“Many Wall Street firms are learning what gamblers long have known: Sometimes it is best just to cut your losses,” writes Susanne Craig in today’s Wall Street Journal.

“But for Lehman Brothers Holdings Inc., the annual change of the names on its recommended stock list that it enters in The Wall Street Journal’s quarterly survey of brokerage-firm stock picking came too late to help boost its second-quarter results.”

“The securities firm’s tech-laden basket of stocks, including underperformers such as Nortel Networks Corp., Juniper Networks Inc. and Micron Technology Inc., hurt Lehman’s performance. The firm was dragged to a last-place finish for the quarter, with a loss of 6.8%. Lehman also placed last for the past year, sliding 46.9%.”

“The potential good news: Lehman made its annual stock change at the end of June, adding many companies to its list of “Ten Uncommon Values” that are anything but dot-com, including Harley-Davidson Inc., Waste Management Inc. and Bed Bath & Beyond Inc. Its list of 10 stocks, the smallest grouping in the survey, now includes two, rather than seven, dot-com companies.”

” ‘Ten stocks is a highly concentrated portfolio,’ concedes Jeff Applegate, Lehman’s chief market strategist. ‘The whole idea behind the portfolio is you have the opportunity for significant outperformance. But when you miss, you have the potential for significant downside, which is what we just experienced.’ “

“Mr. Applegate, one of Wall Street’s best-known technology-stock bulls, says despite his leanings toward the sector, he is one of just eight people that select Lehman’s list, into which every analyst has input.”

“In the second quarter, just three firms managed to outperform the Standard & Poor’s 500-stock index, which rose 5.9% during the three months ended June 30. Credit Suisse Group’s Credit Suisse First Boston, which posted a return of 13.2%, was the best-performing firm. It was the only brokerage house to invest in RF Micro Devices Inc., a Greensboro, N.C., maker of mobile-phone equipment. It was the survey’s single hottest stock pick, gaining 130.8% in the quarter.”

” ‘It is a really diversified portfolio, from technology to medical suppliers to retail, it is across the board,’ said Jay Freedman, CSFB’s chief valuation strategist ‘But we also took our lumps from technology and we might have sat with them longer than we should, à la the rest of the world.’

“Indeed, CSFB’s 12-month performance (it ranked 12 out of 15 for the period with a loss of 21.4%) was hurt largely because of its holding in certain tech stocks. CSFB was one of many firms stung by the poor performance of Nortel.”

“It is unlikely many people will buy any firm’s entire recommended list at one time. The Journal survey is intended to give investors an idea of how their portfolio would look if they let the professionals do all the picking. Calculations in the quarterly survey, done for the Journal by Zacks Investment Research in Chicago, take into account capital gains or losses, dividends and theoretical commissions of 1% on each trade.”