Call it revenge of the cunning conservatives if you like. But by ignoring fads and the hype that has brought so many investment professionals a cropper, Money Manager's panel of share experts continues to show that good returns can be had in bad markets by investing the old-fashioned way.

A year ago Money Manager asked three of Australia's top share experts to pick three stocks that would not look out of place in a conservative portfolio.

Each six months Money Manager reports on their performance and also gives them the opportunity to change their portfolio with the proviso that they retain only three stocks.

Their returns are based on share price movements only and exclude dividends paid by the companies.

In June their stocks were performing strongly, up 18.5 per cent on average. Then came September 11 and the continuing gloomy outlook for world economic growth that saw the stocks tumble in the second half of the year.

But the conservative nature of most of the companies they selected held them in good stead and showed their resilience, with the three portfolios recovering rapidly to end the year, on average, 17.43 per cent higher. By contrast, the All Ordinaries Share Price Index rose by only 6.5 per cent over the same period, with our panel outperforming the index by almost 11 percentage points without taking big risks.

All three of our stock pickers choose their stocks carefully on fundamentals, ignoring

"the noise" that dominates the investment market daily. Another characteristic that makes them stand out from many other professional investors is that they are prepared to hold shares for the long term.

The philosophy is best summed up by Investors Mutual's Anton Tagliaferro: "We remain focused on identifying shares in quality companies that possess the attributes of sustainable and growing earnings streams, run by capable management and which are trading at prices that represent sound long-term value."

Paul Moore, PM Capital

"It has a very interesting position in financial services and is a bit of an alternative to the banks, which we think are getting a bit tired," he says.

Another of Mr Moore's picks, WMC, (formerly Western Mining) has "played out as expected with all of the takeover speculation now fully represented in the share price", he says. WMC's share price rose by more than 25 per cent by the middle of last year and finished the year slightly down on its mid-year highs.

Mr Moore will continue to hold the stock but will not be buying any more for now. His preferred resources play is MIM, which is experiencing a turnaround under new "first-class" management. He says at about $1.20, MIM shares are a good buy.

Mr Moore's third choice, the sleep disorder treatment group ResMed, was up more than 50 per cent mid-year, but by year's end had slipped back to 29 per cent higher than at the start of the year.

"ResMed is a growth company and its stock price can stay expensive as long as it keeps delivering on its forecasts, but it's not something that I would put money in today," Mr Moore says. He prefers the explosives, chemical and fertiliser maker Orica, whose management, he says, has reined in costs.

Mr Moore predicts another tough market this year. The Australian sharemarket looks expensive after the rebound that occurred in the wake of September 11.

Mr Moore is selective in his purchases and is content to have his Australian share funds holding high levels of cash to pounce on opportunities as they arise.

Anton Tagliaferro, Investors Mutual

Mr Tagliaferro says Amcor "has run very hard" after its restructure as a producer of boxes and bottles for the food industry, and is fully priced at about $7.50.

He says the stock should be sold and replaced with Australia's biggest food company, Goodman Fielder, which is a "good defensive stock that is cheaply priced and is a potential takeover target".

He rates the brewer, wine maker and distributor Lion Nathan as a long-term hold but is not looking to invest new money into the stock. Its share price is up 15 per per cent for the year and has a dividend yield of about 5 per cent.

"We thought Lion paid a little too much for some of its wine acquisitions, but we think it is still an extremely good company," Mr Tagliaferro says.

Another of his tips, the Victorian-based brake and clutch manufacturer Pacifica Group, finished the year up 3 per cent and is now trading at about $3.50.

"It was a disappointing performance and its business was impacted by concerns over the US automotive cycle and because of the (losses) on its construction division," Mr Tagliaferro says.

"We still think, however, that Pacifica Group will prove a fantastic stock over the medium to long term and a good buy at these depressed prices."

As a value manager, Mr Tagliaferro likes solid businesses that for one reason or another are out of favour with a market that he believes is obsessed with short-term performances. He prefers to take a stock-specific view rather than sector bets.

Michael Brown, Merrill Lynch Australasia

Perpetual's share price rose by almost 27 per cent over the year and Mr Brown regards the stock as a "core" holding of any long-term share portfolio.

Another of Mr Brown's tips, the blood plasma maker CSL, also performed strongly over the year with its share price rising 23 per cent. "It is one of the few Australian companies that is successfully growing its business overseas," Mr Brown says.

He thinks it is likely that CSL stock will "pause for breath" this year but the company remains a good long-term hold.

In the middle of last year, Mr Brown swapped his third stock, Harvey Norman, for ResMed. Mr Brown said at the time that Harvey Norman, as a consumer cyclical, was too exposed to any further slowdown in the economy. As it turned out, ResMed had its best run in the first half of last year and its share price slipped back 22 per cent during the second half.

Mr Brown says that investors holding ResMed, Perpetual Trustees and CSL should continue holding them because they are good core investments. But given the tight restrictions Money Manager has imposed on the share tipsters, where each portfolio is restricted to three stocks, he will sell all three and replace them with three that are expected to benefit from industry restructuring.

St George Bank's customer base and the success it is having in growing its wealth management business makes it, subject to regulatory approval, a likely acquisition of one of the big four banks.

Mr Brown's second tip for this year is John Fairfax Holdings, the owner of The Age.

"We are looking at interest rates being at their lowest level since the 1960s and Fairfax is one of the earliest cycle recovery stocks," Mr Brown says. "We think the next move in the cycle is up; it is a question of when, rather than if."

The market regards Fairfax as likely to be taken over in the event of a relaxation of media ownership rules. Mr Brown says even the hint of a change in the rules should see Fairfax's share price rise.

Mr Brown's third pick for the new year is the goldminer Newcrest Mining. Gold prices are rising and Newcrest stock was cheap at about $4.60 to $4.80 in January, Mr Brown says. He regards Newcrest as a likely takeover target, possibly by AngloGold.

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