Investing in a Recovery

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TIME: Let's give Sy a chance.

LOTSOFF: I have a question. Bob, you have said you wouldn't own a company if you didn't like the management. What characteristics do you look at?

SMITH: One thing you look at is how they allocate capital. [CEO Christopher] Galvin at Motorola is a horrendous allocator of capital. He wants to invent something like his grandfather; he's not running a business. The second thing is to try to get a feel for their internal systems, like General Electric and Wal-Mart.

TIME: Sy, what's cheap?

LOTSOFF: I don't think anything is particularly cheap. But I'm a buyer of junk-bond hedge funds, diversified alternative investments. In common stocks, I'm buying good-quality dividend payers. Despite all their legal problems, I have looked at pharma. I still cannot help but look at the demographics in Europe, Japan and the U.S., which says we're going to be eating many, many more pills. The growth potential there is misunderstood. I like Pfizer, Merck, GlaxoSmithKline, Bristol-Myers Squibb.

MAIDMAN: I think you've got to stay out of bonds. Investors have to start shifting money to equities. That includes the six major classes: value and growth small, mid and large. Right now, overweight mid-cap growth. Don't go speculate on investment real estate. That is so 1999.

SMITH: Housing is going up, but there are fewer renters. It's not sustainable.

MAIDMAN: Even if you live there, if the fair market rent is less this year than last year, the fact that the price of your house is up when you get your appraisal, that's soon going to change. That divergence doesn't exist for very long.

TIME: I'd like to give Sy the last word.

LOTSOFF: The historic perspective is, periods like the '90s are rare. But if there's any message here, it's no, we're not going back to 1998, and you shouldn't be looking for the next great thing that's going to go from a penny to a thousand dollars. It ain't gonna happen.