How much to put in stocks? Try zero.

When Robert Shiller, a Yale economist and bestselling author, told a crowd of finance professors and economics students last spring that only 10 percent of his money was invested in stocks, they gasped.

Managers might suggest anywhere from 50 to 90 percent. But 10 percent? This was heresy.

How about 0 percent?

That's the share that investors should plow into domestic stocks, according to Ben Inker, director of asset allocation for Grantham, Mayo, and Van Otterloo & Co. (GMO), a money-management firm with some $85 billion in assets.

Welcome to a contrarian view of today's equity markets. A small but vocal band of heretics is calling into question not only the profit potential of stocks but also the foundation for conventional wisdom about investing. Even for those who disagree with them, their arguments serve as a reality check for the market.

Are conventional portfolios really as safe as experts say?

"Don't be surprised that the Wall Street brokerage firms spend most of their time telling you that stocks are cheap," warns Mr. Inker. "Wall Street likes the market. It likes trading. Wall Street makes a lot more money off of trading stocks than trading bonds."

The trick is to determine your portfolio's exposure to risk, analysts say. And that depends - to a surprisingly large degree - on how diversified it is and how long you're prepared to stay the course. These are key elements of "modern portfolio theory," which came into being in the 1950s and eventually won its creator, Harry Markowitz, a Nobel Prize.

Essentially, portfolio theory holds that investors reap the greatest return with the least risk when they allocate their money among diverse classes of assets, hold them for the long term, and rebalance the portfolio when the various classes of assets stray too far from their original allocation.

To make it work, you need to own asset classes that don't move in lock step, make accurate estimates of their future returns, and use a very long time horizon. A miscalculation in even one of these steps, however, can seriously hurt the prospects for reaching your ultimate goal.

"The long-term nature is the driving force of the portfolio," says Jerry Korabik, vice president of Ibbotson Associates, a Chicago-based asset allocation adviser. "All of our clients are institutions, and we develop portfolios with 10-, 20-, even 30-year time horizons."

Thus, investors should never try to get in and out of the market at specific times, the theory holds. Instead, they should ride the inevitable ebb and flow of prices. If they have allocated their money correctly, some portion of their portfolio will almost always be making money. By rebalancing their portfolios periodically - selling off some of the winning asset classes and buying more of the losers - they are continually buying low and selling high, at least in a relative sense.

This buy-and-hold strategy has won over hordes of investors. The average Fidelity retirement account has nearly 60 percent of its money in stocks, a recent study found. The overall average for retirement accounts: 61 percent, according to the Employee Benefit Research Institute. Even equity allocations for college and university endowments hover around 57.1 percent, says the National Association of College and University Business Officers.

The problem is that investors sometimes have to be extraordinarily patient for the strategy to pay off. In 1981, for example, the S&P 500 Index stood at the same level it first achieved in 1965. Today, the index is about 30 percent lower than its peak in 2000. Do investors really have to put up with such long periods of losses?

No, say a small contingent of money managers. By avoiding the stock market as their primary engine for profit during the past five years, several of these managers have posted good returns.

Take the Permanent Portfolio Fund. Unlike many balanced funds, which diversify primarily between stocks and bonds, it encompasses a much wider variety of assets: 20 percent gold bullion and coins, 5 percent silver bullion and coins, 10 percent Swiss franc denominated assets (typically Swiss government bonds), 15 percent US and foreign real estate and natural-resource company stocks, 15 percent aggressive-growth stocks, and 35 percent in dollar assets (Treasury securities in varying maturities and also short-term, high-grade bonds).

Over the past five years, while the S&P 500 has slipped backward, the Permanent Portfolio Fund has averaged a startling 10.1 percent growth per year.

"We don't correlate to any index because we own different assets," says the fund's manager, Michael Cuggino. "In markets where stocks and equities are going sideways or down, we perform very well because our diversification is much broader. If equities go gangbusters like in the '90s, clearly we are going to underperform because we won't be totally in stocks."

Indeed, the fund lagged significantly during the boom years of the 1990s, causing average annual returns for the decade to trail the S&P 500 by four percentage points.

Investment giant PIMCO also holds a strikingly low stock allocation in its All Asset Fund. With an equity allocation of just 24 percent, the fund reflects PIMCO's outlook of poor future returns for stocks. When stocks sell at bargain prices, the fund can hold up to half of its assets in equities.

"Most conventional asset classes [such as stocks] are stuck in a low forward-return environment brought to us by the fact that they've had such great prior returns," says Brent Harris, chairman of PIMCO Funds.

The outlook for stocks doesn't look good to GMO either. It projects a negative return for US stocks over the next seven years.

"A rational investor figures out how little they are willing to have in US equities and goes there," says Inker, who is not recommending any US stocks. "As an individual, zero is a good number. In accounts where we are allowed to go short [and sell stocks not already owned], we are short. We have a negative weight on US stocks."

Eventually, stock and bond markets do recover.

"It seems to take asset classes, on average, a little over six years between times they hit fair value," says Inker, who uses a seven-year time frame. In other words, when a market crosses below fair value, it takes about six years for it to return to the norm. The same delay holds true when it crosses above fair value. "Doing it this way allows us to focus on valuation, which we think is truly what has to drive asset classes," he says.

Stocks in emerging markets do show promise, but they're a very risky asset class, Inker warns.

Indeed, most asset classes - including bonds, commodities, real estate, and US stocks - are overpriced or offer little profit potential, he says. "This is about as tough an environment to find a place to make money as we've seen."