to US and global banks, insurance companies, mutual funds, brokerage houses and the serious investor who is interested in a long-term portfolio return made up not only of increases in capital, but also stable dividend income.

UnderValue-Overvalue Concept

Ms Weiss discovered during many years of analytical observations that when she factored and monitored in all company data (see below), the underlying value of dividends, which determine yield, will in the long run also determine the price of that stock.

The key to value, therefore, lies in yield as reflected by the dividend trend. Individual stock prices fluctuate between repetitive extremes of high dividend yield and low dividend yield. A decline in stock price tends to generate a high dividend yield - these stocks are an undervalue and a buy consideration.

Conversely, if dividend yield on the stock has been historically low, and price has risen to historic highs, the upside potential is exhausted and a sale should be implemented before the price declines back to Undervalue and the profits are lost. These recurring extremes of yield establish undervalue and overvalue price levels.

How does one find common stocks to build a portfolio using this method? We start with select blue chips - Ms Weiss tracks 350 that meet the following criteria:

The dividend has been raised five times in the last twelve years;

it carries a Standard & Poor's Quality ranking in the "A" category;

it has at least five million shares outstanding;

at least 80 institutional investors must hold the stock;

there have been at least 25 years of uninterrupted dividends;

the earnings have improved in at least seven of the last 12 years.

Each stock's distinctive high and low yield characteristics are evaluated on an individual basis, with a Dividend in Danger flag raised when it is close to a sell position. These other indicators are also calculated in the IQT tables.

Payout ratio, P/E ratio, Debt & Book Value.

For instance, here is their commentary on McDonalds' Corp(MCD) as of April 2003:

"At a recent price of $15, Mcdonalds is undervalued (buy) with a 4 percent downside risk to its undervalue price of $14, high dividend yield of 1.6 percent. From current levels, there is approximate 207 percent upside potential to an overvalue price of $46, low yield of 0.5 percent (sell). Just as McDonald's did not acquire its problems overnight, we also do not expect a recovery overnight. It is a known fact that McDonalds concept has proven itself as one of the most profitable and sustainable businesses in the last half-century. Investors should find ample opportunity to acquire this burger behemoth at exceptional prices." On Friday, August 8, 2003, McDonalds share price was $23.89.

Ms. Weiss and IQT have a stellar reputation. Her newsletter is not free ($265 for 24 issues per year, $115 for four quarterly issues per year and a four-month trial issue for $45). If you want to follow the track record of a US capital market innovator and trailblazer for 37 years, it is a very fair price.

Consider in relative terms, if you purchased $10,000 worth of Class A or Class B share mutual funds, it will cost you about $500 in a sales commission (upfront or deferred, but it will cost). With that type of purchase, you may only receive an hour's worth of advice. So there you have it, you can do-it-yourself or hire the expert. It really depends upon what you want.