(MONEY Magazine) – BEATLEMANIA, NOT MUTUAL FUNDS, was the rage when John Neff, now 62, took charge of Vanguard's Windsor Fund in June 1964. Over the next 30 years, an investment in Windsor has multiplied in value an awesome 45 times, vs. 18 times for the S&P 500 index and an average of 24 times for the 112 stock funds from that era, according to fund rankers Lipper Analytical Services and Micropal. That record helped Windsor grow from $75 million in assets to $11 billion today and put Neff at the top of the performance charts among funds still managed by the same person. What's equally impressive about the feat is that he eschews sexy growth stocks in favor of seemingly stodgy blue chips with low P/Es and high dividend yields. Windsor has largely been closed to new investors since 1985. But you can - still have your money invested by Neff via his $348 million Gemini II, Windsor'squirky but rewarding closed-end twin (see MONEY's April 1994 issue for details, or call 800-851-4999). Investors can also profit from the following five rules that Neff credited for much of his success during a recent interview with MONEY Guide contributor Junius Ellis.

-- BUY CHEAP STOCKS PAYING DECENT DIVIDENDS. A basic premise of my four- analyst team at Wellington Management, adviser to both Windsor and Gemini II, is that if you don't pay much, you probably won't lose much. So we focus on stocks selling at fat 30% to 50% discounts to the market's price/earnings ratio, lately 16, based on our forecast for 1994. Such P/Es reflect most investors' low expectations for the stocks and are often associated with dividend yields well above today's 2.9% norm. These aren't great companies, mind you. But some aren't anywhere near as lousy as Wall Street thinks. We invest in fairly large ones where we've discerned a favorable change or trend that other institutional investors could eventually notice and buy into big. If we're right, a stock can reward us with growth in earnings, P/E multiple and even dividends, all of which compounds for our funds' shareholders. If we're wrong, we try to tippy-toe out of a stock. IBM is an example of the latter. We bought it at $50 in early 1993 after most investors had given up on the stock. Then the company's new chairman, Louis Gerstner, invited me and two other big investors to breakfast to pick our brains. One key recommendation of mine was to maintain the dividend, which had been halved in the first quarter of '93. Instead, he quickly cut it again, prompting us to sell for a wash last fall at $50 (vs. $54 recently). So far the market agrees with Gerstner. We still don't.

-- FIGHT THE URGE TO GO WITH THE FLOW. Experience has taught us that the most intelligent way to manage an $11 billion portfolio is to buy into weakness and sell into strength. This contradicts the axiom of momentum investing ("The trend is your friend") that's gospel on Wall Street. But we've developed strong enough convictions and backbones at Wellington to take the other side of transactions that would make many fund managers very uncomfortable. When these folks notice us buying stocks at successively lower prices -- and selling at higher prices -- they think we've gone mad. We suspect, however, the herd mentality is a prime reason why comparatively few institutions outperform the market long term. Another reason is the obsession with broad diversification, which is the sure road to mediocrity. Our shareholders expect us to beat the market and our peers. The only way we can deliver consistently is to stick our necks out a bit.

-- PUT YOUR MONEY WHERE YOUR MIND IS. At Wellington, a portfolio manager must clear all personal trading of securities with a compliance officer to ensure that the transaction doesn't conflict with a client's. But I have always observed two other, self-imposed rules. I don't own any stocks in my own account that aren' t already held by my funds. And I wait until the funds have bought (or sold) their full positions in the stocks before I step in to buy (or sell) shares myself. The rationale is fairly straightforward. I spend lots of time reaching investment decisions, and I think that my time belongs first to shareholders. I'm one of them, of course, with a personal stake in Windsor that was recently worth about $5 million and another $1 million riding on Gemini II.

-- SHARE FUNDHOLDERS' GAINS AND PAINS. Funds pay their managers an annual fee that's invariably based on the portfolio's value and averages 0.72% of assets for stock funds. Windsor, however, is one of the all-too-rare funds that also figures in large bonuses -- and penalties -- based on performance. (Other prominent funds that have similar arrangements with their managers include Fidelity Magellan, Lindner Fund and T. Rowe Price Capital Appreciation.) This way, my team and I participate in both the ups and downs we produce for shareholders, which not only seems fair but also makes our job that much more challenging. I'm always amazed that so many managers don't do likewise. I guess most lack the competence or courage or both. Here's how our deal works in its simplest form. Wellington's base fee for running Windsor is pegged at a rock-bottom 0.16% of assets. We get another 0.1% if we outperform the S&P 500 index by 12 percentage points over the past 36 months, as is now the case. But we're docked 0.1% if the market beats us by 12 points. (Within these brackets are other performance hresholds cited in Windsor's prospectus.) Thus the fee can range from roughly $7 million to $29 million. This difference translates into a potential fifteen- to twentyfold rise in my base compensation, which isn't that much before incentives and is also a big factor in the paychecks of other team members.

-- PLACE YOUR BETS ON EXPERIENCE AND CONTINUITY. Chuck Freeman, my No. 2 and future successor, is only 50. Yet he's worked closely with me for 25 years. We're both glorified analysts who try to know every nook and cranny of the established companies we follow. We're longstanding students of the industry conditions in which they tend to flourish or flounder. What's more, we don't aspire to ostensibly bigger things, such as opening Windsor to new investors, launching new funds or moving up to be administrators. As a result, we are more likely to remain quick on our feet as stock pickers. And we're a lot less likely to succumb to the Peter Principle -- being promoted beyond our competence -- or career burnout. I don't agree with the argument that running money is a young person's game. I think one has an obligation, once you've sucked a lot of shareholders into your fund, to make it possible for you to last awhile.J