Volatility happens

How investment clubs are dealing with turbulent markets

With 100-point rises and falls in the Dow Jones industrial average an almost commonplace event, some jittery investors are tempted to sell their holdings at the slightest sign of trouble. And as more mom-and-pop investors turn to electronic trading, if a stock fails to meet earnings estimates by one penny, a sell order is just a mouse click away.

But despite the frenetic pace of today’s stock market, some investment clubs are sticking to a buy-and-hold investment philosophy, hanging on to their stocks even when other investors are screaming "Sell!" Others are putting more of their capital into riskier investments they hope will become long-term winners.

The New Freedom Investment Club, based in Durham, North Carolina, adheres to the former principle. The 21-member club has 100% of its $214,000 portfolio invested in stocks, according to presiding president Chris Wilson, and typically holds them at least three years. "We add [stocks] with the idea that we will hold them for a long period of time," says Wilson. The club uses a number of tools to research potential and current holdings, including Yahoo! Finance, Value Line reports and the Securities and Exchange Commission’s EDGAR on-line database.

Wilson adds the club won’t invest in a stock unless it has at least a five-year history. Since Internet stocks don’t fit that criteria, New Freedom shies away from the sector. Although Wilson understands the club can realize enormous gains by investing in Internet firms, it prefers to own more stable players in the industry, such as Lucent Technologies (NYSE: LU), its No. 2 holding at 14%, and Cisco Systems (Nasdaq: CSCO), its No. 6 holding, at 6%.

The club does dump some stocks to make room for what it deems are more attractive investments. For example, in April, the club dropped Memphis-based AutoZone (NYSE: AZO), a specialty retailer of auto and truck parts, and picked up CVS Corp. (NYSE: CVS), a Woonsocket, Rhode Island, drugstore chain. New Freedom’s top three holdings are Microsoft (Nasdaq: MSFT), 17%; Lucent and State Street (NYSE: STT), at 12%.

Then there’s Enterprising Minority Investors, a Hartford, Connecticut, investment club founded by husband and wife André and Medina Jett. Formed in 1991 to help young professional African Americans invest in the market, the club follows former Fidelity Investments fund manager Peter Lynch’s credo: own what you know.

To that end, the club recently invested 15% of its $104,000 portfolio in a private placement for Ball Girl Inc., a minority-owned woman’s sports apparel company in New York City. André has a working relationship with the management at the firm, so he was comfortable taking a position via a private placement. Still, André acknowledges that Enterprising Minority Investors’ stake in Ball Girl is a departure from its more measured approach to the market.

The club also has a big position in Citigroup (NYSE: C), with 27.2% of the portfolio invested in the New York City financial services powerhouse. Enterprising Minority Investors bought its first shares

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