The Investors Next Door

Trying to figure out the best movesin today's market? Listen to the strategies from members of some of the nation's leading investment clubs.

they were not good. So we dumped them. We did the same thing with Tyco (NYSE: TYC). Before the scandal broke, we dumped Tyco because its cash flow statements were beginning to look kind of shaky.

RAMSEY: Actually, now we’re looking at the auditors just as a security measure. Besides that, we have not really gotten off course. One of the tools we use is the [NAIC] Stock Selection Guide [SSG], which helps you look at historical sales, earnings per share, [and] company performance.

One thing that we are doing a little bit differently is that we used to look at one or two companies in the same industry. Now we have broadened that to maybe three or four. We try to figure out which one has the best results, historically, and which has the best potential for future growth. That has been a strategy that has worked pretty well for us.

B.E.: How do you identify stocks to avoid?

GREER: We look at the SSG [for] anything that is fundamentally deteriorating. We look at historical sales and revenues, and then our [growth] projection with regard to [how well the company] will do over the next five years. [Next,] we look at management, the price-earnings [ratio], what we call ‘the buy range’, and [whether] the stock [price] will appreciate 15% within five years. We look at those five criteria and see if three or four of those are deteriorating [or] not meeting the mark. We want to make sure our stocks are doubling their price every five years.

JOHNSON: We’ve tried to continue to make purchases with dollar-cost averaging [purchasing amount at regular intervals] in mind. [We] try to stick to what we know, continue to choose good companies, and stick to our fundamentals.

PLUMP: We basically stood still and took more cash. We [reviewed] the situation with the war and looked at the government, which needs money. [Therefore] we’ve looked into savings bonds. That’s the safest [place to] invest right now.

B.E.: How are you managing members’ expectations, especially those of aggressive younger investors vs. older
conservative members?

GREER: We listen to what a person’s concern is. If someone is bringing something to the table and we’re a little aggressive, we are going to sit back and take in what [he or she is] saying. We are all equal partners and we are trying to work together. We are definitely not going to discount our conservative member. We make sure that everyone is comfortable with what we’re doing and if they’re not, we have to re-evaluate it.

GRAIN: First, look at the age makeup of our club. It ranges from early 30s to mid-70s. We do have our aggressive and conservative wings. Surprisingly, one or two of the mid-70s are the aggressive ones. The arguments usually result after someone proposes buying a certain number of shares. We aggressive types, if we think the company is going to move, [we say], ‘Hey, let’s get a bunch, [maybe a] couple of hundred, [maybe] $300 shares.’ The conservative folks will usually

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