of our total monthly contributions] $100 each to buy shares in these companies. We tripled that amount recently to $300 to take advantage of falling prices.”
The clubs we spoke with concentrate on increasing their ownership of the best performers, substituting the better stocks for the laggards. When a club sells a stock it’s generally because the company no longer has a high growth potential. Professional money managers may sell and buy their holdings once or even three times a year in hope of garnering higher profits. But a short-term trader mentality doesn’t quite mesh with the long-term growth objective of clubs.
Since its start-up six years ago, Investors 2000 has sold only two stocks, Novell (Nasdaq: NOVL) and Heilig Meyers (NYSE: HMY), which failed to live up to expectations. Says Williams, “Those stocks had really lagged behind their peers for an extended period of time. When we crunched the numbers, we didn’t see anything that would change that.”
Minority Investment has 12 holdings and has sold three stocks since inception, Diebold (NYSE: DBD), Andrea Electronics (NYSE: AND) and Applied Materials (Nasdaq: AMAT), because of trailing earnings. And Washington Metro has stayed fully invested. The club did sell its shares in Upjohn (NYSE: PNU), opting to buy Pfizer (NYSE: PFE). “These are two companies in the same sector, but we felt Pfizer had a better growth and earnings projection.”
Set Goals and Evaluate the Club’s Portfolio and Capital Gains
At every meeting, most groups evaluate the club’s portfolio to determine if it wants to buy, hold or sell its shares. The club minimizes risks and maximizes gains when it purchases shares it intends to hold onto as long as the business operates successfully.
According to the NAIC, a club’s goals ought to be to attain average growth in prices and dividend income of 14.9%, compounded annually. At this rate, the club will double the value of its holdings every five years. Equally, the club should realize a 4%-6% percent yield over time on an investment from dividend income.
Each month, Minority Investment evaluates its holdings using fundamental and technical research. “We do a graph that plots sales, earnings and price fluctuations, so that we can get a visual analysis to determine if a company is meeting our projected growth rate of 15% or above,” explains Parker. “In our fundamental analysis, we look at the company’s P/E ratio and where it stands in its respective industry.”
Invest for the Long-Term
It’s crucial for clubs to stay together for a significant period of time; otherwise, their ability to achieve long-term gains will vanish. Members should plan to maintain their member status until their retirement years.
“We have a minimum 20-year projected goal for the club to stay together,” says Washington Metro’s Coles. The 29-member club’s broad group of investors range in age from people in their mid-30s to retirees. And it represents several different sectors of the population, including corporate professionals, government workers, senior officers in the U.S. military and small business owners. Adds Coles, “We formed this club