It’s not unheard of for an investment club to grow and prosper for decades. To achieve long-term gains, it’s critical for clubs to stay together for a significant period of time. As members become more astute and the amount of money under management swells, the organization begins to realize exponential gains.
According to the National Association of Investors Corp. (NAIC), a longer time horizon always favors club investors. For example, club members who invested $50 each month in a portfolio with an average annual rate of return of 11% would approach $1 million 45 years later.
But achieving such a scenario requires unshakeable commitment to long-term investing. In fact, this has been a hard-learned lesson for Women Investing Money (WIM), a Chesapeake, Virginia-based club launched in 1987 by a group of grade-school educators. “We read about a club that was saving for the big millennium bash,” says Marionette Butts, the club’s president. “We decided to do the same thing.”
Initially, 12 women began meeting monthly, contributing $25 each, and investing in stocks such as Wal-Mart (NYSE: WMT) and Cracker Barrel, which is now CBRL Group Inc. (Nasdaq: CBRL). These were companies in which they had a familiarity with the product. Three years later, however, the club started to fall apart as members departed—some fellow teachers and school administrators moved out of the area—and took their money with them. “In our original contract, we did not say you couldn’t [withdraw] your money when you left the club. We began to
undermine the reason we [started] investing, so we just ended the club,” explains Butts, noting that each member received about $2,000. Had the club stayed fully invested until the year 2000—as originally planned—Butts believes the group could have tripled its money during the bull market of the ’90s.In the fall of 1999, eight original members decided to revive the club under the name Women Investing Money 2000. But the second time around, members decided to set more stringent rules. “We said that you had to stay with the club for [a minimum of five years] and if you were to leave during that period, your money would have to remain with the club.” Otherwise, members who left after five years would receive the total value of their contribution.
Now, there are 20 members of WIM 2000. Since the relaunching of the club, it has produced an average annual return of roughly 7% to 8%. Although the club still holds Wal-Mart in its portfolio, its largest holdings are food company ConAgra (NYSE: CAG) and pharmaceutical giant Pfizer (NYSE: PFE).
Past experience has also forced members to rethink the group’s investment strategy. For instance, WIM 2000 now stresses greater diversification. Having suffered huge losses in tech stocks, members learned that the bulk of a club’s holdings should never be invested in one sector.
Moreover, Butts still views financial guru Peter Lynch’s philosophy, “Invest in what you know,” as a sound practice, especially during the speculative ’80s and ’90s. But it must be
done judiciously: Members now realize it takes more than being a brand-loyal consumer of a product when choosing a set of companies. It requires building a diverse portfolio of well-researched stocks—a process that chief researcher Oris Armstrong oversees—and evaluating a company’s history, management, revenue and profit growth, and price-to-earnings ratio.Since half of the club is comprised of senior citizens, members are not dependent on the club for retirement income. Most have invested in teachers’ annuity plans and other such retirement vehicles. They view participation in WIM 2000 as having a greater say in how a portion of their money is managed. “We want to be able to show our children and grandchildren that this is a viable, profitable vehicle.”
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WIM 2000’S Top Five Holdings |
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| Company | Exchange/ Symbol |
Portfolio Weighting |
| ConAgra | NYSE: CAG | 33% |
| Pfizer | NYSE: PFE | 32 |
| Wal-Mart | NYSE: WMT | 25 |
| Merck | NYSE: MRK | 3 |
| Southern Co. | NYSE: SO | 2 |
| *AS OF FEB. 27, 2003 | ||