Finding A Winning Strategy

A.B.A.S.I. members use price limits to minimize losses and maximize stock gains

For the members of the African Brothers and Sisters Investors (A.B.A.S.I.), “name your price” is a winning strategy for investing. Most investors don’t realize that they can name the amount they’re willing to pay for a stock, or that they can accept on the sale of shares by using stop-loss orders.

A stop-loss order, as the name suggests, is designed to stop a loss. If you bought a stock at $22 and are worried about it falling too low, you might place a stop-loss order to sell on it at $20. If the next trade after that stock falls to $20 is $19.50, then the stop-loss order to sell turns into a market order and your shares are sold for $19.50. A stop-loss order to buy turns into a market order when the stock price rises to a specified figure. “Early on, when things were good and the market was hot, we were realizing some investment gains. (The group was averaging a rate of return of 10% between 1997 and 2000.) But then the market bubble burst and, at one point, our portfolio was down 35%,” says Otis Sistrunk, president of the 6-year-old club. “Using stop-loss orders helped us go to a negative 13%. That number is steadily getting smaller with every market rally,” he adds.

Within the past 18 months, the members of A.B.A.S.I. have been setting a target price on a stock and then selling it to realize a profit. The group’s purchase of Best Buy (NYSE: BBY) is a great example, says club treasurer Earl Ransome. “We bought it some time last year. It rose about 40%. We identified a dollar value and instituted a stop-loss order to sell on it. When it came back down and hit that number, it was sold automatically. We made about $500 on it, netting around a 28% gain.” A.B.A.S.I. members also decided to do some value picking — buying shares of solid companies after they’d declined in price. For instance, in June, the group purchased Loews (NYSE: LTR) at $41 and it rose to $45. They also bought Home Depot (NYSE: HD) at $25 and it rose to $32.66. “We knew these companies were the leaders in their industries,” says Sistrunk. “While other investors were selling or sitting idly on the sidelines, we were diligent in adding new stocks to our portfolio.”

Sistrunk formed the club in October 1997 after sending mailers to about 50 friends and associates. It worked out that nine married couples came together to form the club. The core group initially put up $1,000 per couple and contributed $50 each month thereafter. The club has always researched its own stocks. “We wanted to start investing right away, to hit the ground running,” Sistrunk explains.

In the beginning, members were on a steep learning curve, so they decided to put a limit on the dollar value per share of any stock purchase — no more than $40 — $50. “We wanted to be able to buy a fair number of shares of a

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