Investment Club Participants See Long-Term Opportunity.

THE ups and downs of the stock market present teachable moments for investors. And what better way to learn how to handle the seesawing securities market than to join or start an investment club?

I know, you may be asking yourself: Why get into the market now? Isn't that akin, to jumping on a sinking ship? Good questions and valid concerns.

Though it has been recovering, the market continues to reel after the terrorist attacks on the United States. Just as a reference point, the Dow peaked at 11,722.98 in mid-January of 2000.

This is indeed a bear market, and there is a lot to be learned from it. No longer can you just plunk money down on technology stocks and run out and buy a boat. Companies can't hide behind hype. The glitter is gone. If you want to make money now, you have to pick stocks for your portfolio based on sound financial fundamentals. Investment clubs can help you do this.

"It's easier to learn long-term investing principles in a trying market than in a market that is going wild," said Jonathan Strong, manager of membership for the National Association of Investors Corp., a nonprofit organization of investment clubs and individual investors based in Madison Heights, Mich.

"Yeah, we had a hell of a ride in the late '90s," Strong continued. "But you cannot expect to always see 20 to 30 percent returns. People need to get back to the basics. They need to do the proper research and make sure companies are led by good management and poised to grow for the future. People also have got to be patient."

Strong said the number of clubs joining NAIC has decreased over the past 18 months. As of Sept. 1, NAIC reported a membership of 33,081, down from 36,320 in January 2000. This year, the NAIC has been adding about 300 investment clubs to its membership each month. In 1998 and 1999, the rate was 600 a month.

"We have lost member clubs because people are scared," Strong said.

Hanging in there

One investment club that isn't running scared is the Thomas Investment Group 2000. A year ago, I met the 10 members of the Thomas family, whose members live in the Maryland suburbs. They had just formed their own investment club and were excited about the prospect of building wealth together while learning how to evaluate and pick their own stocks.

It has been 19 months since the group had its first meeting. And although the initial excitement has turned to caution, family members aren't discouraged. In fact, the group voted to increase its individual monthly investments to $50 from $25.

"We are very optimistic' said James Stand-field, the club's president. "We expected these ups and downs. We honestly believe the market will stabilize. It has to."

The Thomas family investment club has bought seven stocks for its portfolio (Amazon.com Inc., Amgen Inc., McDonald's Corp., Microsoft Corp., Oracle Corp., Paychex Inc. and Target Corp.). Almost every stock is significantly down, in two cases by as much as 85 percent.

In all but two cases the club analyzed the stocks before making a purchase. And even though those unanalyzed picks -- Microsoft and McDonald's -- haven't declined as much as the other stocks, the Thomas family is too nervous, given current market conditions, to trust just their instincts in picking future stocks.

"We picked those stocks based on our basic consumer knowledge of the companies and their market presence," said Monica Thomas-Stand-field, the club's treasurer. "But that won't happen again. We are not making any investment decisions unless we do all the work."

Investing principles

NAIC encourages clubs to use the stock selection guide it makes available to members. The two-page form helps members organize fundamental financial data, such as sales and profits, so clubs can analyze and evaluate prospective common stock investments.

Strong said NAIC believes investors should invest using four basic principles:

* Invest a set sum of money every month.

* Reinvest all earnings, letting the power of compounding work for you.

* Discover growing companies so your wealth can grow with their sales and earnings.

* Diversify your equity holdings. Buy a variety of stocks in companies of all sizes and in many industries.

Today's stock market is teaching some hard lessons. But the basic rationale for joining an investment club -- learning as a group to make informed decisions before buying stocks -- doesn't change, be it a bear or a bull market.

Jane Bryant Quinn has given up her syndicated column. For the next few weeks, the Business Journal will feature Michelle Singletary, a columnist with the Washington Post Writers Group.