Investing lessons put to test
By Deborah Adamson
Advertiser Staff Writer
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| Members of the Kala Emi Investing Club get down to business during a recent meeting at Hickam Air Force Base. The group's 11 members meet the second Friday of every month to talk about stock-market investments.
Jeff Widener • The Honolulu Advertiser Looking to invest? Hawai'i residents can learn about investing in stocks and setting up or joining a club by contacting the Aloha Hawaii Chapter of the National Association of Investors Corp., an investment club association. Membership in the NAIC is $40 per club plus $14 per member annually and includes a subscription to the group's investment magazine. For more information, visit www.better-investing.org. Contact local chapter president Karen Kelly at 845-9114 or the NAIC headquarters in Michigan at (877) 275-6242. |
What most people probably don't know is that the 73-year-old military wife also speaks Wall Street lingo.
"Bed, Bath and Beyond closed at $39.85. The trailing P/E is 32," the homemaker reported to fellow members of the Kala Emi Investment Club one day at the Hickam Air Force Base Officer's Club.
Every second Friday of the month, Dennis and 10 other friends in their late 40s to early 70s meet to talk about investing in the stock market.
All but one are ordinary investors without any financial training. But what they do have is a passion for stocks and making money.
In the two years ended Aug. 8, the club has returned a total of 189 percent among eight stocks, or an average of 23 percent for each company the members own. In the same period of time, the Standard & Poor's 500 fell by 22 percent.
The club's portfolio totals almost $63,000, invested mainly in medium-sized companies. They did it by investing an average of $50 a month — although they are allowed to put in as little as $25.
That's why the investors' club is called Kala Emi, or "small money." They believe even small money invested over time can yield large rewards. But more importantly, they try to apply the investing lessons they've learned to their own portfolios.
Kala Emi joins 94 other investment clubs and individuals to form the Aloha Hawaii Chapter of the National Association of Investors Corp., or NAIC, an investment club association. There are about 670 people statewide in the group, said local president Karen Kelly.
Nationwide, about 300,000 people belong to the NAIC, said Mark Robertson, senior contributing editor of the nonprofit group's Better Investing magazine.
NAIC membership peaked at 450,000 in 1998, near the stock market's zenith. In Hawai'i, membership peaked at 1,191 in 1999, the year before the tech stock fallout.
When the bear market took hold, interest flagged. But it's rebounding, and some of the NAIC's recent educational events have sold out, Robertson said.
That's not surprising, since the stock market has been strengthening. Indeed, the Dow Jones Industrial Average ended yesterday at a 14-month high.
But NAIC clubs are taught to disregard the market's performance. Instead, they focus on finding good stocks trading at favorable prices because there always are stocks that appreciate in any market. The members' task is to find those companies by using the NAIC's Stock Selection Guide.
With disciplined investing, between 50 percent and 70 percent of clubs routinely beat the S&P 500 historically, Robertson said. But the 12 months ended April 30 was tough on most, he said, with only one out of nine clubs beating the index.
Mike Corcoran, president of Kala Emi, said the club looks at many factors in their evaluation of a company. Among the most critical: The upside/downside ratio, the price-and-earnings to growth (PEG) ratio and relative value of a stock.
The upside/downside ratio measures a stock's potential for reward versus the level of risk. Corcoran's clubs prefers a 3-to-1 showing — the odds of the stock appreciating are three times as much as the likelihood of a decline. A stock is sold when the ratio goes below 1-to-1.
To avoid overpaying for a stock, the investors look at two things: The PEG ratio and relative value. They look for stocks with a PEG of 1.1 to 1 or below — the stock's valuation matches or falls below the pace of earnings growth.
Relative value compares the current price-to-earnings ratio (P/E) to average P/E over the past five years. They prefer a 1.1 to 1 ratio or below but would avoid extremely cheap stocks coming in at 0.8 to 1 or less. Usually, there's something wrong with the company, Corcoran said.
The club's three best stocks as of Aug. 8 were eBay, Corinthian Colleges and New York Community Bancorp, said club treasurer Perry Marshall, a former Navy doctor. These stocks have racked up total returns of 98 percent, 51 percent and 39 percent, respectively, since the club purchased them last year.
To find potential stocks to buy, they scour through the latest reports from Value Line, which publishes stock research. They look for companies rated 1 or 2 on timeliness, which means Value Line sees them rising in the next 12 months, ranked according to probability.
What makes Kala Emi unique, however, is not just its research or stock-picking prowess but its longevity. The club started 33 years ago. Among current members, the longest tenure is 20 years.
"It started as an officers' wives club. Then they let men in because they were losing money," said Corcoran in jest.
But females still dominate the group. There are seven women and four men in Kala Emi.
To which Marshall reacts in mock offense: "There's only four of us. Isn't that disgusting?"
The group is looking for four more members. And they needn't be men.
Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.
