Seven Keys to a Profitable Investment Club

These three clubs show high returns can be had by following the right path to investing

It was a BLACK ENTERPRISE story about an African American family who gained substantial wealth through an investment club that gave birth to Investors 2000 in 1993. Today, the Richmond, Virginia, group of men and women is making its own headlines. Investors 2000 won a $1,000 cash prize and was deemed the 1998 Investment Club of the Year by the Coalition of Black Investors (COBI) in Winston-Salem, North Carolina.

In addition to a combined compound annual return of 70% for 1996 and 1997, the group’s youth and community advocacy was a factor in COBI’s selection of Investors 2000. The 15-member club’s Second Generation Program encourages members to bring children to their monthly meetings.

Today’s most prosperous investment clubs-those with assets of several thousand to more than a million dollars-started out years ago with only a few dollars and little or no prior experience, yet they’ve achieved results that would make many professional money managers green with envy.

Your club can apply the same tested and proven standards that have made these clubs profitable. Like the tortoise in Aesop’s fable, all you need is to be patient-slow and steady wins the race-and to avoid a few hare traps. Rabbit-like investors end up with sleepy portfolios when they develop a basic plan but fail to stick with it through thick and thin.

be talked to the presidents of Investors 2000 and two COBI finalists: Washington Metropolitan Club and Minority Investment for Tomorrow. The following seven keys are fundamental principles these and other winning clubs practice.

Key #1
It doesn’t matter whether the market is in a boom or bust, club members commit to investing a set amount of money in the market each month-a practice known as dollar-cost averaging. This way they buy more shares when prices drop and fewer shares when prices go up. Market tides may cause speculators or inexperienced investors to bail out, but astute clubmembers welcome dips as buying opportunities.

The Washington Metropolitan Investment Club used dollar-cost averaging to make the most of a turbulent market. The club’s portfolio, valued at $130,277 (as of November 19, 1998), dropped 28% in 1998. “We aren’t bothered by market fluctuations,” says Gerald Coles, the club’s president. “Because we dollar-cost average, we were able to use the same monthly contributions to purchase more shares in our current holdings when prices dropped last fall.”

In fact, Washington Metro doubled the number of shares owned in several companies, including Colgate-Palmolive (NYSE: CL), Lucent Technologies (NYSE: LU), Waste Management (NYSE: WMI) and Golden Triangle (NYSE: GTII).

“With this approach [dollar-cost averaging], you’re virtually certain to purchase stocks at a bargain and profit handsomely when prices move upward,” says Thomas O’Hara, chair of the National Association of Investors Corp., the Madison Heights, Michigan-based trade group.

Washington Metro is proof of this strategy and has stuck with dollar-cost averaging since 1992. After just four years in existence the club was top gun among all clubs in its home state of Virginia in 1996, and an elite member of the top 30 clubs overall in the United

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