Take it from the top: with investing changing, we've come up with some new rules for an old game.

• Author: Mildenberg, David
• Position: Up Front

Picking hot stocks may well be a fool's game, but it sure is fun. Since 1983, we've asked money managers to select Tar Heel companies whose shares they think will perform best in the coming year. Greensboro chip-maker RF Micro Devices Inc., recommended by Raleigh-based Capital Investment Cos. co-founder Bobby Edgerton, gained 171% last year, while Morrisville drug developer Furiex Pharmaceutials Inc.--picked by Craig Lewis, an executive with Chapel Hill-based Franklin Street Partners Inc.--gained 133%. But another Lewis selection, Wake Forest energy-technology provider PowerSecure International Inc., declined 45%. No game for the timid, the hot-stocks feature started when there was less pretense in money management and being called a stockbroker was a source of pride. Now money managers prefer titles such as "financial consultant" or "wealth adviser." The art of selecting individual winners is often discredited because research shows even the smartest investors rarely outperform basic index funds. The odds of finding the next Apple may be better than a winning lottery ticket, but not by much. Stock picking even gets a bad rap from many investment companies, which press clients into accounts that cost a steady 1% to 1.5% of assets--in good times or bad--rather than rely on dwindling fees from trading stocks.

With U.S. stocks in the sixth year of a bull market, and trembling over the Russian economic collapse as we go to press, a more cautious approach than chasing small-cap companies seems wise. We decided to shake up our hot stocks...