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All Stars of Investing

A Celebration of Commitment to Excellence

by Leif Gruenberg and Mark Robertson, with Amy Rauch-Neilson

As the National Association of Investors Corporation embarks on the celebration of 50 years of investment education, Better Investing is pleased to take advantage of this opportunity to recognize those whose investing performance or contribution to educating others makes them stand out--as "All-Stars of Investing."

In this special feature, we look at the stories of these all-stars in six different categories: individual, professional, club, youth, NAIC Chapter, and an institution. Their contributions, whether as shining examples of applying NAIC principles in their investing practices, or as outstanding proponents of building a nation of investors, all point to the truth that "wealth comes from investing in growing companies."

Individual: Peggy Schmeltz

One of Our "First Ladies"

When Peggy Schmeltz was a college girl, some local ladies, who were aware that she had had some investment education in a business class, invited her to join their investment club, "The First Ladies." While Peggy didn't feel she had a whole lot to offer, she took advantage of their invitation and began a lifetime of investing that has benefited not only her and her immediate family, but countless others along the way.

The club, which was located in Bowling Green, Ohio, where Peggy still makes her home, used to commute to NAIC seminars in Cleveland in 1977 to learn investing principles. She and her friend, Lorrie Gustin, attended a week long educational cruise sponsored by the Cleveland NAIC group, and it changed her life. Peggy joined NAIC that year and convinced her club to do the same. "They weren't doing that well, and after joining NAIC, our portfolio went from $23,000 to over $50,000 in two years," says Peggy. She notes that some of the increase came from an increased level of confidence that enabled members to make more regular and larger contributions.

The same year, she entered the Growth Stock Contest and won. Shortly afterward, her investment education career began when another Bowling Green club asked her for some assistance. Though Peggy tried to bring in some "big guns" from Cleveland to help, they were not able, so Peggy decided to help the club herself by joining. Soon after the two clubs, along with one other, formed an NAIC chapter (formerly called councils). What began as three clubs in Bowling Green has grown to a chapter of more than 350 in Northwest Ohio.

That was just the beginning. Estimates are that Peggy Schmeltz has helped thousands of people enter the world of investing in common stocks. Shortly after she and her husband, Bill, were married, he got a job as a business and finance professor teaching business to Air Force graduate students. While Bill focused on technical analysis, Peggy taught fundamental analysis and assisted many officers in forming their own investment clubs. "When the Beardstown Ladies book came out, that's when the telephone really started to ring off the hook!" says Peggy.

Since those early days of simply responding to those who had a desire to learn, Peggy has become involved in investment education on several levels with NAIC. She has served in her local chapter, on the National Investors Association (NIA) board and is currently a member of the NAIC Board of Trustees. She has also served as a member of the New York Stock Exchange's Individual Investor Committee.

"Peggy has always been one of NAIC's outstanding teachers," says Tom O'Hara, chairman of NAIC. "She has a knack for giving people an understanding of the Stock Selection Guide (SSG) that very few other people have. When she served as an officer of NAIC, she was a great administrator. She knows how to look at the business before an organization and keep things moving forward. She's really a great person, very pleasant."

Peggy's commitment to teaching sound investing principles runs deep. "I want to teach the discipline of how to manage money, particularly for women. I like to help them develop confidence and overcome that fear. NAIC teaches when to buy and when to sell." Her sense of civic responsibility extends beyond NAIC; she's also been very active in her local Girl Scouts council, the United Way, the Panhellenic Club, Bowling Green University's Faculty Wives Club, and is active in Bowling Green University's Foundation.

Peggy does see some areas of concern for today's investor. She sees impatience as one of the biggest mistakes investors are making in today's market, saying that people are "panicking and selling too soon. Not diversifying enough, particularly if they own shares of a company they work for and don't understand whether they are a successful enough company to benefit them that much."

Another concern Peggy has touches on what is most dear to her heart, passing on investing wisdom to others. "I think that people who invest are not teaching their children or grandchildren enough. I think families should involve their children in what they're doing."

