What does it take to manage billions of dollars in the stock market? On November 7, 1997, NewsHour economics correspondent Paul Solman shadowed investor Ken Heebner for a day. What follows is a transcript of his report.

PAUL SOLMAN: Tuesday morning at Capital Growth Management.

Ken Heebner scans the papers for news that might affect his investments

Ken Heebner runs the show here, managing about $3 billion spread over six mutual funds in which more than 100,000 shareholders have put their money, on average some $15,000 per investor.

Not married, Heebner seems to live for his work.

The market would open in a few minutes. Heebner headed for the trading room in his office where he'd spend most of the day. The market opened promptly at 9:30 and promptly started to drop. (People started to sell and prices started to fall.)

The floor of the New York Stock Exchange

PAUL SOLMAN: Now, the DOW is down 24. You don't have that feeling, a sinking feeling when it--

KEN HEEBNER: No. A hundred down or two hundred down I get the sinking feeling but not twenty because percentage-wise twenty points is insignificant.

On Black Monday in 1987 the Dow Jones Industrial Average plunged 508.32 points, losing 22.6% of its total value.

PAUL SOLMAN: A nearby plaque served to place such fluctuations in perspective. A report from a Merrill Lynch stock analyst had just been handed to Heebner about Boeing, the airplane maker.

KEN HEEBNER: And the weakness in Asia may cause the Asian airlines to reduce their ordering from Boeing in the next several years.

PAUL SOLMAN: Heebner said this report might prompt him to buy Boeing for one or more of his funds.

PAUL SOLMAN: But, wait a second. Buy? Why wouldn't you sell if they were cutting their earnings?

KEN HEEBNER: Because the bad news will immediately be in the price. A stock like Boeing, which everybody follows, the stock will quickly incorporate all the new information into the price.

PAUL SOLMAN: So it'll drop.

Falling stock prices do not scare Ken (right)

KEN HEEBNER: That's right.

PAUL SOLMAN: And then you will buy because it'll be a bargain?

KEN HEEBNER: Well, maybe--no--I don't know. I'll look at it. I'll investigate it.

PAUL SOLMAN: But you might--you might buy.

KEN HEEBNER: Might.

PAUL SOLMAN: In addition to more than 20,000 money managers like Heebner there are millions of individual investors in the U.S. alone. It is their differences of opinion over seemingly minute differences in the prospects for companies that drives each of America's 10,000 or so stocks up and down in price. When something unexpectedly positive occurs, more want to buy than sell at the current price and the stock goes up, like the Mexican oil drill pipe maker Tubos.

KEN HEEBNER: Okay. Elise, what have you got?

ELISE: On B-4 in the Wall Street Journal there was a positive article on the drillers saying they must pay the pipers to keep the petroleum pumping, and that would be a positive for Tubos.

KEN HEEBNER: Well, that's good because we own a lot of Tubos de Acero de Mexico. And the stock's been weak. We could use some good news on that one.

PAUL SOLMAN: What money managers try to do, of course, is anticipate the news and, thus, outperform the market as a whole.

Otherwise, why hire them?

"Outperforming the Market" Investors judge their performance by comparing their earnings to the DOW average. It works like this: say you're on a basketball team, and the average number of baskets per game is 4 per person. If you score 10 baskets, you "outperform" the team average.

In fact, though, as is often pointed out, most money managers underperform the market because they're constantly buying and selling and paying commissions in the process. Heebner, however, has more than tripled the performance of the Dow over the past 20 years. Things were quiet, in part because Heebner couldn't buy much stock without selling some, that is, his mutual funds were all pretty fully invested, though he did have some reserve cash in each--short-term IOU's, the equivalent of money in the bank.

KEN HEEBNER: And we've got a little bit of cash in the Capital Development Fund and the CGM Mutual Fund.

PAUL SOLMAN: A little bit--how much is that? That's a lot of numbers.

KEN HEEBNER: Well, I shouldn't say small--this is a $1.3 billion fund, so $2 million is small.

PAUL SOLMAN: Of course, money managers like Heebner don't just buy on the latest news. Sometimes they sell.

OVERVALUED? Stocks are said to be "overvalued" when they're being bought at a price that's higher than what they're actually worth. It's like buying a chocolate bar for $5 because it's been over-hyped.

KEN HEEBNER: Lightening up on a few positions here that are overvalued.

PAUL SOLMAN: But it was time for a call with Merrill Lynch stock analyst Bob Malloy, following up on the news about Boeing and Asia.

KEN HEEBNER: Morning, Bob. What's new today?

BOB MALLOY: Morning. How are you doing?

KEN HEEBNER: Very good.

BOB MALLOY: Byron is reacting to the impact of weaker economies in Asia will have on orders, and he has taken some production out of both the 747 and the 777.

What's a REIT? A real estate investment trust is similar to a mutual fund. REITs pools investors' money and invest in buildings and houses. REIT's generate income in the form of rents from real property or interest from mortgages.

PAUL SOLMAN: It was 10 o'clock. Heebner was on to another call, this one an hour-long press conference of sorts with Parkway, a Mississippi Real Estate Investment Trust, or REIT, pushing its stock and its dedication to the four F's.

PARKWAY SPOKESMAN: Our properties are well run. We're continuously upgrading major systems, components in our buildings, as well as making four F improvements: flags, flowers, fixtures, and fellowship.

