Patience: It's the word every investor loves to hate. After all, who wants to put money into a mutual fund and wait years for the fund to increase in value? Nobody, of course. Investors want results and they want them now.

Nobody knows that better than Preston G. Athey, vice president of the New Horizons Fund at T. Rowe Price Associates in Baltimore. For investors in New Horizons, patience is more than a virtue -- it's a requirement.

"The problem in our business is that our clients are impatient, which makes us impatient," Athey said recently as he contemplated the four-year bear market in small growth companies and the opportunities offered by the turnaround -- if and when it finally comes.

At that moment, Athey was looking at New Horizons' performance in April, May and June. The news was not good. New Horizons had fallen 3.1 percent in the second quarter. Worse yet, New Horizons had dropped more than the 50 other small-company funds. The group was off an average of 0.68 percent.

By comparison, the broad market, as represented by the Standard & Poor's 500, was up 5 percent.

Athey, 37, is no stranger to market fluctuations. Son of a Chicago investment counselor, Athey acquired his first share of stock at the age of 7, and through Navy service and Stanford University business school, the stock market was never far from his thoughts. He has worked for nine years at T. Rowe Price, where he helps formulate investment policy for the fund and manages individual accounts.

For Athey, the 3.1 percent loss in the second quarter was bittersweet because New Horizons soared beautifully in the first three months of the year, rising 23.7 percent.

As the bull market unleashed its power in January, it seemed the growth companies might be winning back the hearts and pocketbooks of investors. But the hope soon faded as the blue chips continued to dominate the market.

The New Horizons Fund, formed in 1960, currently has $1.2 billion invested in about 280 stocks. The fund's goal remains the same as when it was formed -- to invest for the long-term in small, profitable, rapidly growing companies. But the fund's strategy has changed with the times.

In its earliest years, the fund kept more than 50 percent of its assets in technology companies -- mostly space and defense. Today, about 25 percent is in technology while the rest is invested in a range of financial and consumer companies, business services and transportation.

"These days," said Athey, "we are willing to look farther afield to find small growth companies."

At New Horizons, the companies' median pretax profit is $12.5 million. The median capitalization is $200 million. Capitalization is the number of shares times the price of the stock.

But if many companies are studied, few are chosen.

"Generally, we're not interested in turnaround companies, or companies with checkered histories, slow-growth companies or unprofitable companies," Athey said.

To win a place in the portfolio, a company should have a 15 to 20 percent growth rate and a similar return on equity, which is a measure of profitability. "We want to see solid, proven management," he said.

The major focus, Athey said, is on "rapidly growing earnings per share."

Athey said the primary reason for selling a stock would be "a disappointing earnings trend," indicating that the company isn't going to grow as desired.

A second reason for selling, Athey added, would be that "the stock has done so well that it has more than matched our expectations and has become overpriced." But before making that decision, Athey said, he would want to study the company's fundamentals.

The fund's biggest holding and best performer, for instance, is Liz Claiborne Inc., maker of women's apparel. The fund's shares, worth $33 today, were bought in the early 1980s at an average cost of $1.71 a share, he said.

"We have our best performance when we ride a good small company for years -- when we buy it, hold it and stick with it."

If companies in New Horizons' portfolio are chosen only after close examination, how come they're not all big winners?

The answer, Athey said, is to be found in a combination of factors. One reason is that even the best small companies can stumble. "They either grow up or blow up," said Athey, quoting his colleague, Debra Diamond, manager of the New Frontier Fund.

Specifically, Athey said, many technology companies have gone through a long period of disappointing earnings, which has helped depress their stock prices. Profits, Athey said, are now back on track.

Other negative factors, Athey said, included changes in the tax law that prompted the sale of stocks with large capital gains; the departure of the "momentum players" -- investors who dump money into a fund when it is hot and flee when it is out of favor; and the flood of overseas money that prefers the relative safety of well-known, dividend-paying blue chips.

Small company stocks generally have lagged the market since mid-1983.

"I think the average person on the street was fed up. He wanted safety and he was looking for bond funds or high yield funds. And I think the average institutional investor got bored," Athey said.

If an investor bought one share in the New Horizon Fund at the offering price of $3.33 in 1960, and reinvested the dividends and capital gains distributions, that share would have been worth $61.35 in March. A nice gain, but it took 27 years.

For New Horizons investors who were not quite that patient, the record is more mixed. Small, fast-growing companies go through definite cycles -- and so do the funds that buy their shares. Thus, New Horizons did better than the market over a 20 year period but did worse than the market over the last 15 years. Similarly, it did better over 10 years but worse over the last five years.

Until recently, Athey said, the rule was that New Horizons always rose more than the market when the market was going up and fell furthur when the market was dropping.

But that old rule has been broken now for the first time. From March 1984 to this June, the S&P 500 has gone up 116.6 percent but New Horizons has moved up only 53.9 percent. It is the greatest performance-lag in the fund's history, Athey notes.

What does it mean to the investor?

As befits an executive of a fund called New Horizons, Athey has no problem finding a silver lining in the clouds that hang over the fund.

Athey and his crew at New Horizons recently published a research paper called, "The Case for Emerging Growth Stocks." It declared:

"We strongly believe that emerging growth stocks now represent an extraordinary investment opportunity, one that rivals the potential of international stocks in 1984 and large capitalization stocks 18 months ago."

The main evidence to back up that flood of optimism is a comparison of the price-earnings ratios for the group of companies held by New Horizons and PE ratios for the firms that are part of the S&P 500.

As of June 30, looking forward 12 months, the estimated PE ratio for the fund was 17.9. The S&P 500's estimated PE ratio was 15.8.

Stocks of rapidly growing companies ordinarily sell at PEs that are considerably higher than the PEs for the blue-chip companies -- sometimes as much as 100 percent higher. Currently, the PE of New Horizon stocks is only 30 percent higher than the S&P. And if the 12-month estimate is correct, it would drop to 13 percent.

All of which makes the shares of small company stocks, and the New Horizons Fund, unusually good value at this time, said Athey, who acknowledges he does not know when the market's interest in growth stocks will turn up.

Meanwhile, small company stocks also appear attractive to two prominent market analysts.

Michael Lipper, who tracks mutual-fund performance, noted recently that while small-company funds had one of the poorest market performances, they offered the nation's best return on equity at 21.2 percent.

"If you are a value-oriented investor, I think the best values are in the small company growth area," Lipper said.

At the same time, Prudential-Bache strategist Greg A. Smith said, "I expect the market to broaden toward the end of summer and to create very significant potential in some of these smaller stocks over a 6 to 12-month horizon."