She relates a story in which she spoke at a local high school about investing. The young people got very excited about starting their own investment club. But after talking to their parents, the kids came back to their sponsoring teacher discouraged. "The parents thought investing in the stock market was a bad idea," Peggy said. "They thought it was too risky." Undaunted, Peggy spoke at a follow-up meeting at which parents were welcome. After hearing Peggy's presentation, the kids not only got permission to start their club, but some of the parents have become interested in the NAIC way themselves.

As a familiar NAIC personality, Peggy's system of studying stocks has become almost legendary. She keeps a stack of index cards on individual companies that has become her trademark. "When I hear about a stock or read about it in BI, I'll get out my file card, mark the price from when I first heard about it, go back to Barron's or Value Line and make notes from the three months previous, and follow the growth. I figure out what the average P/E was for the past five years, and start following that, recording quarterly earnings.

"When I see it getting near the five-year average, I do an SSG on it. The SSG will show me how the management is doing. Every time I hear something about the company, I make a note of it. When I get ready to buy, I refer to these notes." Amazingly, Peggy keeps track of more than 200 companies at a time in this way. That's more than many professional investors follow and more than 10 times as many as most investment clubs hold.

Clearly, Peggy has become an exemplary NAIC practitioner and educator, and her motivation is strong. "There's great satisfaction when you know you've helped someone else and they've gained confidence from what you've shown them," she says. According to Donald E. Danko, Editor of Better Investing and fellow member of the NAIC Board of Trustees, Peggy Schmeltz is an all-star because, "She's a living, breathing example of NAIC principles in action."

Peter Lynch's investment wisdom is closely aligned with what NAIC has been espousing for the past 50 years.

Professional: Peter Lynch

The Thinker Behind the Axioms

"If you like the store, chances are you'll love the stock." "Never invest in anything you can't illustrate with a crayon." "The best stock to buy may be the one you already own." These investment axioms are just three among the dozens that make up investment guru Peter Lynch's investment philosophy. They're so simple that many investors, especially beginners, shake their heads in disbelief. But scroll down to the bottom line and guess what? They work.

Lest you are thinking of exercising your own axiom at this point -- "If it sounds too good to be true, it probably is" -- consider that Lynch practices what he preaches and he's got early retirement, three best-selling books and a whopping 2,700 percent return on the Fidelity Magellan Fund, which he managed from 1977 - 1990, to show for it. But it was -- and is -- the simplicity of Lynch's style and success that encouraged would-be individual investors, like NAIC member Nancy Isaacs of Toms River, N.J., to take that first step. Nancy and her husband, Ed, had owned a pet store for nearly 15 years when they decided to sell it in 1987. They were faced with a challenge -- how to wisely invest the lump sum of money they had as a result of the sale.

"Ultimately, I came across the Beardstown Ladies' Common-Sense Investment Guide. It was exactly what I had been looking for. It was clearly written; it made sense," she said. And it was through that book that Isaacs first learned about NAIC, which eventually led her to Peter Lynch's books.

"I picked up One Up On Wall Street and it was really exciting," Isaacs said. "He assures his readers that you don't need to be a professional investor to be a successful investor. I was really empowered by his writing. I thought to myself, 'gee, it really does sound like this is possible.'"

The kind of advice offered in all three of Lynch's books, coupled with NAIC's basic principles and the wisdom of the Beardstown Ladies, are the foundation of Isaacs' investment philosophy.

"That Peter Lynch quote, '...any normal person using the customary three percent of their brain can pick stocks just as well, if not better, than the average Wall Street expert,' has been an inspiration to me for many years," Isaacs said. "That, and his advice to invest in what you know, is always in the back of my mind when I make an investment decision. It's basic NAIC."

That Lynch's philosophy so closely mirrors NAIC's is no secret. In fact, it's the reason hundreds of thousands of NAIC members have embraced Lynch's books, One Up On Wall Street, Beating the Street, and Learn to Earn: A Beginner's Guide to the Basics of Investing and Business.

