(FORTUNE Magazine) – EXPLAINING his firm's philosophy, David G. Kirk, 47, quotes the company's founder: ''The most dangerous thing you can do in investing is time the market right twice. That makes you think you can't make a mistake. And that's a recipe for disaster.'' Planning for a retired couple, Kirk advises disregarding economic forecasts and selecting good relative values, by which he means strong companies that are underpriced relative to their industries.

A couple at age 65 are still comparatively young physically, mentally, and actuarially. We want their income to grow at least in line with inflation. Historically, stocks are the way to do that. But our clients' ages and inability to re-enter the work force make stability of that capital critical. They need to have a cash reserve on hand to deal with unforeseen events without disrupting the investment plan. We suggest that $50,000 go into a cash equivalent -- a bank CD. This should be put aside for an emergency and rolled over every three months. We're depending on the stocks, which make up 50% of this portfolio, to increase their dividends at twice the rate of inflation. That's a reasonable expectation. The total portfolio will thus keep pace with inflation, while the fixed income investment will afford stability of principal and a relatively high level of current income. International stocks and bonds have too much risk of currency fluctuation for these retired investors. In the stock market, we try to find the best relative values in the various asset classes. With 20 stocks and around $10,000 in each position, this portfolio gives broad diversification, focusing on high-quality securities, reasonable current income, and good prospects for growth in dividends. Many of the names are familiar, huge companies like IBM and General Motors. On the other hand, Wallace Computer Services, Airborne Freight, and Foote Cone & Belding have less than $500 million in market capitalization. ^ Wallace is a computer forms company. As all of us who use computers know, we've got more paper on our desk than we ever did, only now the piles of paper are around the PCs. Airborne has a nice niche in the freight business. And it has settled a labor dispute in New York and signed a big contract with the General Services Administration. Foote Cone is an advertising agency in Chicago. The balance sheet is as clean as a whistle, and they are retaining highly creative people in a business where your assets go down the elevator at night. Changes in the portfolio should be dictated by changes in the relative value of the companies, not by movements in the stock and bond markets. Some of our stocks may yield considerably more than others, but in most cases, where the yield is the highest, the growth will be the smallest. We've picked Massachusetts municipal bonds simply because our client lives in Massachusetts. Many other states have bonds just as good. The strategy is to stagger the maturities of the bonds so that each year you can roll over those that mature into whatever is most attractive at the time. The municipal market is such that maturities between one and five years are simply not competitive with the taxable market on an after-tax basis. The spreads are too narrow. We've chosen Treasuries in the under-five-year category because spreads have tightened between Treasuries and corporates. There just isn't enough of a difference between the two to pay for the added risk and lower liquidity of corporates.

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