Investment Clubs: Seattle buzzing over stocks

Marketplace Staff Feb 2, 2007

TESS VIGELAND: A couple of weeks ago we introduced a new regular segment on the program.
We’re following three investment clubs — in Seattle, San Jose and Fairfax, Virginia — as they figure out what to buy, sell and hold throughout the year.

Today, we’re visiting once again with the Seattle club.
Say hello to Meridian Pacific.
A group of guys who get together once a week,
this time at a coffee joint called Vivace.

The club has six members. Four of them showed up tonight:
Sumit Sen, Sandy Phadke, Nathan Buggia and Chen Lim.
Like the good computer science guys they are…
and yes, one of them works at Microsoft…
all four have laptops set up on the coffeehouse table to research all the stock charts and reports they can stand.

The club started out with everybody contributing to one investment account.
But Sandy told me they stopped doing that about a year ago.
The club’s now more about a sharing information.

PHADKE: All of us realized we were actually investing more on our own and using everybody else here just to get more diverse opinion. Because you know how you can be trading late at night you see a stock and you’re like man tomorrow it’s gonna go up

VIGELAND: No, actually I don’t know what that’s like . . . hahahahaha

PHADKE: So coming here gives us that extra time to bounce it off other people and it’s always interesting. They have additional perspective to add to it that you don’t get at 11:30 at night when you place that limit order.

Yeah, limit orders. For all their sophistication now… none of these guys really knew anything about investing when they started or joined the club.
Chen says he just funneled money into his 401k and hoped for the best.

LIM: just terrified of the market. When looked at 401k financial report, didn’t know what the numbers meant. Today can read a 10Q qaurterly report and make sense of it.

VIGELAND: And is that because of what you’ve learned here at the club? Because so many people would have the same reaction that the have no idea how to read any of the quarterly or annual reports that come out from most companies.

LIM: No, that’s totally true absolutely. I think it’s just having a group of people who are kind of like-minded and you know looking over the same data together. That helped me a tremendous amount.

VIGELAND: So Nathan, did you come into this knowing what a 10k was?

BUGGIA: 10 what now? Hahahah I guess when we first started to do an analysis of a company I think my first one took 6-8 hours. Within a month or two it got down to 1-2 hours.

And it’s obviously helped all of them, because they’ve made a lot of good picks.
Admittedly some bad ones, too. But Sumit shared one success story that shows the importance of knowing how to evaluate a company’s worth.

SEN: One of the ones that we identified early on was a company called Infosys out of India. We went through the balance sheet first and they had a lot of cash on hand and no debt. And I remember it was like a five billion dollar company at the time. And everyone sort of agreed that if we had the capital in 3-5 years to pay $8 billion for it.

VIGELAND: If you had $ billion . . .

SEN: If we had that kind of money lying around.

VIGELAND: So what’s it worth now?

SEN: $30 billion

$30 billion. And they bought into the company when it was worth five billion.

So there is a whole lot of method to the madness that is Wall Street.
We’ll hear more about Meridian Pacific’s methods, madness and what they’re buying and selling these days a bit later in the show.

– – – – – – – – – – – – –

This is Marketplace Money from American Public Media.
I’m Tess Vigeland in for Kai Ryssdal.

Time to revisit our investment club in Seattle.
Earlier in the show we talked with Sumit Sen, Sandy Phadke, Nathan Buggia and Chen Lim about what kind of investors they were before joining the club. Now we head back to the Vivace coffeehouse to see what they’ve learned about where to put their money.

And just to please the legal department — remember, these are amateurs investors and their opinions and advice are solely for the purpose of their own investments.
NOT for you to fluff up your nest egg.

Sumit Sen started things off with a suggestion.

SEN: So before we sort of start the club today, Nate and I were talking earlier and we were discussing how we could best use our time, moving to an agenda where the first part of the club we look at our portfolio and try to identify the ten biggest surprises. And then we were suggesting we split into three teams of two each and each team take two to three stocks and delve into detail for about an hour and then come back and present to each other.

LIM: I think that’s a really good idea. Another thing I thought about today actually was about the analysis part cause I think one thing we should try to do is force whatever team it is to come up with a concensus, whether it’s a buy, sell or hold.

SEN: I really like that idea a lot, could be a lot of fun.

LIM: Another thing I kind of wanted to throw in there is not just for individual stocks but also the market overall. Like keep track of for example what’s the Fed rate…

VIGELAND: Just listen to Marketplace! [Laughs]

So no doubt they followed this week’s Fed decision closely. No change in interest rates.

But aside from those macro-economic indicators, I asked Chen if they tend to stick with industries they’re familiar with — like technology.

LIM: I think the answer is yes it is important to leverage what you know. But don’t be overconfident in that. That was one mistake I did, I’m in technology, I know semiconductors can never go down, guess what, that wasn’t totally true. Because there’s the physical reality like your products might be doing very well but your stock might be overpriced.

SEN: I think one thing that’s happened as a club is we’ve definitely expanded beyond technology. In fact one of the big things for us was being able to have the longevity to start looking at other industries and getting smarter about other sectors.

That doesn’t mean they don’t invest in technology. They do. They all were looking at Overstock.com for a while. But not anymore, and for a reason most investors wouldn’t even bother with: the quarterly earnings call.

SEN: There were a couple of meetings, this is Sumit, where we sat together and just listened to the earnings conference call as a team.

VIGELAND: Now that sounds exciting. [Laughs]

SEN: Hey some of them are pretty entertaining. There’s one company actually out there we decided not to invest in in part because of the color commentary of their exective team. There’s a lot to be learned from how the CEO of the company addresses investor concerns or doesn’t address them.

VIGELAND: Wow so they actually lost your money as just average investors because of how they conducted the earnings call.

SEN: Yes that’s right. Sandy: And for the record it’s down 75 percent over two years.

At that point, Sumit suggested we go around the room and get a summary of what everybody’s interested in buying right now.
We started with Chen. His favorite: Apple.

LIM: Everyone knows that Apple’s done very well over the last two years so I guess it’s not very hard to make money off a quickly rising stock. But they keep their product launches very secret. So if you follow the rumor side as to what the expected releases are at a particular product cycle. So I tend to buy before these releases and kind of bank on the growth before that.

VIGELAND: OK, Nathan?

BAGGIA: I’ve been pessimistic about the market the last six months or so. Maybe more so than the other members of the club. I got out of most of my stocks. The one exception being Microsoft, which I thought at the time was being highly undervalued. Full disclosure I work for Microsoft. So that’s done very well for me.

VIGELAND: Sandy?

PHADKE: OK, Sandy here. We also looked at the U.S. economy vs. investing abroad. I think we only looked seriously at India and china. In that particular regard ICICI Bank. So we stepped off from the Chinese market but on the Indian market some of the services industries and banking was one sector that would benefit unconditionally from that growth.

SEN: Yeah there’s such a large growing middle class, all these young people with all this extra cash. And they have credit needs and they have mortgage needs and they want to invest. That’s a really big growing market and I think the banks are going to do really well over there.

By the way — that Indian bank, ICICI?
Sandy bought it at $21 a share.
It’s now at $42 a share.

What stocks are these guys avoiding right now?

Healthcare. They say it’s really tough to figure out who’s in charge within the industry.
Drug companies? Hospitals? Managed care companies?
The auto and airline industries also get a thumbs-down.
Too many unanswered questions about oil prices and bankruptcies and labor woes.

We’ll check in with Meridian Pacific again in a couple of months to see if any of that has changed.
Meanwhile, we’ll head north from LA for lunch with the investment club in San Jose.
That’s in two weeks.

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