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Starting over.

Reinventing your investment club when members leave

"There are hundreds of success stories about investment clubs that have "I managed to survive and thrive for 10, 20, or even 40 years. Then there are those that never make it past the two-year mark, But the death of an investment club does not mean that it cannot be reincarnated. Members can choose to reorganize with new goals and objectives.

The University Heights Capital Group did just that. In its former life, the West Orange, New Jersey-based group was known as the University Heights Investment Club. Rodney Smith, who was the club's president and a board member, founded the University Heights Investment Club in 1995 after reading an article on investment clubs.

From the onset, members determined the investment club would have a lifespan of at least five years. There was an initial $100 investment to join, and $30 in monthly dues. The purpose of the club wasn't to make a killing in the stock market. "Our primary objective was to learn about the stock market and how to invest," says Smith. "We then planned to apply our knowledge to building personal portfolios." The novices were required to research industry sectors and make stock recommendations. The group picked a winner in 1997 by buying shares of Yahoo (Nasdaq: YHOO) for $49 per share, which then split four times, and reached a high of $250 per share. Yahoo ultimately dominated the group's portfolio (63%), building it to an all-time high of $175,000.

Despite its financial success, the club suffered growing pains. The fledgling club lost several of its 25 members over time. Some moved out of state, others called it quits, and still others were voted out for lack of participation. Smith recalls the climate at that time: "Everyone wants to be on a winning team," and not all the members had the fortitude to ride out downturns in the stock market. When the five-year commitment was met, the group decided to disband in December 2000.

Smith's dream of group investing wasn't deterred by the dubs demise. In fact, he took the group's "learning" goal to heart and is now working on Wall Street as a research analyst. He also decided to establish a new investment club. Armed with lessons learned from his first endeavor, Smith says that the University Heights Capital Group is founded on the same principle of learning, but will be "more discipline." Co-founder Smith says the name change is intended to reflect the members' elevated level of seriousness, as well as their ambitions to expand their investments beyond stocks to real estate holdings and business ventures. Some of the University Heights Investment Club members used the earnings from that endeavor to reinvest in the new group. New members must submit a resume, and make a presentation on a stock or industry before being voted in by the group's four board members. Initiation dues are now $500 each, and $75 monthly.

Although seven members from the original club form the core membership of the new group, they are fortified with new attitudes. Since launching the organization in January--when the market was extremely volatile--the group felt it wasn't a good time to buy stocks. Instead, they actively day traded to build their portfolio from its initial investment of $3,925 to $10,000 as of April. However, now that interest rates have been cut again, and the market has stabilized, they are investigating potential holdings in companies such as Home Depot (NYSE: HD) in the retail sector, Pepsico (NYSE: PEP) in the food and beverage sector, and Juniper Networks (Nasdaq: JNPR) in the optical/networking sector. Using the PEG ratio (growth of stock divided by earnings), the group uses a proprietary fundamental software tool to evaluate stocks, which means all members are required to have basic computer skills.

Whether you are just starting out or starting over, says Smith, "Carefully select people who have similar interests and commitments to investments, set specific goals, and make sure everyone participates."
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Article Details
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Title Annotation:investment clubs
Author:Salmon, Therese
Publication:Black Enterprise
Article Type:Brief Article
Geographic Code:1USA
Date:Jul 1, 2001
Previous Article:Look who's runnin' things.
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