Investment Clubs: San Jose

Marketplace Staff Feb 16, 2007

TESS VIGELAND: Today we return to our series about investment clubs.
We’re following three of them — in Seattle, San Jose and Fairfax, Virginia — as they figure out what stocks to buy, sell and hold throughout the year.

This time we’re in San Jose, the motherboard of Silicon Valley, on a gorgeous mid-winter day. It’s about 75 and sunny. The club meets once a month for lunch at an Italian joint called Frankie, Johnny and Luigi’s.

WAITRESS: Ladies?

CUSTOMER: I’m gonna have the rigatoni spinaci

WAITRESS: Excellent choice.

WOMAN 2: Bistro steak salad . . .

Hungry yet?
Around the table we have Marvin Kohn, Kathy Tegtmeier, Bill Deporter, Martha Alderson and Alan Smith.
This group ranges in age from 30 to 70. And in occupation.
They’ve got engineers, a mom, a financial planner, a real estate investor.
Their’s is a very traditional investment club.
They have a pot of money that they invest as a group.
And they don’t waste any time gettin’ down to business.
Kathy Tegtmeier collects checks from everyone before the entrees arrive.

KATHY TEGTMEIER: Our total net worth as a club is a little over $21,000 And right now there’s about almost 1,800 in cash and then I just collected about 900 at this meeting.

VIGELAND: So is there a set amount that you all bring to the table every month?

TEGTMEIER: Each person brings a check for 150 per quarter and it makes the treasurer’s job a little easier.

This club uses tools and analysis provided by the National Association of Investors Corporation.
It’s a nonprofit organization, also known as Better Investing, that assists investment clubs around the country.

Our San Jose club has been together since 2001 and they know their stuff.
They even teach classes to other folks interested in starting clubs.
This group is so focused that salads and spinach pasta are relegated to also-ran status at the table. First priority: passing around thick packets of research they’ve done on their stocks.

TEGTMEIER: The better investing organization has forms that they recommend to use in evaluating stocks. It’s looking at the behavior of the sales, the earnings, the return on equity, profit on sales.

VIGELAND: Do you in general have an investment philosophy where you say ok look this company has been down 3-4-6-8 quarters in a row I think we gotta sell. Or do you do have a percentage drop at which you sell?

ALDERSON: We fervently believe that a company has to have healthy sales, has to make a profit and then produce solid earnings after that.

VIGELAND: How difficult is it, really, as an average person to figure all of this

TEGTMEIER: I can teach somebody in a couple of hours the very basics of identifying a good quality company. The rest of it is lifetime learning.

We’ll learn more about which companies our San Jose club is investing in — and why — later in the show.
This is Marketplace Money from American Public Media.

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TESS VIGELAND: Time to revisit our investment club in San Jose.
We head back to the restaurant Frankie, Johnny and Luigi’s.
Where five club members are deciding which companies will get a share of their $21,000 investment pool.
Once again, to please the legal department, remember: these are amateurs investors and their opinions and advice are solely for the purpose of their own investments.
You’ll have to do your own homework.

Marvin Kohn did his homework before the lunch.
His task was to identify some new stocks that the group might consider investing in.

MARVIN KOHN: Of these five that I found were potential there were three in the financial sector and two in healthcare sector.

The group is already invested in nine different stocks. Including such diverse industries as insurance, auto parts, and oil and gas. There’s also the drugstore Walgreens. And a women’s clothing chain called Chico’s.
That investment got a second look from Kathy and Bill.

TEGTMEIER: I remember within a week of buying it there was some bad news announcement. Haven’t really been looking at it.

DEPORTER: For two successive quarters they’re showing succession getting worse. But look at the sales, the sales are hanging up there but the earnings are really tanking. I have to defer this one to the ladies. Why are you not buying there?

KOHN: Bill ask my wife. She will not go by a Chico’s store without a detour in and around. You better go out shopping with your wife.

DEPORTER: That’s one of those you know the annual reports are gonna be out fairly soon. That’s one to sit down and grind back through and see what they say.

So Chico’s gets something of a reprieve — at least for now.
But another investment wasn’t so lucky: an oil and gas services company called UGI.

TEGTMEIER: I think UGI is kind of a slam dunk decision. The last three quarters, five quarters, have been negative. I think that it’s a company that we should consider for sale.

SMITH: It’s got a sort of problem in the markets it’s in. If you believe in things such as global warming, which I fervently do, my assumption is that the continuing winters will get warmer. So this company’s markets will effectively shrink. And it doesn’t look like it’s going to get any better so we’ve got a few profits, let’s take it.

DEPORTER: Yeah it’s time to depart from that one.

ALL: Agreed. Unanimous. Sell. Ok.

So they’ll sell their UGI shares.
Kathy points out they’ll have some capital gains. They bought $2,000 worth of the stock. It’s now valued at 2,400.
Both the profits and taxes will be divided among the six group members.
To wrap things up in San Jose, I asked everyone to talk about the biggest lessons they’ve learned as a club.
We started with Bill.

DEPORTER: Do your homework and be patient. Simple.

VIGELAND: How hard is the homework?

DEPORTER: It’s as hard as you want to make it. You can do it very simply. Or you can do what I’ve done and when an engineer has too much time on their hands and have too many math skills, they do strange things with spread sheets.

TEGTMEIER: This is Kathy. There’s a lot of ways to make money in the stock market. What we’ve chosen is a way that is slower. You don’t have to track your investments every day. We meet once a month and we’ve been very successful.

KOHN: Probably the most important thing I want to add is don’t listen to tips. To counter that forget their price performance first. Look at their sales and earnings, then look at price.

ALDERSON: There are classes available and it’s a great place to start and get your toe in the door and begin to understand. Alan: Diversify might be a last thought. Never have all your eggs in one basket. Unless they’re golden eggs.

And if they are golden eggs, you’ll want to make sure you’re versed in the precious metals market. We’ll check in with the group again in a couple of months to see what’s sparked their interest.

If you’d like more information about investment clubs, visit our website marketplace.org. We have a link to Better Investing. And you can hear our profile of the Seattle club.

Meanwhile, we’re heading east for a weekend breakfast with the investment club in Fairfax, Virginia. Assuming ice and snow don’t delay our flight.

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