Our investment club is just one year old.  All the members, about 12, are very novice investors. Only a couple of us have any experience at all.  I have been investing, doing my own research and trading since 1997 and consider myself no expert.  The "gals" made some pretty uninformed decisions the first month or so and the investments have proved fruitless.  (Down, way down!)

Since the loss, the group can't seem to make any decisions and our quarterly dues have sat in a savings account for months now.  We have quite a chunk to invest right now.  What should we do?

If the group is too fearful right now and feels that we're just not comfortable making a decision, should we at least move our "savings" into some kind of investment vehicle?

I suggested to at least put it into an index fund like a HLDR or SPDR.  I like QQQ right now. I think it hit bottom and is recently rebounding. Suggestions?

Vickie Eubanks

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Dear Vickie,

By all means your club should be investing the money!  Your club is an investing club, not a savings club.

I don't know for sure of course, but I suspect that your club may have invested in some 'hot tips' or perhaps wanted to jump on the Internet express.  Well, chalk it up to a 'learning experience' and move on.  Investing is never an exact science, and no matter how much research one does, there will always be the "Rule Of Five" with which to contend.  The "Rule of Five" should be writ in tablets of stone and given to every new (and old) investor, if for no other reason than to have something handy to hit oneself with when one does something extremely silly.  (You should see my bruises! <VBG>)

The Rule of Five states that for every five stocks you purchase after study, three will perform about as you expect them to perform; one you will want to put out of your misery, call it Fido, call it Canine City and refuse to admit that you ever even once knew the ticker symbol of such a dog of a stock; and the fifth will perform far beyond your wildest dreams of greed and avarice.  THIS will be this stock you brag about at the office and neighborhood Holiday Parties.  "I am an Investment Genius!"

But rarely does one ever brag about the great rate of return on passbook savings.

May I suggest that your club goes "back to the drawing board" and first of all figure out the reason why that particular investment (or investments) was chosen. If it was on the basis of a "hot tip", then consider perhaps using some of your meeting time to learn a systematic approach to evaluating stocks and the value of a particular stock, such as the Stock Selection Guide of the NAIC, a non-profit investment education organization that has been in existence since 1951 and has an excellent track record.  You can read about the NAIC's methods and order a copy of the book by going to the bivio bookstore.

After your club has refreshed itself on the fundamentals, go ahead, buy a stock, any stock, and start applying your newly learned principles of stock selection and portfolio management to your stock.  You will lose some and win some, but you have an 80% chance of great success.

I wish you and your club much success in the future and Happy Holidays.

Yours,