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.

object. Most of the time there is a compromise.

B.E.: Can you give an example of such a compromise?

GRAIN: When we were high flying, I was an advocate of the younger, very high-growth companies, as long as their earnings per share were increasing at a phenomenal rate. I introduced that type of company but sometimes I hadn’t done all of the homework. Of course the conservative person, naturally, does all of the homework. There are debates with how carefully you’ve done your analysis. [Therefore, we ask] ‘Are you too enthusiastic about something that is flawed?’

GREER: But that’s the positive of an investment club, having a variety of personalities and philosophies so that you can balance it out.

JOHNSON: For us, balance is really the key. Having 16 partners from schoolteachers to salespeople, we bring all of our different experiences to the table. [Since] we’ve been together for awhile, we also know what will fly with the club and what will not.

I think it’s important for [those who are] considering getting involved in an investment club or starting [one] to set the parameters of what you are looking to do. If you want to build a club of highfliers–people who are extremely aggressive–then say that up front. If you need a conservative group of people, then go ahead and get a conservative group, but know what types of investments, time horizon, and returns you’re interested in.

PLUMP: My club is between 35 and 50. We’re real conservative because we’re kind of new to the game. We haven’t been through the [stock market] crash of 1987 or anything [like that]. A lot of our members are just learning the stock market and what a stock is. So we are looking at companies that have been around for a long time and that we know, over the long haul, will make money.

B.E.: How have the goals of the investment club changed since this bear market? How have you diversified your club’s holdings?

RAMSEY: Our goals haven’t really changed as far as education, shared risk, and shared reward [are concerned. We’re looking to diversify.]When you buy a consumer staple or a technology stock, you’re in equities, so you are still not diversified. Now, we’re looking at mutual funds [and] real estate. We ventured into mutual funds seven years ago because we wanted to mitigate our risk from an individual stock.

JOHNSON: I would say that our goals haven’t changed over the years but how we look to implement them is evolving. Since we’ve been together for a while and have a good number of stocks in our portfolio, we are interested in looking at other avenues, not because of the current economic situation but because we want to learn more about other ways to make money. In addition to stocks, we are looking at real estate–maybe not directly, but [through] real estate investment trusts [REITS].

PLUMP: We’re looking at [diversifying] about 20% [of our holdings] into real estate. We want to rehab a neighborhood, fix and sell [properties], and

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