The investors next door: trying to figure out the best moves in today's market? Listen to the strategies from members of some of the nation's leading investment clubs. (Investment Roundtable).
We have assembled what we call "the investors next door"--individuals who seek to build wealth through investment clubs. They represent top stock-pickers from leading investment clubs: Bernadette Johnson, past president of the Raleigh-Durham, North Carolina-area-based Black Women Investment Corp., a 13-year-old organization comprised of black women between the ages of 30 and 55; Marcus Plump, chairman of Millionaires-Thru-Christ Investment Club, an 18-month-old club whose working-class members belong to Salem Baptist Church in Chicago; Okorie Ramsey, treasurer of the San Francisco-based investment club Awareness To Action Investments (ATAI), an organization mostly comprised of members of the National Association of Black Accountants; Clark Grain, treasurer of the 19-year-old Zenith Investment Club in Framingham, Massachusetts; and Baunita Greer, a director of the New York chapter of the National Association of Investors Corp. (NAIC), an organization that helps develop investment clubs and a member of New York-based CMG Investment Club, which is composed of several professionals. Our editorial team discussed with them their strategies for collective and individual wealth building.
BLACK ENTERPRISE: How do your members feel about investing in this tough environment and have they been able to maintain their financial commitment to investing?
OKORIE RAMSEY: As accountants, we are very positive about the market and what it can do. We've seen the downs and the ups. Actually, I would say that our financial commitment is stronger. As far as the impact of the market on our investments, we've probably lost about 20% of our initial investment from inception. But we believe this is a time to buy the right stock. You shouldn't just buy anything. They're all cheap right now. By knowing where these companies can go and [by] doing the research, you can still find good deals and get a good return.
MARCUS PLUMP. Our commitment has kind of fallen off a bit. The treasurer and I have had to be motivators because we're working people and what we put in could affect whether someone is going to eat. Basically, we've had to inform [our members] that right now is the best time to buy.
B.E.: Has your membership held steady?
PLUMP: We were up to 18 members. We went down to about eight, but now we're back up to about 12. We're a God-based club and we're looking at Proverbs 13:22, where a wise man leaves an inheritance to his children's children. That's why we started [the club]. If my grandfather had left me a quarter of a million dollars, would I be in the same situation that I'm in right now? We have let [members] know that this [bear market] is a test.
BERNADETTE JOHNSON: Our financial commitment has held up very well. We've been blessed that our partners' job situations have been fairly stable throughout this period. As far as financial commitment, we've kept our minimum fairly low to $35 a month plus some dues and fees to take care of incidentals, mailings, [etc.]. We did not want the club to be another wolf at the door.
But also there is a commitment to the club so if someone were to lose a job or hit a tough spot, and were not able to meet our financial commitment, we would [first] ask that she let the president know. Second, [we ask members to] maintain the rest of their commitment to the organization [by] following their stock and helping the club in other ways because this is a long-term commitment for us. We wouldn't say, `Well, you missed three payments so you're out.' We would work with [the individual to create] something that is workable for the long haul.
BAUNITA GREER: We have seven members and haven't lost any. We recently had a meeting. Our group is comprised of one very conservative person, two very aggressive people, and everyone else in the middle. We do quarterly reviews of our portfolio. [Right now] we see buying opportunities. We're re-evaluating a lot of stocks that [sold at] premiums before to see if this is the opportunity for us to get in.
CLARK GRAIN: Well, we haven't lost any enthusiasm. In fact, we've added a new member during this market fluctuation. We have 16 [members] now. Everyone was a highflier during the mid-90s. We made one fundamental mistake, [though]. We did not pay attention to the charts. We've lost about 30% of our value. We could have probably lessened that to 10% or 15% had we paid attention to the charts. The one lesson we learned [is that] there is a time to sell--even with your favorite stock the one that has been making beaucoup money for you. In the past, we have held no more than 1% cash. All of [our portfolio] had been in equities. These days, we have 35% of [it] in cash. We're just waiting for the right moment to pounce on a stock that we think is going to appreciate. And we've actually made some purchases and have done reasonably well, but we are very, very careful now. It may take two or three meetings to even think about buying a stock. But that means that everyone has done a lot of work.
B.E.: Has your club changed its investment strategy or philosophy in this environment?
GRAIN: We're looking at more data. For example, we recently focused on the cash flow statement [and it] helped us get out of some really bad stocks. [One example is] AOL Time Warner (NYSE: AOL). After they bought Time Warner, which was probably the dumbest move that any company could have made, we began to look at their cash flow statements and they were not good. So we dumped them. We did the same thing with Tyco (NYSE: TYC). Before the scandal broke, we dumped Tyco because its cash flow statements were beginning to look kind of shaky.
