BI > NOVEMBER 2003

Good Stewards Win Value Line Honors

Young Clubs Win Top Honors

Three young clubs, in operation for an average of four years, topped all 420 entries in this year's Investment Club Performance Survey conducted by NAIC in conjunction with Value Line. Complete survey results will be announced at the BI National Convention in Norfolk as well as being featured in next month's issue.

Participating clubs in the annual survey send in their portfolios along with the survey form. Value Line judges the portfolios and honors those clubs it deems to be the top winners. Rate of return and quality of portfolios in terms of diversification are among the criteria used to determine the winners.

Finishing at the top of the 2003 Value Line Investment Club Performance Awards are three national winners:

• First Place: Good Stewards Investment Club, Plano, Tex.
• Second Place: Investment Study Group, Vancouver, Wash.
• Third Place: Mason City Women's Investment Club, Mason City, Ill.

The 2003 survey covers results from 420 clubs that responded to the opportunity by June 10, 2003. Value Line's decisions were based on a variety of criteria, the most important of which was a club's investment performance over time. Other factors include how long the club has been in operation, the number of stocks in the portfolio and the portfolio's diversification.

Value Line reimbursed the Good Stewards for up to $2,000 of expenses for attending this year's Better Investing National Convention in Norfolk. All three winners receive a one-year subscription to either the print or electronic versions of The Value Line Investment Survey.

This year's survey assessed the rate of return for the 12 months ended April 30, 2003. The lifetime performance for each club, defined as the annualized rate of return over each club's lifetime, was also calculated and compared to the performance of the S&P 500 index over the same period.

Editor's note: NAIC has conducted this annual survey for more than 40 years. It's nonscientific. Investment clubs volunteer to participate in it, as opposed to being randomly selected for participation. Survey results therefore are not projectable to all NAIC clubs. NAIC does not claim that the results represent those of its membership as a whole.

Good Stewards

"We've done our research and done well, which wasn't easy in this market," said Lindy Watkins, who founded the Good Stewards in May 2000. He started the club with his four adult children and all were novices at the time. He feels honored that his club received this national recognition from Value Line.

Watkins had been considering starting an investment club for several months but after reading an article in The Washington Post he developed an action plan. He went to the Dallas Investors Fair to get information and later invited Hall Martin from the local NAIC chapter to come to his home to tell interested family and friends about investment clubs.

The club of 12 women and five men are all members of the First Assembly of God in Garland, Tex. The club members average 25 years in that church. "We selected our name because we all want to be good stewards of our money.

"Our members range in age from 23 to 72, although the majority are predominantly older people. Only one or two use computers. We didn't even use computers the first year. The first thing we used them for was accounting for taxes."

He feels fortunate his club was able to do as well as members have done compared with professionals and many mutual funds.

"Everything we've learned and done came from NAIC. When we began the SSG was all we used. We got our financial information from Value Line. We learned to do the SSG from NAIC's Investor's Manual.

"We never buy a stock unless it's in the buy zone on the SSG, with at least a 3-to-1 upside-downside ratio. We've never bought a stock with a P/E of 30 or greater. I don't think we'd ever buy a stock like Krispy Kreme because of its high P/E, even though it's been a wonderful stock.

"We have 17 stocks in our portfolio and we still look at new stocks every month. We believe in a buy and hold philosophy," Watkins said.

Club contributions are about $1,300 a month, an average of around $75 per member.

The club's best performing stock has been Polymedica Corporation. It's not a large company but has more than tripled in value for the club. The company makes strips that diabetics use to check their glucose several times a day.

Other large holdings include Best Buy, Chico's FAS, Halliburton, Ross Stores, FactSet Research, Garmin, Home Depot, Nokia and Pfizer. BISYS Group, Duke Energy, Elan Corp., Standard Pacific, and Washington Mutual round out the club's portfolio.

"When the club first started, we had a full-service broker and were paying $50 to $60 for a transaction," Watkins said. "If we were only investing $1,300 a month, that meant our commission costs were running 4 percent or more. After a few months we switched to a discount firm that only charged $15 for a transaction. We found we didn't need a full-service broker.

"As far as diversification," Watkins continued, "we were concerned that we had four holdings in retail clothing. We sold Jones Apparel and added more Chico's, which has proved to be a wise move for our club.

"The first stock we bought was Elkcorp. (ELK), a local shingles manufacturer from Dallas. It was expanding but six months after we bought it, the price of oil went up, so asphalt was up. We held the stock for two years and lost 10 percent when we sold it. We try not to let emotions get into our thinking.

"Ross Stores, discount clothing, was our club's second purchase in July 2000. It was about $16 and now is near $50, tripling in price."

The club bought Chico's in December 2001 and it's been another fine performer, more than doubling in value.

Another interesting stock in the club's portfolio is Quixote Corp. (QUIX). The company is small and makes highway safety barrels. It's doing well, with its success depending to some degree on how much the federal government gives highway departments. The club owned it for about a year and sold its shares in early 2003. "It's up 60 percent since we sold it," Watkins said. "We try not to look back."

The worst performing stock the club bought was Elan Corporation. Members held it for about 18 months before its collapse. There haven't been any other big losses.

Watkins has also started a "younger" club 18 months ago for people in their 30s. Presently it has six members. He worked with this new club for the first six months.

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Value Line's Runners Up

Value Line's second-place honors this year went to the 20 women in the Investment Study Group of Vancouver, Wash., a club formed in December 1998.

Its top three holdings are: Stryker, representing 14.6 percent of the portfolio; Intel Corp., 11 percent; and Emerson, 8.5 percent.

L. L. Tunks explains that the club is basically made up of friends who encouraged other friends to join the group. Members include teachers and nurses and quite a few retirees.

The club's most successful stock has been Intel, which it has held from its founding. Other longtime holdings include Wachovia, Stryker, Abbott Labs and Emerson.

Home Depot was the last stock the club studied and Sysco Corporation was the last stock the club bought.

The club uses the SSG for 99 percent of its purchases and all its sales and brings in guest speakers for some of its meetings.

Third-place honors went to the Mason City Women's Investment Club of Mason City, Ill. The club formed in January 1998 and has 18 members.

Amgen is the club's largest holding, followed by Biomet, Microsoft, General Electric, Applebee's, Oracle, Pfizer, FactSet Research, Diebold and Harley-Davidson. Other stocks in the portfolio include: ADC Telecommunications, American Power Conversion, Cardinal Health, Caterpillar, Cisco Systems, MGIC Investment, Nabors Corp, U.S. Bancorp and United Parcel Service.

(Editor's note: No investment recommendation is intended on companies mentioned in this article. A Stock Selection Guide study should always follow for any company being considered for investment. Individual survey responses are confidential. Better Investing obtained the permission of clubs interviewed for this article to discuss their portfolios. We thank the investment clubs for the opportunity to share this educational information with our readers.)

Nancy Danko served as "The BITS Lady," managing editor of BetterInvesting BITS from 1986 to 2003. She is a member of the Bellwether Investment Club.