PAUL SOLMAN: Heebner has been growing a new mutual fund that invests in real estate trusts like Parkway.

KEN HEEBNER: Back to the trading room.

PAUL SOLMAN: 10:15 back in the trading room. Heebner was selling shares in one real estate trust to buy shares in another, due to announce its earnings in a few days.

PAUL SOLMAN: Now, do you have inside information on the fact that their earnings are going to be better than people are expecting?

Pssst... want a hot stock tip? You're not allowed to buy or sell stock on the basis of secret information you've heard from someone inside a company. It's illegal. There are a lot of high profile people sitting in jail because they profited from knowledge no one else had.

KEN HEEBNER: No, no, no. It's just a continuation of a trend. I think the trend that's been recently demonstrated will continue.

PAUL SOLMAN: But why doesn't everybody else think that? I mean, why are you thinking something different than other people?

KEN HEEBNER: You know, I honestly don't know. I think that--you know what--when you get the kind of weakness we had in the market last week, it scares a lot of people, and a lot of stocks get sold for no reason that I can see, outside of people are scared, and they're dumping stocks. So after you had a market weakness like that, you'll have some stocks that are down for no reason at all.

PAUL SOLMAN: One of Heebner's associates, Diane Krause, continued to hear out Parkway. Heebner was on to checking the time for his TV appearance a few hours hence.

PAUL SOLMAN: You're going to CNBC to do an interview this afternoon?

KEN HEEBNER: That's right.

PAUL SOLMAN: And why do you do that?

KEN HEEBNER: To make people aware of our funds I will go out and talk about investment issues on their show. And we advertise extensively on CNBC also.

PAUL SOLMAN: It was now 11:03.

KEN HEEBNER: We're down 37 points.

PAUL SOLMAN: Dow's down 37. So that's nothing with nothing?

KEN HEEBNER: Look, here's some of our--our REITS are going up.

Paul and Ken go to lunch

PAUL SOLMAN: Okay. Time for a lunch break. For Ken Heebner, however, that meant a quick trip to the financial district's Boston Harbor Hotel, where one of today's twelve stock analysts' luncheons was taking place just for Boston money managers like Heebner. This one, hosted by the brokerage firm DLJ, was touting energy stocks.

PAUL SOLMAN: I mean, one of the oldest sayings in economics is there is no free lunch, but apparently this would be a free lunch, so what am I missing?

KEN HEEBNER: Well, no, we have a longstanding relationship with this brokerage firm, and we do business with them.

Money managers enjoying a free lunch

PAUL SOLMAN: Oh, you mean, so you give them trades; you pay the commissions on the trades.

KEN HEEBNER: It's for the information. There just happens to be some lunch hanging around.

PAUL SOLMAN: Now, though I've covered business for 20 years, I was still struck by the enormous investment we make in picking stocks--all the listening, the analysis, the digestion. But it did remind me of the argument for the U.S. stock market. That with so many people checking out so many companies capital is likely to flow to those with the best prospects. And that's a constant impetus to keep the economy growing. Thus goes the argument America's Ken Heebners are vehicles for shifting our money from one business to another based on the very latest and finest distinctions among them. Admittedly, economy-wide events like the dive last week can cause these people to stampede. Sure, there's a casino-like quality to it all, but from new entrepreneurs with wild ideas to old firms with tame ones thousands upon thousands of American businesses get a hearing.

Back at the trading room it was 2:20. The Dow was down 19. It was time to buy.

PAUL SOLMAN: So you're buying Northwestern Continental?

KEN HEEBNER: Yes, right.

PAUL SOLMAN: Thirty thousand shares.

KEN HEEBNER: Okay. That's $1.2 million.

Ben getting ready to go on TV

PAUL SOLMAN: At 3 o'clock Heebner had arrived for his TV interview, coincidentally at our PBS studio in Boston.

MAKE-UP WOMAN: Ken, your segment is at 20 after, and we will black the monitor for you. But you can watch the program up until that time on the prompter.

PAUL SOLMAN: WGBH rents itself out for live hook-ups on shows like CNBC's "Daily Streetsides."

HOST: Ken, good to see you. Thanks for being with us.

KEN HEEBNER: Glad to be here.

HOST: What was it about Real Estate Investment Trusts that allowed them to avoid the deepest portion of that sell-off last week?

KEN HEEBNER: Well, you--first of all, you have yield protection.

PAUL SOLMAN: Heebner is using this occasion to promote real estate and, thus, is Real Estate Investment Trust fund.

KEN HEEBNER: So the market at 20 times earnings has got a lot more room to fall than something at 12 times cash flow with a 5 or 6 percent yield.

4 PM: Stock Market Closes DOW up 2% S&P up 2% Ken Heebner up 3.7%

PAUL SOLMAN: It was 4 PM. The Dow had closed up 15. The real estate fund had received $3 million in new cash, and Ken Heebner was in the counting room counting up his money.

PAUL SOLMAN: The Dow is up .2 on the day; S&P is up .2 on the day; and what are you up?

KEN HEEBNER: Okay. Realty fund is up .3. The growth fund is up .2. The capital development fund is up .2. The mutual fund is up .4, and the focus fund is up .7.

PAUL SOLMAN: So you beat the Dow today?

KEN HEEBNER: Yes. Not by much, but we gained ground.

PAUL SOLMAN: So you're happy?

KEN HEEBNER: Yes. I've been happier, but I'll take it.