RAMSEY: Actually, now we're looking at the auditors just as a security measure. Besides that, we have not really gotten off course. One of the tools we use is the [NAIC] Stock Selection Guide [SSG], which helps you look at historical sales, earnings per share, [and] company performance.
One thing that we are doing a little bit differently is that we used to look at one or two companies in the same industry. Now we have broadened that to maybe three or four. We try to figure out which one has the best results, historically, and which has the best potential for future growth. That has been a strategy that has worked pretty well for us.
B.E.: How do you identify stocks to avoid?
GREER: We look at the SSG [for] anything that is fundamentally deteriorating. We look at historical sales and revenues, and then our [growth] projection with regard to [how well the company] will do over the next five years. [Next,] we look at management, the price-earnings [ratio], what we call `the buy range', and [whether] the stock [price] will appreciate 15% within five years. We look at those five criteria and see if three or four of those are deteriorating [or] not meeting the mark. We want to make sure our stocks are doubling their price every five years.
JOHNSON: We've tried to continue to make purchases with dollar-cost averaging [purchasing stocks at a set amount at regular intervals] in mind. [We] try to stick to what we know, continue to choose good companies, and stick to our fundamentals.
PLUMP: We basically stood still and took more cash. We [reviewed] the situation with the war and looked at the government, which needs money. [Therefore] we've looked into savings bonds. That's the safest [place to] invest right now.
B.E.: How are you managing members' expectations, especially those of aggressive younger investors vs. older conservative members?
GREER: We listen to what a person's concern is. If someone is bringing something to the table and we're a little aggressive, we are going to sit back and take in what [he or she is] saying. We are all equal partners and we are trying to work together. We are definitely not going to discount our conservative member. We make sure that everyone is comfortable with what we're doing and if they're not, we have to re-evaluate it.
GRAIN: First, look at the age make-up of our club. It ranges from early 30s to mid-70s. We do have our aggressive and conservative wings. Surprisingly, one or two of the mid-70s are the aggressive ones. The arguments usually result after someone proposes buying a certain number of shares. We aggressive types, if we think the company is going to move, [we say], `Hey, let's get a bunch, [maybe a] couple of hundred, [maybe] $300 shares.' The conservative folks will usually object. Most of the time there is a compromise.
B.E.: Can you give an example of such a compromise?
GRAIN: When we were high flying, I was an advocate of the younger, very high-growth companies, as long as their earnings per share were increasing at a phenomenal rate. I introduced that type of company but sometimes I hadn't done all of the homework. Of course the conservative person, naturally, does all of the homework There are debates with how carefully you've done your analysis. [Therefore, we ask] `Are you too enthusiastic about something that is flawed?'
GREER: But that's the positive of an investment club, having a variety of personalities and philosophies so that you can balance it out.
JOHNSON: For us, balance is really the key. Having 16 partners from schoolteachers to salespeople, we bring all of our different experiences to the table. [Since] we've been together for awhile, we also know what will fly with the club and what will not.
I think it's important for [those who are] considering getting involved in an investment club or starting [one] to set the parameters of what you are looking to do. If you want to build a club of highfliers--people who are extremely aggressive--then say that up front. If you need a conservative group of people, then go ahead and get a conservative group, but know what types of investments, time horizon, and returns you're interested in.
PLUMP: My club is between 35 and 50. We're real conservative because we're kind of new to the game. We haven't been through the [stock market] crash of 1987 or anything [like that]. A lot of our members are just learning the stock market and what a stock is. So we are looking at companies that have been around for a long time and that we know, over the long haul, will make money.
B.E.: How have the goals of the investment club changed since this bear market? How have you diversified your club's holdings?
RAMSEY: Our goals haven't really changed as far as education, shared risk, and shared reward [are concerned. We're looking to diversify.]When you buy a consumer staple or a technology stock, you're in equities, so you are still not diversified. Now, we're looking at mutual funds [and] real estate. We ventured into mutual funds seven years ago because we wanted to mitigate our risk from an individual stock.
JOHNSON: I would say that our goals haven't changed over the years but how we look to implement them is evolving. Since we've been together for a while and have a good number of stocks in our portfolio, we are interested in looking at other avenues, not because of the current economic situation but because we want to learn more about other ways to make money. In addition to stocks, we are looking at real estate--maybe not directly, but [through] real estate investment trusts [REITS].
