Brush Up On Basics Before Starting An Investment Club
Interested in starting your own investment club but not sure how one works? Talk to Dorothy Wilson, a retired Dade County school teacher and a founding member of the Hedgers Club, one of the longest-lasting investment clubs in Miami.
Its members, women between 50 and 90 years old, include a retired fashion model, a dentist, a hairdresser, two teachers and a secretary. They aim for an average annual return of 15 percent, and the value of their portfolio exceeds $135,000.
To join, members pay $100 upfront, plus $30 every month. Their monthly meetings, which usually last two hours and include cocktails and lunch, are both convivial and businesslike.
Q. The Hedgers Club was created in 1981 as a spinoff of another club plagued by dissension and bickering - a common problem for investment clubs. How do you maintain cohesion among the 15 members of Hedgers?
A. I don’t allow any bickering. I’m the chairman, so I’m supposed to be able to conduct meetings and avoid dissension. Now, there may be a word or two, but that’s OK. The key is to organize meetings so they move along. Also, it’s important everyone be given some responsibility.
Q. Do you limit the number of members in your club?
A. Yes. We limit membership to 15. It used to be 20, and I think it still should be 20. But the majority think it should be 15. Some of them still like to have meetings at their homes, and 20 is too many.
Q. How do you see your role as chair?
A. A chairman shouldn’t talk too much. You learn to lead and guide in other ways besides spouting off at the mouth.
For example, lunches at the Miami Woman’s Club where we hold a lot of our meetings cost $15.60 per person. I think that’s a lot, and I’d rather see that money invested instead. When I step down as chairman next year, I’ll propose that we do away with lunch. It’s the same with cocktails. I enjoy a Bloody Mary and martini every now and then, but I think we should cut some of that out.
Q. How do you choose stocks?
A. We look for growth stocks, because we don’t have to depend on what we make in the club for income. The experts preach to us the company’s management must be good. That’s what you check on. Now, we’re not the best to do that, so we go by what other people say. We rely on what our broker tells us.
This year, to improve our buying, we formed a four-member stock growth committee. They look at our suggestions and then recommend what to buy. We have 18 stocks and should be adding two more.
Q. Your portfolio includes a utilities company, a couple restaurant chains, an airline and several pharmaceutical makers. Is diversification a key issue with you?
A. Well, we are trying to diversify more. A couple years ago, when we sent our portfolio to the National Association of Investors Corp. for an evaluation, they said we were not quite diversified enough. Now I think we have most all the sectors represented in our portfolio.
Q. Have you ever been guilty of buying stocks for sentimental reasons?
A. Yes, and that’s been a mistake. We own some Pan Am stock. One of our member’s husbands was a Pan Am pilot, and we liked it because the airline originated in Miami. It didn’t cost much, and we don’t have much in it, but the stock hasn’t done anything.
Another example is Outback Steakhouse. It looks like they do well, and they’re always crowded. Someone liked it, so we bought some stock. But that’s not how you buy in a club.
Q. Do you have any mutual funds?
A. We as a club do not have any, but I personally have many mutual funds. I think we could, although it wouldn’t fit our objective or purpose. Mutual funds are run by experts who make decisions for you, and we’re supposed to be learning how to do it ourselves.
Q. What does your club hope to accomplish?
A. Our goal in the club is to learn, socialize, make friends and try to make money. In our club, we can afford to make mistakes because each of us doesn’t have much invested. In that sense, investing in a club is different than a personal account.
Q. What is the club’s philosophy toward making money?
A. I guess we’re as interested as ever in making money. Before, it was preached to us this is a learning situation. But I’ve changed my point of view. Now I’m looking for us to make money. That’s why I want to cut down on socializing and stick to business.
Q. The market has been good to the club this year, but as the saying goes, “What goes up, must come down.” Do you worry that your good fortune is about to change?
A. If you have good stocks, it doesn’t matter if the market goes down, unless, of course, we have a crash. And in that case, everyone is in the same boat, and so you don’t worry about it.
Q. What advice would you give someone interested in starting an investment club?
A. Look for members who are congenial and sincere about wanting to learn. Also, make sure your meetings are organized. Read your NAIC manual and have a manual for each member. The NAIC has a tape that tells you step-by-step how to organize a meeting. Finally, make sure each member has an active role to play. For instance, we assign a stock to each member who is responsible for following its progress. That creates interest and makes for a happier situation.