Everybody who invests in mutual funds for the 21st century has cause to wonder whether the rules learned in the 20th still apply.

Who cares anymore about the business cycle, price-earnings ratios, dividends, or diversification across a wide range of industries? Even the simple maxim "buy low, sell high" seems to have been superseded by "buy high, sell higher."

Investors who avoid funds with stock holdings that look overvalued by traditional measures such as P/Es or dividend yields find their prudence punished as they miss out on the bull market's bounty.

To hear many people tell it, the late 1990s ushered in a new era in which investments must be measured by a different yardstick the place they can attain in an economy where information, not commodities and manufactured goods, is the coin of the realm.

If an enterprise works on the Internet, the sky's the limit; if it's still rooted in the so-called old economy, it's barely worth bothering with.

"This is no longer a business of bulls and bears," says Steven Leuthold, chairman of the Leuthold Group, a Minneapolis investment research firm. "It is now true believers, agnostics and disbelievers."

Leuthold defines a true believer as anyone convinced that the boom in electronics and electronic-commerce stocks inspired by the Internet is no illusion, but a new reality that's here to stay. Disbelievers, by contrast, see it as a speculative bubble about to burst.

And agnostics? "Most of these are former disbelievers who have come to think the true believers could be right," Leuthold says. "Agnostics are typically a somewhat older group with more extensive experience."

For fund managers, all this is much more than a question to debate at investment seminars. Because some elite new-era stocks have been soaring, while many others languish, all stock managers face enormous pressures.

Conservative "value" managers, who seek overlooked and out-of-favor investments, are having to explain poor performance for the last two years or more. Sign of the times: George Vanderheiden, a value manager at Fidelity Investments who retires today with "one of the best records in the business," in the words of Morningstar Inc. senior analyst Scott Cooley, has just endured a three-year spell in which his $7.2 billion Fidelity Destiny I Fund trailed the Standard & Poor's 500 Index by 8 percentage points a year.

"In the 1990s, growth investing has won out," said Robert Turner, chairman of Turner Investment Partners in Berwyn, Pa., which manages $3 billion in funds and other investments.

By Turner's reckoning, the share of the Standard & Poor's 500 Composite Index accounted for by "value" manufacturing and commodity companies shrank from half at the start of the 1990s to just over a quarter in 1999.

Anyone who dismissed so-called high-tech stocks as a flash in the pan must now either recant or stick with the shrinking corps of disbelievers. To change your mind at this late date means flouting an ancient maxim of risk-takers everywhere: If you missed the wedding, don't go to the funeral.

In times like these, it's a great luxury to be a fund investor, responsible for nobody's money but your own. Rather than take sides on the tough issues, fund investors can hedge their bets, spreading their assets among funds with different philosophies.

In Leuthold's terms, they can choose to be agnostics, a pragmatic position that provides a much more comfortable risk-reward ratio than either the true believer or the nonbeliever gets.

Unencumbered by a need to be proven right, agnostics can own both aggressive funds bristling with Internet stocks and conservative value funds. They can change the proportions of money they have in each as their circumstances change, or as their reading of the economy and technological progress changes. This period of ferment isn't finished, and it could go in any one of a dozen different directions from here.

Also, they can look for fund managers who so far have shown an ability to keep up with the times. A celebrated example: William H. Miller III, whose $10 billion Legg Mason Value Trust has stayed ahead of the pack with stocks like America Online Inc. and Dell Computer Corp.

After all, that's what you pay fund managers for, isn't it? To take some heat for you and to put your money where it can work best. In times of change like now, if they give even a halfway decent account of themselves, they'll earn their management fees and then some.

Chet Currier is a columnist for Bloomberg News.

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