by Jim Hight
ARE YOU PUZZLED BY PRICE-earnings ratios? Confused by compound annual returns?
So was Carolyn Hubbard of Eureka.
The 69-year-old retired teacher didn't know the first thing about investing money. Her late husband had dabbled in the stock market, but she'd never paid much attention. When she inherited some stocks from her mother, she "had absolutely no idea what to do with them."
Many of her friends were also in the dark about the ways of Wall Street, so they decided to team up to learn about investing. In March 1994, they formed the Market Minders investment club and joined the National Association of Investors Corp. (NAIC), a non-profit, self-help group for investment clubs and individual investors.
NAIC showed the Market Minders how to structure the club as a legal partnership, how to do accounting and taxes. It also provided study courses that taught the association's investing philosophy and its stock-analysis procedures.
A little more than two years later, the Market Minders own stock in 10 companies. The total investment fund is about $8,500, built with $25-per-month contributions from each member, and augmented by a modest growth rate of just over 5 percent per year. But the gains in self-confidence and mastery in the complex realm of equity investments are immense.
Today Hubbard gets daily stock quotes on-line with her home computer; she subscribes to the Wall Street Journal and reads financial magazines. She's shifted her pension holdings around and taken control of the inherited stocks that used to baffle her. And she enjoys the whole process of learning about stocks and investing. "I find it really fascinating."
Not that a higher financial return isn't also important to the club.
As part of NAIC, the Market Minders know that many of its counterparts around the country are recording annual gains of 15 percent or more over a long-term period. The national group compiles an average of the annual returns earned by its member clubs: In 1995, it was 14.5 percent, and over the last five years, 12.2 percent.
"A club over 5 years old that sticks to the NAIC system wouldn't have any trouble averaging 15 to 20 percent (per year)," said Robert Boisselle, a Redding resident who serves on the Shasta Buttes Council of NAIC, which includes Humboldt County.
Some of the champion earners in the investment club world are the Beardstown Ladies Investment Club of rural Beardstown, Ill. Their hot-selling 1994 book, "The Beardstown Ladies Common Sense Investment Guide," details how the members achieved a compound annual return of more than 23 percent over 10 years, an increase in value of nearly 800 percent.
Such success by a group of non-professional women investors inspired many to start investment clubs, including a number of Humboldt County women. "First we read the article in Ladies Home Journal, then started reading the book, then we formed the group," said Joann Schuch, a woodworker who is vice president of the 8-month old Fogtown Women's Investment Group in Arcata.
"For most of the women, (the book) made learning about the stock market accessible, it made it seem like something they could do."
The Fogtown Group capped its membership at 24. Like Market Minders, each member contributes $25 a month and makes investment decisions after researching particular stocks in the manner recommended by NAIC.
"Learning the fundamentals," Schuch calls it. "What does 'earnings per share' mean? How do you do forecasting? What are the growth trends of an individual stock? How do you analyze whether a stock is overvalued or a good buy at a particular time?"
The members learn these fundamentals from study guides provided by NAIC, as well as seminars run by NAIC volunteers. A recent seminar in Eureka drew more than 50 participants.
Like most other investment groups in the county, the Fogtowners and the Market Minders are all women. For the former it's a matter of policy; for the latter, it just worked out that way. Nationally, NAIC said 60 percent of its members are women.
The reasons are apparent to people who have observed the world of financial markets over a long period. "For years women were left out," said Boisselle, who runs NAIC investing workshops for members in Humboldt County and elsewhere. "They would go to brokers and brokers wouldn't even talk to them. They'd say 'Come back and bring your husband.'"
Times are changing, but many women still choose to form all-women investment clubs. "It will probably be a more comfortable atmosphere for us to learn in," said Marie Kelleher-Roy, owner of Northtown Art Supply in Arcata and founding member of a yet-to-be-named women's investment club.
Some even say that women tend to be more able investors than men. "We find there are more successful clubs that are all-women's clubs than all-men's clubs," said Boisselle. "They are more persevering, they're better at detail, and men tend to be impulsive. Most men want instant gratification, or they say 'Ah, the hell with it.'"
Male or female, investment clubbing isn't for everyone. "It's a lot of work to set up a club," said Schuch of the Fogtown group. "You have to set up a legal partnership, get a taxpayer's ID number, keep track of bookkeeping.ä People have to be willing to put in some time. It's hard-core learning."
And the conservative, long-term approach to investing encouraged by NAIC and embraced by most investment clubs won't suit everyone. "If you need money within three years (for a house or other purchase), I don't think you have any business being in the stock market," said Laura Hussey, an A.G. Edwards broker who works with several local investment clubs. "But if your goals are longer term, if you have a 5-year-old and you're starting a college fund ä or if you're building for retirement, then stocks are just great."
Stocks are not as reliable as certificates of deposit, bonds or money market funds since their values fluctuate depending on many factors. "How well are you going to sleep if your money goes from $10,000 to $7,000?" asks Hussey. "You have to be in it for the long term."
And you have to figure in the cost of capital gains taxes that will be due when an investment is sold.
But if you are interested in investing in the stock market, an investment club may be an ideal way to learn about the process as you invest small amounts.
Of the investment clubs that reported their results to NAIC, most have outperformed the Standard & Poors Index of 500 stocks in recent years. Proponents of the club concept say this is because clubs can do more and better research together than individuals can do alone.
"To do an investment program for yourself, you'd spend at least 14 to 20 hours per month for research and analysis," said Barry Murphy, a spokesman for NAIC's home office in Michigan. "In a club, you have one two-hour meeting a month, plus a couple hours of homework. Multiply that by the number in the club, say 15, and you have 60 person-hours a month into researching investments. You can make some good decisions without that time burden."
Equity mutual funds -- large portfolios managed by professionals -- have performed better on average than investment clubs over the last 5 years, but club members prefer controlling their own portfolios. "It's more of a hands-on approach," said Schuch.
Investment clubs are usually formed by a small group of friends who invite others to join. Membership is generally between 15 and 25.
For a free packet of information about starting an investment club, call or write NAIC, the National Association of Investors Corp., (810) 583-6242, ext. 33; P.O. Box 220, Royal Oak, Mich. 48068. NAIC can also be accessed on the Internet: http://www.better-investing.org.
To speak with a member of the Shasta Buttes Council of NAIC, call Robert Boisselle at (916) 243-1637 or Wilma Robnolte at (916) 629-2536.
A new women's investment club is forming in Arcata. Write to Marie Kelleher-Roy, Northtown Art Supply, 1507 G St., Arcata 95521 for more information.