Monday, September 06, 1999

Investment clubs pool resources

The Cincinnati Enquirer

        Mike West sees that there's big money out there — and he wants his piece of the action. So do some fellow members of Inspirational Baptist Church.

        The six men want to plan better for the 21st century — their retirements and children's educations — but aren't sure where to start and don't want to go it alone. So they've decided to try their collective hands at the stock market and form an investment club.

        In doing so, they'll join about 600,000 others across the country — 11,000 in the Tristate — who are members of investment clubs, according to the National Association of Investors Corp. The 37,129 clubs that are members of the NAIC invest $48 million a month in the stock market and are each worth an average of $41,000. They are receiving an average annual return on investments of 12.4 percent.

        “This is something black folk need to get involved in,” said Mr. West, a resident of Roselawn. “It's big money.”

        Hank Pesa might not call it big money, but he said his family has done well in the stock market. Part of his portfolio is with a 15-member club, which has amassed $80,000 in 15 years.

        Some people join investment clubs for the social opportunities — hanging out with like-minded people doing a mutually enjoyable activity. But the real draw is the money. The wealth-building power of investing through clubs comes through pooling money and accumulating compound interest.

        Mr. Pesa, who lives in Dayton, Ohio, said his club bought 30 shares of Microsoft Corp. worth $2,000 in 1992. Today — after splits, reinvested dividends and price appreciation — that investment has grown to 480 shares worth more than $43,000.

        Mr. Pesa figures his club's average annual compounded return to be 35 percent — an enviable figure by any measure. Still, not knowing where to begin stops many would-be investors, said Mary Lyn Goerke, president of the OKI Tri-State Council, the local NAIC chapter.

        Ms. Goerke, whose 6-year-old club is worth $114,000, said many people's hesitations in starting an investment club range from concerns about the organizational structure to knowing how to pick stocks. NAIC is there to help, she said.

        The organization was formed in 1951 by three investment clubs in Detroit to provide support and education for investors, especially other clubs.

        At a recent NAIC seminar on how to form an investment club, Mary Jane Pesa, Hank's wife, taught about 50 Greater Cincinnati residents the basics of forming an investment club and the NAIC philosophy to investing. That philosophy is best summed up as patience and education.

        “Don't feel overwhelmed that you don't have that much experience in this sort of thing,” Mrs. Pesa said. “We've found the first six months or so are really the hardest because you're just settling in. You need to give yourself a year or so.”

        Mrs. Pesa said that in forming a club, members should make sure everyone gets along and agrees on an investment style. Some clubs continue for decades and amass a wealth that would be easy to bicker over.

        Members should also make sure they and their friends are committed and will dedicate enough time to the club. Not only isn't it as fair or as fun if just a few people do all of the work, there could be legal and tax implications. Ohio Securities Commissioner Tom Geyer said a club might violate state securities laws if it loses equal participation and becomes more like a mutual fund or money management account.

        Members' lack of commitment is one reason clubs fail. The other is buying stocks too soon, Mrs. Pesa said. .

        John Rasmussen of Mason said his club, the Little Tycoons, has met three times. Members have contributed $30 each. No stocks have been purchased, however, as members want to learn more about the market and how to invest.

        “All of us would like to know more about investing,” Todd Lenser of Woodlawn said. “We want to start learning the basics, like how to read a financial report, what the terms mean. It's not as much about the money as educating people.”

Tips for a successful investment club

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- Investment clubs pool resources