Peggy Hardwick of Barrington, who is a certified public accountant and has a master’s degree in finance, knows a lot about investing. But her most important investment tie may be that she is from Beardstown, Ill.
Hardwick was a member of a 4-H Club whose leaders included Carnell Korsmeyer and Elsie Scheer. The two women belong to the Beardstown Ladies investment club, made famous by the best selling how-to book “The Beardstown Ladies’ Common-Sense Investment Guide” (Hyperion, $10.95 paperback).
They weren’t savvy investors when Hardwick knew them in the 1960s. “They were always very with-it and bright,” Hardwick says, “but I was surprised to see their book because their expertise was in farming.”
In fact, Hardwick’s husband, Ted Stone, a computer consultant, gave her the “Beardstown Ladies” book as a joke. But after reading the book, Hardwick, like thousands of other people, became interested in joining an investment club. Hardwick found some interested friends and neighbors in Barrington, and they formed the Village Investment Partners (VIP) in July 1996.
“We tried to invite people who would get along and do their homework,” Hardwick says. “Most have no background in investing, although two of us have MBAs in finance. The lack of investment knowledge was not important. We tried to be somewhat selective in choosing members and tried to stay away from overpowering personalities. We didn’t want anyone to be intimidated.”
Investment clubs have been around since 1900, according to the National Association of Investors Corp., a not-for-profit organization based in Royal Oak, Mich., that promotes investing education. But the “Beardstown Ladies” book–which reveals how the club’s investments have earned an average annual return of 23.4 percent, twice that of the Standard and Poor’s 500, from 1983 to 1993–has sparked an interest among average Americans.
“Partly because of the Beardstown Ladies, people say, `If those women from small-town America can do it, so can I,’ ” says Barry Murphy, director of marketing for the national investors group.
In the four years since the Beardstown book was published, more than 15,000 clubs have joined NAIC, compared to only about 1,000 clubs between 1985 and 1990.
Investment clubs attract people because they offer the opportunity to learn about investment vehicles without paying expensive consultants. For Mary Ellen Henehan of the American Association of University Women investment club in Barrington, clubs give members a sense of control over their investments and allow them to reduce the risk of making stock investments by sharing the costs among 10 to 20 members. Murphy says that many clubs are the savings and retirement plans of members.
VIP’s Hardwick had an unusual motivation for forming the club. “I had a pile of statements on our personal investments on which I needed to calculate the (price/earnings ratio),” she says. “I thought an investment club would give me the discipline to investigate the financial health of our investments while I am researching new stocks to purchase.”
Although Hardwick is looking to the club to give her the incentive and discipline to get her financial house in order, other members join for the personal control the investment knowledge gives them. “Husbands aren’t involved,” Hardwick says. “The women in our club wanted to be able to direct their investments independently.”
All-women investment clubs have an edge over all-men clubs, according to Murphy of the National Association of Investors Corp. “In 9 out of the last 13 years, all-women clubs have outperformed all-men clubs,” says Murphy, who notes that mixed gender clubs outperform both.
The first Tuesday of every month is meeting time for the 14 members of the American Association of University Women club in Barrington. They climb the narrow staircase to the small room upstairs from iveta, an espresso bar and cafe in Barrington. They review their Value Line reports, which are commercially prepared analyses of companies and their stocks, and talk about investments as they wait for the meeting to start.
This club systematically studies industries and then focuses on specific stocks within the industry to determine whether the stock meets their criteria to purchase. The club has just finished researching health-service management companies, and today’s meeting is the first to discuss the utilities industry.
Henehan, the club presiding partner and a resident of Barrington, has invited two speakers from Commonwealth Edison to discuss the deregulation of electric utilities and which economic indicators will affect stock values. Sheila Owens, governmental affairs administrator for Commonwealth Edison, talks about the potential of deregulation.
The members, who range in age from their 30s to over 60, and their five guests listen attentively. The club secretary, Terri Tepper of Barrington, types minutes on a laptop computer. When the presentation is over, the members ask questions about issues that have the potential to change the stock value of the utilities.
When the speakers have gone, members take a minute to organize reports on the different stocks they have studied. Diana Francis, an engineer from Barrington, instructs the group to choose two or three each of the 80-odd utility companies for which she has copied Value Line reports. At a future meeting, the group members will report on the stocks’ potential.
In addition to studying new stocks considered for purchase, the group keeps a close eye on the stocks they already own. For each stock owned, the member following that stock–called a “stock watcher” in this club–reports each month on the stock’s activity, price originally paid for the stock, the current market price, the year’s high and low values, the current safety index rating by Value Line (which indicates the stability of the stock price), the price/earnings ratio and current timeliness index (which predicts the relative price performance over the next year).
Then, they read about companies from press releases and newspapers and provide anecdotal evidence that shows a company’s popularity with the consumer. This, in turn, indicates whether a stock is a good investment.
“A friend of mine who attended the Atlanta Olympics said McDonald’s was the best fast food by far,” explains one member, referring to the continuing viability of the club’s McDonald’s stock. “The other vendors all had little dining areas, which caused huge delays. But McDonald’s let customers get their food and go.”
This branch of the AAUW club (there are four subsets, divided to keep numbers manageable and to group people with similar philosophies) was formed in 1993. They take field trips to the Chicago Board of Trade, invite speakers and follow the NAIC program.
Their compounded average stock return per year was 13.04 percent as of August 1996. Some of their bigger successes are Eastman Kodak (purchased in January 1994 at $49.57 per share and, as of August, valued at $74.63 per share) and Microsoft (purchased in October 1994 at $61.41 per share and valued in August at $117.98).
This club had received so many requests for information about starting a club that members wrote a book. “How to Start an Investment Club” is a 21-page manual and is available for $10 plus $2.25 shipping from AAUW, Barrington area branch, E.F., c/o Mary McLaughlin, 198 Kimberly Rd., North Barrington, Ill. 60010.
The newly formed VIP club used the Beardstown partnership agreement when getting organized and modified it to meet their needs. They decided on goals–their primary objective is education–and a monthly contribution of $50 for the first three months and $35 each month thereafter. They invited stockbroker Rich Orzechowski, a Barrington resident and vice president of investments at A.G. Edwards in Roselle, to make some recommendations, and they expect to make purchases by the end of the year.
Finding a broker can be tricky. Stockbrokers make their commission when people trade, so it is more profitable for brokers to accept clients who are already savvy and very active in the market, or who are not interested in learning about the market. But a primary objective of many investment clubs is learning how to research, evaluate, buy and sell stocks, and they often require their broker to spend time informing and educating them.
Orzechowski enjoys working with clubs. “It’s refreshing to deal with people who are serious and interested in learning about investing,” he says.
Orzechowski is also club friendly in another way: He offers a 25 percent discount from regular trading costs to clubs and their individual members. Depending on the value of the trade (price and number of shares) for the club, his commission could be from about 1 percent to 3 percent of the trade.
The most important part of belonging to a club, according to Orzechowski, is not learning to read an annual report or investigate a stock. To be truly successful, Orzechowski says, “it’s important to have fun.”
Francis, one of the founders of the AAUW investment group, is having fun with the club, but it’s not the kind of fun you have at a wild party. The investment club gives her an excuse to ask questions of people she otherwise would be hesitant to ask.
“I had lunch with our portfolio manager at the Northern Trust the other day, just to pick his brain,” Francis says.
Fun? Well, for some. But Francis is satisfied that the club is giving her more than an edge on her investment return. “The whole point of the club,” she says, “is to share our knowledge.”
