By JOHN DORFMAN

The first quarter just ended so, like most money managers, I am busy writing quarterly reports to clients.

In an idle moment, I was daydreaming that the Standard & Poor’s 500 Index was a client of mine. I wondered what my report to that client might look like. Maybe something like this.

To Mr. Standard N. Poor, New York City.

Dear Mr. Poor:

I regret to inform you that you are now a lot poorer than you were three months ago. In the quarter just ended, your account lost 11.8 percent in value.

Please do not fire me.

It could have been worse. For example, I have another client, Mr. Nasdaq, who lost nearly 26 percent last quarter.

Besides, you and I have enjoyed a lot of good times together. Remember the fourth quarter of 1999, when you were up 14.8 percent? We went out for beers at that place with the dancers who, well, never mind.

Or remember the fourth quarter of 1998? We were up 21 percent in that quarter alone. So what’s an 11.8 percent loss between friends? We are still friends, aren’t we?

Bear market

I mean, it’s not as if I lose that much of your money on a regular basis. The last quarter that was this bad was the third quarter of 1990, more than 10 years ago, when you were down 13.7 percent. A recession and bear market were both in progress then. Today we have a bear market, and I’d say there’s a 50 percent chance we are in the early stages of a recession.

And it’s not as if your portfolio was bereft of winners. How about Advanced Micro Devices Inc., up 92 percent! It has had good success in selling its new, faster chips for cheap personal computers and is gaining market share from rival Intel Corp.

And surely you enjoyed that 86 percent gain in Dillard’s Inc. and the 77 percent surge in Kmart Corp. The retailers had been so hard-hit last year that they were due for a big bounce. Dillard’s, for example, has doubled in the past six months but at about $20 the stock still sells for way less than it fetched in 1998.

Speaking of 1998, your portfolio as a whole is now back to roughly where it was three years ago. But look on the bright side: There are more stocks in it now that are worth adding to than there were a year ago, when we were at the peak.

I must admit that the losers somewhat outnumbered the winners last quarter. Of the 500 stocks in your portfolio (I watch every one like a hawk, don’t worry), 173 were up, 326 were down and one was unchanged.

Big in technology

The biggest sector in your portfolio is still the technology sector, but that’s just barely true. We have cut back the weight on your technology holdings as investors’ love for “high tech” has gradually transmuted into disdain. Two years ago, tech stocks, broadly defined, were more than 30 percent of your portfolio. Today, they are only about 18 percent, which is only fractionally ahead of the financial stocks.

Technology stocks were the worst performers in your portfolio in the first quarter, down an average of 25 percent. Health care stocks were down 15 percent and capital-goods stocks were down 14 percent. Of the 11 sectors in your portfolio, the only one that was up was consumer cyclicals, which gained 0.6 percent.

Your biggest position today is General Electric Co., which accounts for 4.0 percent of your portfolio. I must admit I’m a bit worried that uber-CEO Jack Welch is in his last hurrah with the company. Even though the stock is down 17 percent in the past 12 months, it still sells for 33 times the past four quarters’ earnings, so I wouldn’t claim it is cheap.

Your second-largest holding is Microsoft Corp, 2.8 percent of your portfolio. This is a company that buys talent by the truckload, earned a 27 percent return on stockholders’ equity last fiscal year, and has no debt. It sells for 31 times earnings, which may be a fair price.

My worry, however, is that stock prices tend to overshoot fair value whether they’re going up or down. Right now Microsoft is trading below $60 a share, down from $116.75 at the end of 1999.

Third is Exxon Mobil Corp. at 2.7 percent. It is riding the new energy boom and reported a profit of $4.81 a share last year, up from $2.34 in 1999. The price-earnings ratio is 17, which is pretty reasonable considering Exxon earned 26 percent on equity last year and the U.S. energy problem is finally getting the public’s attention.

Turning to the loss side of the ledger, your biggest losers this quarter were Applied Micro Circuits Corp. (down 78 percent), Network Appliance Inc. (down 74 percent) and Qlogic Corp. (down 71 percent). The P/E ratios on those three stocks are 32, 42 and 21, respectively, even after their falls. I think we can afford to wait before adding to our positions in these battered techs, although Qlogic may not be too far from a buying point.

Well, let’s hope for better luck next quarter. And when can I take you to lunch?

Cordially, Your portfolio manager.

John Dorfman is a columnist for Bloomberg News.