One key to investment success is to be a step ahead of the crowd. Being among the first to recognize a trend or invest in a successful new company can prove quite profitable.
It also can pay to accurately forecast a company's earnings growth, said James Craig, portfolio manager of the Janus Fund in Denver. "What we get paid to do is correctly estimate company earnings," Mr. Craig said. "Money follows earnings.
"We build a portfolio of companies where our estimates of earnings growth exceed what others expect," he said.
The strategy has paid off for Janus Fund shareholders.
The fund was up 7.4 percent for the 12 months that ended June 30 and 81.68 percent for the three years that ended June 30, according to Lipper Analytical Services Inc.
"Janus Fund is quickly becoming a giant in the mutual fund industry," reports Morningstar Inc., a Chicago-based mutual fund rating service.
While he may be moving into the mutual fund big leagues today, Mr. Craig recalled how he was preparing for a teaching career at the University of Pennsylvania's Wharton School when he decided to become a money manager.
"I realized studying the markets from the outside wasn't going to satisfy me. I wanted to run money," he said.
Morningstar attributes the fund's growth to Mr. Craig's performance and increased marketing efforts.
"The fund's superior long-term record attracted much interest," Morningstar says. "And in particular, the fund's outstanding gains in 1989, followed by a sterling down-market showing in 1990, assured a rush of johnny-come-latelies."
Mr. Craig says he avoided the worst of last year's down market by selling stocks and building up cash levels last July when companies began missing his earnings estimates. In November, the Janus Fund's cash level reached 65 percent of total assets. The fund's cash position is now 18 percent of assets. Mr. Craig's portfolio is currently stuffed with food, drug and tobacco companies that have delivered steady growth.
"I should be able to beat the market . . . if our growth company stocks can continue to grow in a declining interest-rate environment," he said. He sees interest rates falling further as the Federal Reserve moves to stimulate economic growth.
"We do not see a risk of the economy accelerating strongly," Mr. Craig said. For this reason, Mr. Craig says, he doesn't hold any cyclical stocks, with the possible exception of UAL Corp., parent company of United Air
"They have expanded their international operations dramatically," Mr. Craig said of UAL. "When the turnaround in airlines comes, UAL's earnings will take off."
Other steady growth stocks in the Janus Fund include Wal-Mart Stores Inc., Waste Management Inc. and Amgen Inc.
Food-and-tobacco giant Philip Morris Cos. Inc. recently accounted for 2.8 percent of the Janus Fund's $2.2 billion in assets.
"They've been growing very rapidly," Mr. Craig said. "Their international tobacco business is doing well."
He expects Philip Morris to earn $4.78 a share this year and $6 a
share in 1992. Last year, the company earned $3.54 billion, or $3.83 a share.
Mr. Craig also likes Glaxo Holdings, citing the company's new drug, Zofran, which helps reduce nausea in patients undergoing chemotherapy.
A recent addition to the fund is Redmond, Wash.-based Microsoft Corp., whose stock has come under pressure with IBM Corp.'s announcement that it formed an alliance with Apple Computer Inc.
If successful, analysts say, the tentative agreement between IBM and Apple could challenge Microsoft's preeminence in operating-system software for personal computers.
But Mr. Craig argues that the market overreacted.
"A wave of fear hit the stock," he said. "The Street got nervous and gave us the opportunity to buy an excellent growth stock."
Mr. Craig also manages the Janus Venture Fund, which focuses pri
marily on companies with market capitalization of up to $750 million. The fund was up 11.94 percent for the 12 months that ended June 30 and 72.63 percent for the three years that ended June 30, according to Lipper.
The Janus Venture Fund will close to new investors Sept. 30 because huge cash flows into the fund in recent months may interfere with the fund's investment objective, said Chrissy Snyder, a Janus spokeswoman. The fund now has $947 million in assets, up from $279 million from the start of the year.
"Such rapid asset growth . . . threatens the fund's highly vaunted flexibility, and its ability to take meaningful positions in $41 million [market] capitalization companies like Schultz Sav-O Stores," Morningstar reports.
Janus Capital offers a no-minimum initial investment plan for individuals willing to authorize automatic monthly investments of at least $50.