"I've read all of Peter Lynch's books, and I agree with everything he says," said Billy Williams, chairman and past president of the NAIC Atlanta Chapter. "Lynch expresses the same outlook on fundamental analysis that NAIC does. Go out and go shopping. See what people are buying and kick the tires. Then, go investigate the fundamentals of the company and see if it's a worthwhile investment."

Like NAIC, Lynch touts the common-sense approach to investing, from riding out the market's turbulent times to diversifying your portfolio and holding on for the long term. And, he points out, it's during the market's wild rides that investors need to cling steadfastly to their solid foundation.

"The recent volatility we've seen can be compared to a long airplane ride -- you're bound to hit some turbulence along the way," Lynch said in an interview with PBS. "Knowing what investments you own and why you own them is like fastening your seat belt to prepare for the bumpiness." Perhaps the most telltale sign of the longevity of Lynch's wisdom isn't found so much in his words, but rather, in the date when this interview originally aired -- January, 1997. The reason Lynch is so quotable is that his wisdom applies to investing regardless of the "bumps" in the market, making his axioms more than just food for thought--in times of turmoil, they can provide some shelter from the storm.

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Arnold Bernhard's impact on making stock information accessible and understandable to professionals and laypeople has transformed the way people invest.

Institution: Value Line

A Legacy of Reason

When confronted by the enormous tumult brought about by the Great Depression, one man sought to make reason out of the chaos, and his legacy has transformed the investing practices of untold millions. NAIC investors, along with many others, have benefited from a system of looking at companies that arose out of adversity to be one of the most trusted third party institution that analyzes stocks. "Using a fundamental approach to selecting stocks, Value Line, from the days of its inception by Arnold Bernhard, has had an outstanding record," says NAIC president and CEO Kenneth S. Janke, Sr. "It provides the necessary information needed by individuals to make informed investment decisions."

Bernhard was smack in the middle of the worst financial catastrophe our nation has ever known, and out of the crucible that Wall Street was at that time, came a great idea. Working as an account executive for Moody's Investors Service during the crash of 1929, Bernhard recalls not only the professional but personal impact of the dramatic deflation of stock values, and how it spawned the Value Line concept: "My mother's estate was virtually wiped out. But here is the lucky part for me: that experience forced me to conclude that a standard of value had to be discovered, a standard that would signal when stocks were overvalued, and when they were undervalued, a standard that would not give way to emotionalism."

The market briefly recovered in 1930, but Bernhard found himself jobless after the deep deluge of 1931. He went into business for himself, managing the portfolios of a few accounts he brought from Moody's and set out to develop the Value Line Rating Theory. "The Value Line Rating I designed was a correlation between the monthly prices of a stock over a period of 20 years on the one hand, and its concurrent annual earnings and book values on the other," Bernhard said in a 1981 speech to the Newsletter Association of America. "United States Steel, for example, might be described as having been worth 1/3 of its book value and six times earnings. When the price deviated markedly from the standard thus derived, as in 1929, it was determined that the deviation was a measure of overvaluation. When it declined down below the line, a measure of undervaluation."

Bernhard worked out these equations for 120 individual stocks, and published the first edition of Value Line Ratings of Normal Value, with an initial print run of 1,000 copies. It wasn't an instant success, Bernhard noted, "Only curious, although usually polite, stares greeted my presentations . . . The inventory of 1,000 books took up an embarrassingly large percentage of my office space, too."

Eventually professional investors recognized the insight in Bernhard's system and the Value Line concept continued to develop into what it is today, the most popular Value Line product being the Value Line Investment Survey, which in its print and electronic versions includes analysis of more than 1,700 stocks. The expanded version includes another 1,800 -- mostly small-cap stocks.

The key to Value Line's success over the past 70 years is its commitment to the vision of its founder, reflected in its mission statement: "Our mission is to help investors get the most accurate research information available, in any form they choose, and teach them how to use it to meet their financial objectives." The company employs 70 analysts, all who must pass a rigorous training period. "All analysts go through a six-month training program," says Steve Sanborn, director of research for Value Line. "It's a terrific program, covering from how to look at all the numbers to how to go about talking to company management and what questions to ask. Some people have compared it to an MBA program; it's very focused."

