Balancing Risk And Reward

The B&S Investment Club uses market professionals to better understand risk

Every other month, the Detroit-based B&S Investment Club (B&S stands for Brothers and Sisters) hosts a member of the financial community at its meeting. Club president Darrin Flowers says interfacing with representatives of the financial community is a great way to keep members informed about the ever-changing risks involved with actively managing their portfolio.

Before making a selection, the club uses a checklist to determine whether a stock is a good investment. “If we’re looking at a pharmaceutical stock, we’ll look at the P/E ratio, the net worth of the company, and future indicators such as 1-year, 5-year [growth rates], and beyond,” says Flowers, an engineer at Siemens VDO Automotive. “Once we’ve gone through all the indicators, we try to pick out the best three stocks in that category. Then, we’ll pick the one that will post suitable gains.”

The almost 3-year-old investment club has moved cautiously, building a portfolio of four stocks and cash that had a total value of $5,960.69 as of Jan. 19, 2004. At the time, the portfolio was made up of Fannie Mae (NYSE: FNM), Bradley Pharmaceuticals (NYSE: BDY), Ford Motor Co. (NYSE: F) and Home Depot (NYSE: HD). Since the group’s 11 members pay a modest $25 in monthly dues, it has taken a while for them to accumulate enough money to make a lot of purchases. They added two new members to the fold in January to strengthen the club’s investing ability.

B&S hasn’t been afraid to pursue controversial investment choices in the past. Flowers says it was once suggested that the club invest in medicinal marijuana and pornography because they thought it made good investing sense. They investigated those stocks like they would have stocks in any other industry sector. “The member who suggested porn found that some Fortune 500 companies invest in it,” says Flowers. “I thought this was unreal. You hear that people are trying to eliminate porn and then you find out its a billion-dollar industry.” Stacey Cole, who founded the club and is now its treasurer, says, “We considered investing in marijuana because Canada is passing laws to make it legal for medical use. A member suggested that we invest in the company that planned to produce it for medicinal purposes.”

Why even consider such risky, unconventional investment choices? Flowers says the key to investing in a volatile market is broadening one’s investments, even to include some things that aren’t favored by the masses.

The club has other unorthodox ideas for the future. They’re thinking about starting a nonprofit organization to help others learn to invest, or establishing an assisted living facility. Says Cole, “We talk a lot about the state of black people in America and how much help they really need. This [would be] a way we can help.”

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