Dear Mr. Berko:

I have precisely $37,000 to invest. My broker is recommending a mutual fund after doing an impressive research study from data he mined from mutual fund advisers Value Line and Wiesenberger. The performance of the fund (I prefer not to use the name) for the past 10 years looks statistically better than other funds in the growth category with the exception of a three-year period that, according to my broker, is “an anomaly.”

Before I take the plunge with the excess money we got from the sale of our home, my wife asked me to write and ask if you have any fund recommendations that might be better than this one. We’re both 36, we both work and this is the only stock market investment we will have, so we want to be extra special careful before we do this. So we’re depending on you and our broker for the best advice you can give us.

W.M., Waukegan, Ill.

Dear W.M.:

I suspect you may be unwilling to believe this, but the commercial fund-rating systems (Forbes, Value Line, Morningstar, Wiesenberger, ad nauseam) are as useful as last year’s Christmas wrappings.

Often-repeated studies of mutual fund performance records (five-, 10-, 15- and 20-year track records) clearly and strongly tell us there isn’t a shred of evidence that a fund’s past statistical numbers can predict its future performance. However, all those rating companies and investors continue to use long-term performance records to divine future growth potential.

A number of independent and respected stock market research groups have finally quantified what some of us already knew. A 16-year study of Forbes’ “Mutual Fund Honor Roll” found that recommended funds with great statistics couldn’t hold an unlit candle to the Standard & Poor’s 500 index.

The New York Times put this evidence to a test. They pitted the best advice of Morningstar and four other prominent mutual fund advisers against the S&P 500 for a three-year period. Those five renowned fund advisers underperformed the S&P 500 by an average of more than 5 percent a year. That study was concluded in 1999 when the stock market was running with its boilers at full steam ahead. An update on that study (this time for six years between 1994 and 1999) concluded that the best of those five fund mavens had a 158 percent gain for those six years while the S&P 500 rose 254 percent.

A 17-year study recently completed by Dalbar Inc. (an impressive research group based in Boston) shows that the average stock fund investor earned 2.5 percent annually between 1984 and 2002. But during that 17-year period, the S&P 500 averaged 12.2 percent. Thank you, Mr. Standard, and thank you, Mr. Poor.

I know this flies in the face of conventional wisdom. But the proof of the pudding is in a folder on my desk. Using the mutual fund rating system of Morningstar, Wiesenberger, Smartmoney.com, Value Line, Forbes, Princeton Management System, Business Week, etc., is like washing your feet with your socks on. You might be interested in knowing that many of their poorest-ranking funds (as measured by Forbes, etc.) have five-year performance records that are far superior to the best-ranking funds.

Perhaps one might find better performance by using a fund’s current statistics such as price-earnings ratio, book value, beta, the Sharp ratio, EPS, its R-squared number, standard deviation, alpha, dividend growth, debt-to-capital ratio, sector expectations, style drift and a few more numbers. Still, those numbers are not worth a cat’s fiddle, either, when you’re predicting possible future performance.

Perhaps you might consider giving your slide rule and spreadsheet analysis a rest and just purchase an S&P 500 index fund, which is composed of the 500 leading companies in leading industries in the U.S. economy. If you want detailed information on these index funds, you can ring your broker — but he may not be happy because he will lose out on a 5 percent commission — and he can send some pretty good reading stuff to you that is surprisingly easy to understand.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.