Investor’s club wasn’t all about the money

Ross Cutter and his co-investors cut the melon for the last time Monday. It was a sweet one, indeed.

The occasion was the last meeting of the “Profits Preferred” investment club, a group formed 46 years ago by a few members of the Whitworth College coaching staff and Knox Presbyterian Church congregation. That was 1960, and the Dow Jones industrial average was struggling to stay above 600.

Monday, the Dow closed at 12,283.85.

Time in the market does wonders.

“Cutting the melon” is Cutter’s way of talking about the annual distribution of club profits. There wasn’t much melon early on. The Dow did not close above 1,000 until November 1972 and did not put that benchmark behind it for good until 1983.

“At one point, we were thinking of renaming the club ‘profits deferred’ when things weren’t going so well,” Cutter recalls. “We went for many years without cutting the melon.”

Profits Preferred, like most investment clubs, pools investments somewhat like a mutual fund. Member holdings depend on how long they have been involved. Outgoing members sell shares back to the club, new members buy shares to get in.

When the value of member shares exceeded some benchmark — $14,000 in the latter years — they sold shares back to the club, making them available for sale to newer members. That was the cutting of the melon.

Monday was different. Each of the 11 members who attended the farewell dinner left with a check for their full stake.

Cutter, who coached tennis at Whitworth, is not quite sure what his returns were over the years. Spokane investment manager Ken Roberts, who became the group’s informal advisor in the early 1970s, estimates a share was worth about $6 when he became involved. He figures that share was worth about $132 at liquidation.

“It just shows the power of compound investing” says Roberts, who notes the ‘70s were trying years for investors. “They hung in there through thick and thin.”

Few clubs persevere as long as Profits Preferred. According to BetterInvesting, a national organization of more than 16,000 investment clubs, the average lifespan is just four years. Yet Spokane has at least one club still older than Profits Preferred. Duodec dates to 1945.

Cutter says the dozen founding members launched Profits Preferred by putting up $100 each and pledging monthly contributions of $10, which later increased to $20. Football coaches Sam Adams and Bill Knuckles were among the charter members, as was restaurateur Evan Armstrong and Carl Wilson, the certified public accountant who kept the books through much of the club’s history.

Members met monthly to consider what stocks they might invest in next. Their original stake was so small they could afford only a few shares in whatever company they selected. Cutter says the club had no particular investment philosophy but, like many other Inland Northwest investors, they tended to favor mining stocks. Clayton Silver and Coeur d’Alene Mines were among those in the portfolio at one time or another.

Little Squaw, in fact, will be the last of the Profits Preferred holdings sold. The original stock certificate has been misplaced, delaying liquidation.

ConocoPhillips was one of the club’s most profitable holdings.

Club President Bob Papst says the decision to cash out was due mostly to age. Although new members had come in over the years, the group had decided a year or two ago to stand pat because it would be unfair to bring in someone new knowing the club’s dissolution was likely.

He joined 15 years ago, just as stocks began one of the greatest rallies in history. The retired Qwest worker — it was Pacific Telephone & Telegraph when he started — says he used the insights of Roberts and other members to guide his personal investment choices.

The group was not all about the money. The monthly meetings in member homes, and the annual meetings at one restaurant or another, were social as well as financial. Cutter says members have agreed to hold annual reunions to keep in touch.

“It’s been an enjoyable time,” he says.

But the melon helped. “Our name was justified, ultimately,” Cutter says.