The company's commitment to providing reliable analysis is much appreciated by investors. "Value Line gives us the data we need to analyze stocks, but gives us so much more. I know that I'm getting a professional opinion from someone who is independent of a financial institution with a second agenda," says Sandy Barlow, NAIC Computer Group board member and a frequent teacher on using the Value Line Investment Survey sheets. "NAIC investors use past earnings to help project the future, and Value Line analysts normalize earnings when necessary. I suppose I could dig and dig and maybe come up with information on unusual years, but I am happy to use the Value Line normalizations since they always footnote when data have been adjusted and I can look up what I have a question about."

Value Line is also held in high esteem by that most successful of investors, Warren Buffett. "I don't know of any other system that's as good . . . The snapshot it presents is an enormously efficient way for us to garner information about various businesses . . . I have yet to see a better way, including fooling around on the Internet, that gives me the information as quickly." Sandy Barlow goes on to echo the sentiment felt by individual investors, clubs, and professional investors: "I guess it's trust. I trust the Value Line numbers."

One man's response to chaos, and his determination to bring an idea into fruition, has resulted in a legacy of reason in the face of a sometimes daunting amount of information. Bernhard's conclusion to his 1981 speech, given six years before his death, serve to inspire the capitalist spirit: "Entrepreneurs are bound to run into road blocks, even disasters, along the way. The message I would leave with you is, look upon those adversities when they strike--and they will--as opportunities. In my own experience, the worst catastrophes turned out to be the luckiest breaks. And I don't think it would be any different for you if you have faith in your ideas and the will to persevere in their propagation."

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Jason Ramage spent last summer with a group of volunteers in Honduras, providing medical care, doing some construction work and delivering a vacation Bible school for the children. His experience served as a reminder of how fortunate, and wealthy, Americans are. "War and poverty seem unavoidable to these people. The reality is fairly harsh. Despite this, I enjoyed being there and wish I could have stayed longer."

The Young Investor: Jason Ramage

Our Paducah Pundit

Jason first appeared to the NAIC Online community with his witty, thought-provoking messages on our e-mail discussion list called I-Club-List. The participants were certain that the wisdom on display was, most certainly, from some gray-haired lifetime practitioner in the Ohio River valley. Then we discovered that although he was indeed, a lifetime practitioner -- he not only did not have gray hair -- but he'd barely started shaving! Jason Ramage, a high school student at the time, is now a sophomore at the University of Louisville. We spent a few minutes with Jason and asked him to share how he came to know NAIC and what impact it's had on him.

According to Jason, the most important thing is that no matter how much (or how little) you are capable of investing, start early. Take advantage of the power of time. McDonald's was Jason's first investment, and is still his largest. He also holds Compaq Computer and Zale Corporation, noting that his portfolio includes a large fast-food company, a large PC maker and the largest jewelry retailer. "I guess I like large things," says Ramage.

Jason has participated as a youth instructor at NAIC's CompuFest event. In his opinion, "investment clubs can work well in high school settings. If the kids are interested, why not? It's a great way for high schoolers to learn investing discipline as they begin to hold their own jobs and gain more responsibility with money matters."

Before reading Peter Lynch's One Up On Wall Street, Ramage didn't have a good feel for the attributes of a good investment. He recounts the story of Microvision, a company that makes "gadgets." Falling victim to the story -- despite realizing that a Ph.D. in electrical engineering might be pressed to understand the products and company -- he now recognizes that he allowed the emotional side of his brain to take over. The stock had picked up considerable momentum, going from 10 to 18 in a matter of days. "I thought the ship was leaving port, and me behind, so I jumped on board," says Ramage. As it turned out, the ship wasn't leaving port at all. "It had to redock to disembark all the daytraders, leaving me holding the bag!" Lynch's chapter, "Stocks I'd Avoid," resembles Jason's experience, in painful detail.

