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Market Monday: Carol K. Lampe

Monday, May 20, 2002

Pittsburgh Post-Gazette

Today's Guest: Carol K. Lampe, Lampe Asset Management Allegheny Investments Ltd., cklampe@lampefinancial.com, www. lampefinancial.com

Carol K. Lampe

As an advocate of asset allocation, can you explain briefly what asset allocation actually means? Asset allocation means using an appropriate mix of asset classes in the portfolio to achieve the desired growth at an acceptable level of volatility. The allocation of a portfolio will determine the portfolio's risk and return. A few examples of asset classes are domestic, foreign and real estate securities; corporate, government, and global bonds.

What are some of the asset classes that you favor now? We are not in favor of an asset class in particular because we are not market timers. It is evident that asset classes perform differently in response to market conditions and normally do not head in the same direction at the same time. Therefore, we feel that a position of some percentage in each asset class will provide opportunities for growth while reducing risk. The percentage of each asset class held is determined by the investor's risk tolerance and return expectations.

What asset/market sectors are you avoiding? The situation in which we would avoid an asset class, such as small-cap stock, is if an investor's time horizon is very short and, therefore, risk averse. We would also consider not using short-term debt instruments if the investor is young and has the time to endure the volatility. By avoiding an asset class, however, the investor needs to understand that an opportunity for growth or safety could be missed down the road.

While planners such as yourself preach diversity, isn't there more money to be made by concentrating one's money in just one sector or company? This would seem to be true, but how do we know which company or sector to select? Since we are not market timers, we do not believe in making bets on which company will win or which will lose. We keep the appropriate asset mix within 5% or 10% of the target, and rebalance accordingly. This philosophy helped keep losses to a minimum during 2000 and 2001.

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