Seven Keys to a Profitable Investment Club

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

risk-tolerance level.

Washington Metro’s portfolio has 19 holdings that expand across different industries from consumer household goods to pharmaceuticals to telecommunications to waste management. Coles says the club tries to get a “sort of bell curve” by investing half of its money in small and mid-size companies and the other half in large firms.

“We know that with the blue chips they may not make as much money in returns, but we know those companies have been out there for awhile and they are the ones we can count on,” says Coles. “With the smaller stocks, we know we can make more money with them but we might also lose money on them because they are a high risk.”

Key #4
Create Study Teams; Invest in What You Know
“Each one teach one” best describes Investors 2000. Members range in age between 30 and 50, with diverse backgrounds from nursing to banking. Some members have worked in the industry, including the club’s president, Carolyn Williams-Robinson. “We taught what we knew to the other members and we developed stock study groups,” she says. As with most clubs, the members of Investors 2000 attended NAIC’s stock study program, a series of twelve lessons on selecting and evaluating stocks.

The group set a one-year timetable before buying its first stock, America’s Utility Fund (offered by their local utility company). “We noticed in our bills it was offering customers a plan to buy into this mutual fund.&quot
; A team of members researched the fund and presented their findings. The group voted in favor of investing.

Teams of two or more members research stocks together, prepare reports and present their findings to the group, says Baunita Greer, an active participant in NAIC’s regional council and COBI, and president of Cromwell, Miller & Greer, a New York-based brokerage firm. “It’s important that the group solicits ideas from every member about companies to look into as possible purchases,” she adds.

Instead of chasing hot tips, Investors 2000′s members check out companies whose products or services fill their homes. Says Williams: “The question on everyone’s mind when we started out was ‘How do you know when and what to buy?’ I told people to research something that they have an interest in or a product that they use.”

Key #5
Reinvest All earnings, Dividends and Capital Gains
A club’s money grows faster when earnings are reinvested. The club maximizes its profits through compounding. More-over, those clubs that flourish do so because they tend to stay fully invested at all times. They rarely turn over their portfolios, instead reinvesting all returns, including dividends and interest. Investors 2000, Washington Metro and Minority Investment all use dividend reinvestment plans (DRIPs), accounts you open directly with a company that allow you to buy shares from headquarters. This lets members avoid paying broker commissions and dividends are automatically reinvested into the account.

“The majority of the stocks we own have DRIPs, including McDonald’s (NYSE: MCD), Pepsico (NYSE: PEP), Quaker Oats (NYSE: OAT) and Waste Management,” says Washington Metro’s Coles. “We normally set aside [out

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