Lessons learned? "Buy quality, profitable companies with a history of excellent management. Let management do their job and don't worry about checking stock quotes every hour. Always check your emotions when the market starts moving quickly up or down. If you are chasing a stock because you're afraid you won't get a chance later, then it's wise to wait until later. After the excitement subsides, you will likely have another chance at a better price. Be patient, and never sell because the market is going down. That defies logic!" (The BI editors think that Jason's "gray hair" is showing again. Wise, indeed.)

Jason has attended a few NAIC national events. His take on the experience? "I've been to Congress '99 in Nashville which was close to home and CompuFest 2000. There are things that I like about both events. The corporate expo at Congress was a great way to find out more about companies than you could ever research. You also get cool stuff like McDonald's coffee mugs! I still have stuff sitting around my dorm room that reminds me of the event and the experience."

In one of his I-Club-List posts, Jason urged our community to conquer the NAIC 'Rule of Five.' We know that 3-of-every-5 selections will approach expectations, with one exceeding our hopes and the other often a significant disappointment. Jason's advice? "Implement Ramage's Rule-of-Four instead. Don't buy that fifth laggard!"

More recent advice from our Paducah Pundit for his peers and all NAIC investors? "Start with big name, blue chip stocks. There's no such thing as a sure thing, but it's hard to go wrong with Coca-Cola, McDonald's and Intel. With my own money invested, I pay great attention to my companies. The Dow is almost irrelevant to me. I usually couldn't tell you if it's 10,000 or 11,000."

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The Zenith Investment Club of Framingham, Massachusetts. Club members, Standing (left to right), Walter Johnson, Clark Grain, Everage Reynolds, T. Nelson Baker, John Layman, Emmett McCaskill, John Givhan. Sitting (left to right), Katherine Hill, Bernice Tita, Maxine Yarborough, Ruby Bishop and Barbara Bell. Not pictured: Isabelle Nicks.

The Club: Zenith of Framingham, Massachusetts

One of Many 'Buffett-Beaters'

The Zenith Investment Club was founded in October, 1983 with an initial group of sixteen members. From the outset, the membership consisted of both men and women. Although the numbers have fluctuated over the years, the club has been able to maintain the mix.

The club started on a firm foundation as the NAIC guidelines for stock selection were adopted at inception. Initially, most of the stock analyses were conducted by a few members as computers were not as sophisticated as they are now. Much of the analysis had to be done by hand. Thus, the techies and nerds in the club handled most of the heavy lifting. Early results were good, and Zenith generated positive results in a very short time frame. By sticking to their guns, the club survived the October 1987 market freefall in positive territory. The members came to view that collapse as a buying opportunity. In ensuing years, the club has enjoyed a modicum of success in picking good companies and watching them grow. The club has, of course, made a few selections that they'd characterize as mistakes, but has recovered from these errors in judgment quite nicely.

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The holdings of the Zenith Investment Club include: America Online, American Power Conversion, Cable & Wireless, Cutter & Buck, Cohu, Inc., CorVel, Cognizant Technology Solutions Corporation, Citrix Systems, Dell Computer, D.R. Horton, Dover Corporation, Express Scripts, Fastenal, Home Depot, IDEXX Laboratories, Johnson & Johnson, Jones Apparel Group, Kent Electronics, MBNA, Merck, MFC Bancorp, National City, NCI Building Systems, Oracle Corporation, PC Connection, Regis Corporation, Schering-Plough, Solectron, Semtech, Staples, State Street Corporation, Sun Microsystems, Stryker, Texas Instruments, Tyco International, Worldcom, Wolverine World Wide and Zebra Technologies. Although concentrated in technology, a natural fit for these residents of the Massachusetts Technology Corridor, the portfolio is diversified across many sectors. The club's annualized rate of return, based on their participation in the 2000 NAIC/Value Line Club Earnings Survey, for the 10 years ending in April 2000, is 46.6 percent.

Today, the club has fourteen members of which four are charter members. Despite attrition due to job transfers and relocations, Zenith has always managed to attract new members. Club partner Clark Grain proudly observes that, "every member makes a significant contribution toward analyzing and tracking stocks. The group takes great care to evaluate and maintain our portfolio."

