Investment club holds on tight for bumpy ride

05/01/01

BY MARY JO PATTERSON
STAR-LEDGER STAFF

Rita Elias was vacationing in Aruba last month with her daughter, son-in-law and three grandchildren when she heard an uplifting bit of news.

Federal Reserve Chairman Alan Greenspan had cut interest rates by a half-point, causing the markets to finish the day with a flourish. She nearly stood up and cheered.

"I got very excited. I said, 'Today is a bull day!' said Elias, 67, a widow and retired owner of a Newark paper box factory who has been investing in the stock market since college. "Every day after that, the children kept asking, 'Is this a bull day?' "

Come bull or bear, however, Elias is not about to make any quick moves. She is a member of the High Stakes Investment Club of North Jersey, a 3-year-old group of investors committed to a philosophy of buy and hold.

Like millions of other investors, the club's 11 members have paid dearly for the downturn in the stock market. About 40 percent of its portfolio is in tech stocks. On April 17, 2000, when the bulls were still running, its investment of $21,400 was worth $27,400; one year later, on April 17, 2001, its investment, now up to $36,000, was only valued at $35,900.

"People have assumed that we really got slaughtered in this latest downturn, and I usually say that we didn't," said Brian Altschul, the club's amiable 34-year-old president. "We got beat up a little, but not slaughtered."

The sustained bull market of the 1990s spawned thousands of investment clubs across the country as people pooled resources and shared insight to cash in on the soaring market. Some were clearly inspired by "The Beardstown Ladies' Common-Sense Investment Guide," the 1994 bestseller explaining how a group of older women in Bearsdtown, Ill., used study and down-home wisdom to pick winning stocks.

Many of the new clubs affiliated with the National Association of Investors Corp., a 50-year-old nonprofit organization in Madison Heights, Mich., dedicated to investment education. Between 1990 and 2000, the numbers of registered clubs nationwide jumped from 7,085 to 36,236, according to NAIC.

Over 1,000 clubs have evaporated since the market soured last year, said Mary Lawson, a spokesman for NAIC. But "we don't attribute it to the market," she said. "We think it's just cyclical."

The High Stakes Investment Club of North Jersey -- one of 928 NAIC chapters active in the state -- began when two members of a very large investment club in Millburn decided to start a smaller group for friends and relatives.

The new club took about four months to organize. In January 1998, it began formal operations after being registered as a general partnership in Hackensack, the seat of Bergen County.

Three months later, it made its first investment -- 50 shares of Invacare, a manufacturer of home medical products.

Its name, "High Stakes," is tongue-in-cheek, for members typically invest between $50 and $100 month. Members meet for about 2 1/2 hours on the first Thursday of every month, rotating among each other's homes.

There's Tony Maiello, 45, of Livingston, divorced with three kids and manager of Metropolitan Plant Exchange in West Orange. Howard Weiss of Montvale, 49, and the father of a 3-year-old, is co-owner of a medical transcription service in Bloomfield. Bob Cicchino of Leonia, 50 and single, used to work in the florist business but is studying to become a financial planner.

The club also includes a Newark high school teacher, a bookkeeper, a salesman, a Lucent employee, a landscape designer and an employee of an import-export firm.

Rita Elias, from Emerson in Bergen County, is the club's oldest member and its only woman. She is known for her generosity -- she often serves fruit platters when hosting meetings -- and is generally considered the doyenne of the group.

Although many of the members have personal portfolios greater than their club investments, "None of us is rich," Altschul, the club president, said.

"I have about $4,000 invested. It's not chicken feed, but it won't put my kids through college, either. I have other money invested, comparable to what the entire club has invested," he said. "Hopefully that's what will fund my children's education."

Members have varying amounts of money invested, from about $1,700 to over $6,000.

"The club investment is a small percentage of my portfolio," said Weiss, the group's newest member. "I use it as an investment guide. It's not a life-or-death investment."

None of the group had much investment experience before joining. Some had had a bad experience or two in the stock market, usually involving tips or alleged insider information that didn't pan out.

Even Elias, who began subscribing to the Wall Street Journal while in college, felt she wasn't equipped to analyze stocks.

"I never really had a method. The broker would recommend what to invest in, and you'd just had to have faith in him," she said. "When my husband was alive, he was very interested. We held things forever -- I still have stocks that he bought in the '50s."

Club holdings include 17 stocks, covering most basic market sectors, except for energy. (It once had an energy stock, but sold it when it merged with a company members didn't like.) Holdings include a discount neighborhood chain store, an orthodontic consulting group and a cruise ship company.

In mid-April, when club members talked about their experiences, the market was very volatile.

On April 17, for example, the day before Greenspan's tinkering, the value of its portfolio was around $36,000 -- a decrease of less than 1 percent from what the shares cost. Three days later, it was up to around $38,400, an increase of about 10 percent.

Yet the group members said they were not worried about their investments.

"I think we feel that we're well-positioned for an upward move in the market, which can come at any time," Altschul said.

Club members adopt the principles of the National Association of Investment Corp., a not-for-profit organization dedicated to small investors. They must also take an NAIC class designed to help them select stocks.

"A lot of people think you can put your money in and walk away. You can't," said Cicchino. "There's a lot of work involved."

Monthly meetings begin with refreshments and chit-chat, but are serious affairs. Once the socializing is over and outsiders are shooed from the room, the laptops come out and the president calls the group to order. The club operates according to Robert's Rules.

At each meeting, everyone invests at least $50 and writes a check to the club treasurer. The money goes into an e-trade account. Generally the club keeps between $500 and $1,000 cash on hand.

Members review all their stocks and discuss whether to sell or buy more. (They could invest in any instrument, including bonds or mutual funds, but so far have chosen not to.) They also decide on new stocks to study -- and everyone gets homework. Investments are never, ever made in a hurry.

Every meeting also has an education session; last month's presentation explored the definition and meaning of a bear market.

Not surprisingly, at recent meetings, the most heated discussions have focused on Lucent, which makes up 1.6 percent of the club portfolio.

Under former chairman and chief executive officer Richard McGinn, who was fired in October, Lucent Technologies Inc. lost about $80 billion in market value. But the club has continued to invest in the company, at a rate of $100 every other month.

Although some members have suggested the club pull back, they had been defeated every time the issue was put up to a vote.

"One of the things we do when we study a company is determine if the management is reasonable," Altschul said. "Lucent seemed reasonable. We were fooled, but everybody was. We made a group decision. Should we feel silly about it? No. It was a learning experience."

High Stakes club members are an optimistic bunch. While some investors got nervous about the market as early as last spring, club members did not start referring to a "downturn" until their December 2000 meeting.

Last month, everyone agreed they were in a bear market. Still, none was feeling pressure to sell.

"In this jittery market, no one has come to the meeting jittery. We have a long-term outlook," Altschul said. "That means five years or more."

In the meantime, the club is cautiously expanding existing holdings at lower prices.

No one has dropped out because they wanted their money out. The club has lost only one original member -- and that was because of scheduling conflicts.

American investors have lost an estimated $4 trillion, or 25 percent, of stockholder wealth, according to estimates. But with the red ink have come some important lessons, club members said.

Altschul said it reminded him of the importance of being conservative and "taking a step back." Maiello said he now knows that some of his stock valuations were too high.

Weiss, who began investing eight months ago with the club, said developments have left him confused: "I have cash to invest, but do I do it now? Am I an optimist or pessimist? I keep bouncing back and forth."

Tomorrow: In the 1990s, investors dreamed big, but the market downturn has altered those visions.