PLUMP: We're looking at [diversifying] about 20% [of our holdings] into real estate. We want to rehab a neighborhood, fix and sell [properties], and put [the money] back into the club.
GREER: We evaluate our investment philosophy, which is long-term but we also want to make sure that we have diversity in the equity markets in regard to large-, mid-, and small-cap [stocks]. So we review the portfolio quarterly and see if we need to get rid of one company or another,
B.E.: At this point, how does your individual portfolio differ or match your investment club's portfolio?
GREER: Well, mine differs in that stock that the club is not necessarily interested in--like [The] Men's Wearhouse (NYSE: MW)--I would have in my portfolio. You're able to review your portfolio on a regular basis [and] just buy what you want. [However,] I know in a number of cases, I've had companies and [my club members have] said, "Why didn't you share that with us?"
GBAIN: Essentially, my personal portfolio has some of the stocks that are in our club portfolio, but since I'm the aggressive one in the club, I've taken my aggression out on my personal stocks. [My personal portfolio has] actually done pretty well I have the advantage of being able to buy, sell, and review if I wanted to on a daily basis, but at least a weekly basis, to re-balance and so forth. It has been a nice experience to have the freedom and still make money.
RAMSEY: I'm a little more aggressive outside of the club. My wife and I got into a couple of mutual funds, some individual stocks, and IRAs to help build our personal portfolio. It definitely doesn't mirror [the club's holdings]. We just try to put money where we think it will add value and maintain a pretty good cash flow as well.
JOHNSON: I set aside a small amount of my personal portfolio for more aggressive things. I [have invested in] things like eBay (Nasdaq: EBAY), which was interesting [and] didn't have the long history that the club would have been comfortable with.
B.E.: Do you believe President Bush's handling of the current accounting scandals has either hurt or helped investor confidence and the economy overall?
RAMSEY: I think Bush's handling of [the scandals] has not had an impact or a somewhat negative impact. I think part of the issue is that people don't trust him. [He] can't even get [his] story straight as to his own personal issues with accounting and explain that in a way that the American people can understand and accept [as] the truth. When you're saying you're going to get tough on these companies, how are we to believe that when that's your history?
B.E.: Early on, each time Bush spoke on TV about this, the market went down.
JOHNSON: That's not a good sign. What I've seen from both investor confidence and consumer confidence is the response to Alan Greenspan. He's been maybe more instrumental in calming things down and trying to get everybody on an even keel.
GREER: Investors are cautious and wary. In regard to Greenspan, they see him saying that we are recovering but they see their friends, neighbors, and themselves losing positions. After 1987, we didn't lose a lot of people down on Wall Street, but [from] 1989-1990, it became a little bit like a ghost town. It's happening again.
B.E.: Do you believe we'll see a market bottom this year?
GRAIN: I think it's going to be a little more painful [because] 2003 is not going to be a wonderful year. [The market] may improve a little but it's going to be slow and painful.
GREER: Clark is right. I think we'll see a slight improvement but even if there is a drastic improvement, we are going to go through some more pain.
B.E.: So what should investors do now?
GREER: Unfortunately, Americans are into instant gratification and [they] don't want to see that a bond price is better than [their] stock returns. You see what happened in the 1980s when we had those interest rates [as high as] 14%. Everybody was ready to forget about equities and put everything into the bond market. The reality is that all of us should have a percentage of our portfolios in bonds. That's part of the diversification. If you're sitting on the side, you're going to miss your opportunity.
JOHNSON: Your time horizon is so critical. We talk about five or 10 years. We talk about people saving for retirement in 20 years or [so]. If we can segregate parts of our portfolio then we [can identify] what we need in 10 years, 20 years, [or] what we can pass on to the next generation.
I recently found out that my great-great grandfather owned stock. [My family] had shares of American Home Products [now called Wyeth (NYSE: WYE)] that they sold in 1937. If [those dividends] had been reinvested, our family would have easily had a million dollars that we could use to put all the kids through college [or] give everybody a nest egg when they start out. Think about [investing] for your grandchildren's retirement instead of buying all the Tinkertoys. With that time horizon, it makes it more comfortable to live through the day-to-day turmoil in the market right now.
PLUMP: Get started and stay focused. Get your people together and hammer it in that you're not just doing it for them but for their children. Three years ago I didn't even think about investing. But now, I'm thinking about my children investing. My daughter just [turned] 15. She wants to start her own investment club--at 15. If I had started my own [club] at 15, I could probably have a nice nest egg for my children. So, it's making me think bigger. I'm not intimidated.