Socially, the club holds an annual brunch and opens its doors to the public. The Zenith partners invite a guest speaker from the world of investing, and presents a comprehensive report on the results for the previous year.

In Clark Grain's opinion, "The overall success of the Zenith Club can be attributed to our insistence on thoroughly analyzing every stock, using the NAIC guidelines, and in our ability to involve every member in the decision-making process."

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Zenith is not alone. Twenty five clubs responded to the NAIC/Value Line Club Earnings Survey for 2000 with an operating history of between nine and eleven years. The average annualized rate of return for these clubs was 22.8 percent. The lowest return was 8.2 percent and the highest was 65.6 percent. It's important to emphasize that this performance result is from a group of clubs that chose to respond to the survey. The result may or may not be representative of the performance of average investment clubs over this time frame. The result does seem to be consistent with the performance of the NAIC Top 100, which delivered an annualized total return of 22.2 percent, for the ten years ending April 2000.

According to Webster, a zenith is "the highest point above the observer's horizon attained by a celestial body." A zenith is the point of culmination, or the peak.

As the figures suggest in the accompanying graphic, we didn't select Zenith because they were the highest performing club among the candidates we examined. Their performance is stellar and it shouldn't be ignored. It was the focus on education, outreach and faithful implementation of NAIC principles that drew our attention. The Zenith partners clearly lean on each other, exploring the horizons of investing together. The keywords expressed by Clark Grain were involvement and contributions -- zenith characteristics, indeed.

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The Chapter: Seattle (Puget Sound)

A Beacon and Shining Example

In the gleam of the Pacific Northwest, one of our finest team of All-Star Volunteers gather on a regular basis to develop and deliver programs for individual investors in the Seattle area. Their regular Own Your Share of America features are attended by many who discover the NAIC approach to investing for the first time.

The Puget Sound Chapter, based in Seattle, is among NAIC's finest. The Puget Sound roster of past and present directors reads like an honor roll or hall of fame. In the words of Bob Adams, current chapter director, "We have a strong chapter because we have had very strong leaders. These were people who saw the need for someone to take the lead and did so in no uncertain terms -- and set the tone for everyone else who followed. They all believed passionately in teaching and sharing the NAIC method. Yet they were secure enough to know that they had to build future leaders to take their place one day."

The year 2000 was a powerful reminder, with the death of two long-time champions of investment education from the Seattle area, Jack Paterson, one of the Computer Group's founding visionaries, and Bill Sacre, a national director whose life was education. There were others as well from the Seattle area who helped lay the foundation for reaching and helping others, both regionally and nationally.

Joan Estep, one of the earliest recipients of the O'Hara Award for excellence in Volunteer service, was one of the first to pass on. Seattle knew her as an inspired educator and mentor. Joan was known around the entire country for her work in training clubs to accurately maintain club accounting records. At Joan's side was Lenn Width, also quite strong-willed with a passion for teaching and reaching others with NAIC's investing message. We were also blessed with the presence and contributions of Don Scidmore. Don would teach any subject and absolutely enthrall an audience. Bill Sacre took over the leadership, and extended to our national volunteer boards. Bill steered a straight course and in the process, attracted the next generation of budding volunteer leaders. While these gifted educators flourished, Jack Paterson was working behind the scenes with a strong focus on making sure that the best lessons could be extracted from history and experience.

These exceptional leaders are no longer on our good green Earth, but their legacy of educating lives on, and so do the leaders they trained. Where do our Seattle Volunteers get the energy to deliver over 60 events per year? Great leadership. These legends did it, and they expect the current Puget Sound team to continue the contributions.

Better Investing chose Seattle on the basis of their legacy of volunteer service and commitment. The beat clearly goes on. Seattle ranks near the top of NAIC members per capita nationwide, and the Puget Sound campaign is clearly a significant influence in this achievement. Yet they are but a reflection of the quality educational effort that is being made by volunteers leading all 116 of NAIC's regional chapters.

We salute our " All-Stars of Investing," for helping to make better investing a household word in America today.