How do investment clubs choose stocks to buy and sell? While there are basic criteria and sometimes formulas they follow, members say that after 20-plus years in the game, they include their personal philosophies, preferences and instincts.
Members of Camarillo-based Women Having Independent Means, or WHIM, which is one of about 13 clubs in Ventura County under the overall Channel Islands Chapter of Better Investing Clubs, meet monthly to study stocks flagged by members for a possible buy-in.
They project onto a wall line charts, tables and figures gathered on public companies by the independent investment service Value Line Inc. Most of it is financial data from which they hope to glean insight into companies' future performance, such as book value -- what a company would be worth if it had to sell; long-term debt; debt to equity and profits made on sales.
With certain data, they study how it changes over time, such as averaged sales growth and estimated future sales growth. The software they use estimates future high and low share prices and suggests a middle-of-the-road price range to buy within. That price may take months, if ever, to materialize, members say. WHIM and other clubs also follow market analysts and their takes on companies and industries. Members may choose companies by industry, while others seek out local companies. A common strategy is to keep portfolios as diverse as possible.
"If you do this right, it's labor-intensive," said member Celina McHale. "It's lots of work and there's a long learning curve."
Ojai-based 2000ic investment club has no connection to Better Investing clubs. and differs in how it chooses stocks.
While the Better Investing model practices investing for the long haul, 2000ic members prefer short-term gains, said member Barbara Haggerty. They also don't invest in bonds or mutual funds.
The group considers the growth stock investing strategy of William O'Neil, publisher of Investor's Business Daily, as a base formula and add their own analysis, said member Olga Jones.
Members do that together at monthly meetings and review share price movement, earnings per share, how the stock performs in the overall market and how many shares are being exchanged, Jones said.
"Thirty percent of the price of stocks is affected by the market," Jones said, "so we are looking for stocks that show superior strength in the market."
They also look out for anomalies -- stocks doing the opposite of what the overall market is doing -- and then watch them, she said. And they often test out the products or eat at the restaurants of their investments.
"Our criteria is that we limit our losses, so if we buy a stock and it goes down 10 percent, we'll sell it right away," Jones said. "We Like to take profits on our stock -- 25 percent or more."
To join a Better Investing Club
- Go to the Better Investing website (http://www.betterinvesting.org) and see "Find a Chapter Near You"
Starting a Better Investing Club
- Join Better Investing: http://www.betterinvesting.org
- Choose club members from family, co-workers, neighbors or friends
- Hold an initial organization meeting -- learn how from the local chapter
- Elect officers such as president, vice president, secretary, treasurer
- Complete the General Partnership Agreement -- find a sample one on Better Investing website
- Prepare club operating procedures
- Register with the federal and state authorities for conducting business
- Open a checking and/or brokerage accounts with a bank or a brokerage firm
- Start having meetings
- Use the Better Investing online stock and mutual fund resources
Source: Better Investing
- Hold club money in a money-market account
- Don't use personal Social Security Number for business identification numbers
- Clubs usually collect $20 to $100 per month from members for investing. There is also an initiation fee.
- Use Better Investing's subscription-based accounting software program to calculate club taxes.
- For more information, visit http://www.betterinvesting.org/Public/SingleTabs/clubs/default.htm; call 877-275-6242 or email: email@example.com
Source: Carol Haverty, Channel Islands Chapter of Better Investing
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