Signs of things to come

Bigger is better, unless your portfolio is also wired to Internet and

More of the same.

If you take away one message from mutual-fund performance last quarter, that's it: more of the same from 1998, and more of the same going into the rest of 1999.

Which is both the good news and the bad news.

Good news because the quarter, again, produced truly spectacular gains in some very popular segments of the investment markets.

Bad news because the rest of the segments looked like slugs.

So when the Dow and the Nasdaq pummel record highs, as they've been doing with exhilarating frequency, you probably ponder your own portfolio and wonder: "Huh?"

Because while the main market index rose almost 5 percent for the quarter and the technology sector jumped 17 percent and the Internet sector went so high that oxygen masks popped out of the overhead compartments - the average stock mutual fund failed to cross the 1 percent mark.

It was a triumph for smart investors and dull investors.

The smart investors are the ones who figured out that this is not just a new economy - full employment, rising productivity, low interest rates (is everybody finally happy?) - but a new economy that will eventually turn us all into geeks.

Technology rules, and the Internet rocks. It's not an aberration or a speculative mania, goes the geek perspective. The fabric of life has changed. We're all wearing fiber optic.

And the dull investors are the ones who plugged their portfolios into index funds, the financial equivalent of cruise control. The technology and Internet sectors have become so powerful that they dominate the broader market indexes, pushing the index funds ahead faster than the rest of the market.

And the rest of the market? Embarrassing by comparison.

The traditional approach to good investing calls for finding stocks that everyone else has overlooked. It's called value investing, and it's what made the likes of Warren Buffet famous and famously wealthy.

But value investing doesn't work here. Mr. Buffet's investment choices, of late, have been buffeted by winds of change. And the hidden values in the market remain hidden.

And that picture looks set for the rest of year.

Perhaps, as Guy Halverson writes on page 16, the market is ready to shift emphasis. But it's been ready to shift for the last year.

And maybe it will happen this year. For now, however, the path seems clear: geek and meek.

First quarter highlights

Total return Type of fund 1st qtr. 1-yr. Technology 17.0% 52.3% Telecommunication 16.4 34.6 Latin America 11.6 -31.8 Asia-Pacific 8.9 0.6 S&P 500 Index 4.8 18.0 Growth 4.4 13.6

Source: Lipper Inc.