June 1, 2004
Moving To Mutual Funds
Plenty of attention has been paid to the mutual fund industry’s alleged unethical trading practices in certain fund families. Even though such information can be discouraging, Kenyatta T. Robinson, president of Raven Enterprise, an investment club with members in southern and northern California, says mutual funds are still one of the most effective ways for clubs to diversify their investments.
Faced with the difficulty of selecting emerging companies with high growth potential in an unforgiving market, the group is considering purchasing the Vanguard Explorer small-cap fund to try to capture better returns. “Our philosophy has always been to look at stocks with a positive 10-year history, and this gives us a conservative approach,” says Robinson. “We’ve bought some individual mid-cap stocks, but the challenge was always to find small-caps.”
By moving to mutual funds, Raven Enterprise gets the benefit of professional money managers who select smaller companies that are unproven but may have great potential. Thus far, Vanguard funds haven’t fallen under the scrutiny of the Securities and Exchange Commission, the New York Attorney General’s Office, or the National Association of Securities Dealers.
Okorie L. Ramsey, the club’s treasurer, acknowledges the fund industry’s problems, but says he thinks the Vanguard fund is a smart consideration. “While the mutual fund industry has experienced its share of trouble, we believe it will rebound from the recent setbacks,” he says.
The market’s volatility and industry scandals have turned many investment club members into more conservative investors. Raven has changed its strategy as well. But instead of shifting the club’s holdings into bond funds or fixed-income vehicles, Raven’s members voted to put their investing on hold, so members could reevaluate holdings and eliminate stock they felt were unnecessary or redundant.
At the time of this writing, the club had $11,000 invested in 15 companies and a total portfolio balance of $17,200. Monthly dues are $50, and the club’s top five holdings are Intel Corp. (NASDAQ: INTC), Pfizer Inc. (NYSE: PFE), Cisco Systems Inc. (NASDAQ: CSCO), Costco Wholesale Corp. (NASDAQ: COST), and Merck & Co. Inc (NYSE: MRK). The club is considering putting some of its cash balance into the Vanguard mutual fund.
Robinson and Ramsey, lifelong friends, founded the club in 1996. They researched how to start a club of their own through the NAIC and founded Raven Enterprise with eight members. Around this time, they’d begun reading BLACK ENTERPRISE in earnest, and they modeled the name of the club after the magazine. “We wanted [a name] that reflected the fact that it was a club based on an African American membership and something that symbolized African American or black, so we looked in the dictionary and found Raven,” Ramsey explains. “It’s a synonym for black but also for something cutting-edge.”
The principles of the club haven’t changed since it was founded. New members must contribute minimum monthly dues, demonstrate a willingness to share and learn about investing, analyze potential investments using the principles of the NAIC, and actively participate in the management of the club.
Since all of Raven Enterprise’s