ZENITH INVESTMENT CLUB Price at Stock (Exchange: Ticker) Recommendation * Automate Data Processing (NYSE: ADP) $34.75 Freddie Mac (NYSE: FRE) 61.01 Fannie Mae (NYSE: FNM) 73.01 5-Year Estimated Stock (Exchange: Ticker) EPS Growth Rate Automate Data Processing (NYSE: ADP) 14.4% Freddie Mac (NYSE: FRE) 14.4 Fannie Mae (NYSE: FNM) 13.8 * AS OF AUGUST 5, 2002 SOURCES: YAHOO! FINANCE.COM; ZACKS.COM MILLIONAIRES-THRU-CHRIST INVESTMENT CLUB Price at Stock (Exchange: Ticker) Recommendation * Procter & Gamble (NYSE: PG) $88.00 ExxonMohil (NYSE: XOM) 32.29 Coca-Cola (NYSE: KO) 48.36 5-Year Estimated Stock (Exchange: Ticker) EPS Growth Rate Procter & Gamble (NYSE: PG) 10.4% ExxonMohil (NYSE: XOM) 9.0 Coca-Cola (NYSE: KO) 11.4 * AS OF AUGUST 5, 2002 SOURCES: YAHOO! FINANCE.COM; ZACKS.COM AWARENESS TO ACTION INVESTMENTS Price at Stock (Exchange: Ticker) Recommendation * Costco (Nasdaq: COST) $31.85 Starbucks (Nasdaq: SBUX) 18.63 Wellpoint Health Systems (NYSE: WLP) 66.31 5-Year Estimated Stock (Exchange: Ticker) EPS Growth Rate Costco (Nasdaq: COST) 13.9% Starbucks (Nasdaq: SBUX) 21.7 Wellpoint Health Systems (NYSE: WLP) 15.7 * AS OF AUGUST 5, 2002 SOURCES: YAHOO! FINANCE.COM; ZACKS.COM BLACK WOMEN INVESTMENT CORP. Price at Stock (Exchange: Ticker) Recommendation * Harley-Davidson (NYSE: HDI) $42.83 Oracle (Nasdaq: ORCL) 9.01 CISCO (Nasdaq: CSCO) 11.36 5-Year Estimated Stock (Exchange: Ticker) EPS Growth Rate Harley-Davidson (NYSE: HDI) 18.5% Oracle (Nasdaq: ORCL) 18.2 CISCO (Nasdaq: CSCO) 20.3 * AS OF AUGUST 5, 2002 SOURCES: YAHOO! FINANCE.COM; ZACKS.COM BAUNITA GREER/ NAIC NEW YORK CHAPTER Price at Stock (Exchange:Ticker) Recommendation * Pfizer (NYSE: PFE) $29.75 Amgen (Nasdaq: AMGN) 42.22 Target (NYSE:TGT) 31.50 5-Year Estimated Stock (Exchange:Ticker) EPS Growth Rate Pfizer (NYSE: PFE) 16.3% Amgen (Nasdaq: AMGN) 20.1 Target (NYSE:TGT) 14.8 * AS OF AUGUST 5, 2002 SOURCES: YAHOO! FINANCE.COM; ZACKS.COM
RELATED ARTICLE: October 2001 B.E. Stock Update.
With war, terrorism, and corporate scandals, it's no surprise that the stock picks of last 0ctober's roundtable participants were pummeled. Harboring a penchant for name-brand equities and market leaders, our stock pickers--James Francis, CEO of Paradigm Asset Management Co. LLC. (No. 10 on the BE ASSET MANAGERS list with $1.5 billion in assets under management); Rahimah Lateef, head of the Convertible Group/Securities Investment Department for New York Life Investment Management L.L.C.; Michael Ray, head equity trader for Baltimore -based Legg Mason Funds Management's mutual fund group; and Mark D. Lay, CEO of MDL Capital Management Inc. (No. 7 on the BE ASSET MANAGERS list with $3.2 billion in assets under management)--didn't identify one stock that produced a total return better than -13.45% Our panel, however, offered advice that investors should heed: develop a diversified portfolio of equities and bonds--and think long-term.
James Francis, Paradigm Asset Management Company (Exchange: Ticker) Current Price * Harley-Davidson (NYSE: HDI) $46.96 Home Depot (NYSE: HD) 28.29 TMP Worldwide (Nasdaq: TMPV) 9.32 Stock Pick Average Current Value of $3,000 Investment Price at Company (Exchange: Ticker) Recommendation ([dagger]) Harley-Davidson (NYSE: HDI) $49.49 Home Depot (NYSE: HD) 48.46 TMP Worldwide (Nasdaq: TMPV) 49.58 Stock Pick Average Current Value of $3,000 Investment Company (Exchange: Ticker) Total Return Harley-Davidson (NYSE: HDI) -5.11% Home Depot (NYSE: HD) -41.62 TMP Worldwide (Nasdaq: TMPV) -81.20 Stock Pick Average -42.65% Current Value of $3,000 Investment Current Value Company (Exchange: Ticker) of $1,000 Investment Harley-Davidson (NYSE: HDI) $948.88 Home Depot (NYSE: HD) 583.78 TMP Worldwide (Nasdaq: TMPV) 187.98 Stock Pick Average Current Value of $3,000 Investment $1,720.64 Rahimah Lateef, New York Life Investment Management Company (Exchange: Ticker) Current Price Barnes & Noble (NYSE: BKS) $20.05 Venator * (NYSE: Z) 9.65 School Specialty (Nasdaq: SCHS) 21.40 Stock Pick Average Current Value of $3,000 Investment Price at Company (Exchange: Ticker) Recommendation Barnes & Noble (NYSE: BKS) $46.66 Venator * (NYSE: Z) 17.83 School Specialty (Nasdaq: SCHS) 38.80 Stock Pick Average Current Value of $3,000 Investment Company (Exchange: Ticker) Total Return Barnes & Noble (NYSE: BKS) -50.69% Venator * (NYSE: Z) -45.88 School Specialty (Nasdaq: SCHS) -44.85 Stock Pick Average -47.14% Current Value of $3,000 Investment Current Value Company (Exchange: Ticker) of $1,000 Investment Barnes & Noble (NYSE: BKS) $493.11 Venator * (NYSE: Z) 541.22 School Specialty (Nasdaq: SCHS) 551.55 Stock Pick Average Current Value of $3,000 Investment $1,585.88 * CURRENTLY KNOWN AS FOOT LOCKER INC. Michael Ray, Legg Mason Funds Management Company (Exchange: Ticker) Current Price Citigroup (NYSE: C) $34.31 SBC Communications (NYSE: SBC) 26.96 Gateway (NYSE: GTW) 4.00 Stock Pick Average Current Value of $3,000 Investment Price at Company (Exchange: Ticker) Recommendation Citigroup (NYSE: C) $49.64 SBC Communications (NYSE: SBC) 44.52 Gateway (NYSE: GTW) 11.03 Stock Pick Average Current Value of $3,000 Investment Company (Exchange: Ticker) Total Return Citigroup (NYSE: C) -30.88% SBC Communications (NYSE: SBC) -39.44 Gateway (NYSE: GTW) -63.74 Stock Pick Average -44.69% Current Value of $3,000 Investment Current Value Company (Exchange: Ticker) of $1,000 Investment Citigroup (NYSE: C) $691.18 SBC Communications (NYSE: SBC) 606.57 Gateway (NYSE: GTW) 362.65 Stock Pick Average Current Value of $3,000 Investment $1,659.40 Mark D. Lay, MDL Capital Management Company (Exchange: Ticker) Current Price Veritas Software (Nasdaq: VRTS) $17.83 Wal-Mart (NYSE: WMT) 49.20 Lucent (NYSE: LU) 1.49 Stock Pick Average Current Value of $3,000 Investment Price at Company (Exchange: Ticker) Recommendation Veritas Software (Nasdaq: VRTS) $38.66 Wal-Mart (NYSE: WMT) 53.60 Lucent (NYSE: LU) 6.51 Stock Pick Average Current Value of $3,000 Investment Company (Exchange: Ticker) Total Return Veritas Software (Nasdaq: VRTS) -53.88% Wal-Mart (NYSE: WMT) -8.21 Lucent (NYSE: LU) -77.11 Stock Pick Average -46.40% Current Value of $3,000 Investment Current Value Company (Exchange: Ticker) of $1,000 Investment Veritas Software (Nasdaq: VRTS) $461.20 Wal-Mart (NYSE: WMT) 917.91 Lucent (NYSE: LU) 228.88 Stock Pick Average Current Value of $3,000 Investment $1,607.99 SOURCE: YAHOO! FINANCE TOTAL RETURN REFLECTS STOCK APPRECIATION AND INCLUDES STONK SPLITS AND DIVIDENDS AS OF ([dagger]) AUG. 10,2001 * AS OF AUG. 9,2002
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|Author:||Scott, Matthew S.|
|Article Type:||Panel Discussion|
|Date:||Oct 1, 2002|
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