Cover Story : Taking Charge : Investment Clubs Are Growing As More Valley Residents Join Forces To Take Personal Responsibility For Their Financial Future.

It’s a ritual for Roz Rosin.

As soon as the Encino woman gets the paper in the morning, she turns to the stock tables.

Five years ago, Rosin thought of Blockbuster, if she thought of it at all, as a place where she could rent videos. Today she and a group of her friends own shares in the company.

Like a growing number of Valley residents, Rosin belongs to an investment club. Once a month, she meets with 10 of her friends and spends a couple of hours arguing the pros and cons of buying Cifra or some other growth stock. Not a great deal of money hangs in the balance--$50 per person per month. But the debate is as serious as if millions were riding on the women’s ability to pick stock-market winners.

The Magnolia Investment Group, as the women call themselves, includes an attorney, a real-estate agent and several teachers like Rosin. Most are married and have teen-age children. “I really like the idea of a bunch of women getting together to do something serious,” says member Terry Snyder, who lives in Encino and practices law in Sherman Oaks. Since Rosin started the club in 1992, the women have put together a portfolio of seven stocks, worth about $11,000 (recent purchases include Marvel, the comics company). The group also has about $2,000 in cash.

Because of the club, Rosin has become something she never expected to be--a confident investor, proud of her ability to parlay the money she earns as a substitute teacher into a growing nest egg. “It’s given me the courage to invest on my own,” says Rosin. But the club has had other surprising benefits as well. Now when she goes to a party with her attorney husband, Rich, she often finds herself talking with his friends about the vagaries of the stock market. “I have a lot of self-confidence now that I didn’t have before.” Best of all, Rosin says, teen-age son, Kenny, and college-age daughter, Melissa, treat her with greater respect since she became the family expert on such weighty matters as whether to buy, sell or hold Telefonica de Argentina.

Since Rosin got serious about stocks, she has been known to spend hours in the library, poring over price-earnings ratios and other data reported and evaluated in the investors’ bible, Value Line. She clips news stories about companies she’s following and keeps them in a loose-leaf binder dedicated to stocks that have piqued her interest. “There’s a gambling, fun part of me that loves the stock market,” she admits.

Indeed Rosin says she only recently realized how profoundly the investment club had affected her. The occasion was a trip the group took to South Coast Plaza for a day of power shopping. In the course of their outing, Rosin spotted a gorgeous St. John suit that she tried on to the oohs and aahs of her fellow investors. The black knit suit was luscious, she recalls, but she decided to pass on it. “It was $800 with tax. And I thought, ‘I’m going to buy McDonald’s!’ ”

Like many others locally, Rosin’s club is a member of the National Assn. of Investors Corp., a nonprofit organization based in Michigan that has been encouraging and educating groups of small investors since 1951. According to the NAIC, there are some 25,000 investment clubs in the United States, 12,000 of them members of the organization. NAIC clubs have slightly more women members than men, and, for reasons that have yet to be plumbed, all-female clubs tend to outperform all-male or mixed-gender ones (1993 was the exception, with men’s clubs edging the women out). The average NAIC group has 17 members who invest an average of $37.23 a month. It holds 12 different stocks and saw its portfolio gain 13.9% last year, significantly better than the S & P 500’s gain of just over 10%. Currently, the top five holdings of NAIC clubs are Aflac (an insurance company), McDonald’s, AT & T, Wal-Mart Stores and PepsiCo.

Last year more than 2,000 new clubs started up under NAIC auspices. Clubs have been increasing by 10% to 12% a year. Indeed, the proliferation of investment clubs seems to be part of a larger trend, as more and more people take personal responsibility for their fiscal health, just as they have for their physical health. There’s abundant evidence that financial planning is being democratized and demystified--look at the proliferation of magazines devoted to money management and the boom in mutual funds, which individuals can buy without a broker. But this is a relatively recent phenomenon. Decades ago, before IRAs and 401(k) plans appeared and encouraged modest earners to begin making investment decisions, picking stocks was largely the purview of the wealthy, or their stockbrokers. “This was perceived as a rich, white, male-dominated endeavor,” observes Barry Murphy, director of marketing for NAIC. If working people invested at all, they tended to eschew the market and put their money into super-safe United States savings bonds.

Henry Bernard, who is NAIC’s coordinator in the San Fernando Valley, remembers wanting to learn more about investing but not really knowing how to go about it. Then he read an article about an investment club in Ebony magazine. An electrical engineer and consultant in Lake View Terrace, Bernard decided that he would do what his own father had not been able to do--teach his children about the stock market. So Bernard and his wife, Melanie, started a family investment club. That was almost a decade ago when their now grown children were 12 and 14.

“We named our club the Buttonwood Four because the stock market started under a buttonwood tree in 1792,” Bernard recalls. “We held our monthly meetings in our bedroom.”

In order to tweak the children’s imaginations, the Bernards made one of their first investments in McDonald’s. “You’ve got to get that for the kids, that or Disney,” Bernard advises other parents who want their children to catch investment fever. “You tell them, ‘You’re going to own some of this company.’ ”

Once the children were hooked, they lapped up such investment truths as the value of dollar cost averaging--the investing of a set amount at regular intervals, which results in the investor buying more shares when prices are low and fewer when prices are high. The Better-Investing-Through-Big-Macs approach worked like magic, according to Bernard. Both Henry Jr., their 21-year-old son, and their 23-year-old daughter, Tanisha, have solid investment backgrounds, and they’ve both begun investment programs of their own. For the last several years, Bernard has fielded any questions that members of the Valley’s 30 or so NAIC investment clubs may have.

Wayne Lipschitz of Sherman Oaks started his first investment club seven years ago, when he was a 22-year-old accounting major at Cal State Northridge. He and friend Alan Schnaid remember the very day. It was Oct. 19, 1987, the Black Monday on which the Dow Jones industrial average plunged 508 points. Lipschitz recalls that he and Schnaid, now 27, had the same thought: “Hey, this is a great time to get into the market!” When they began, the young men recall, they didn’t even know how to read the stock tables in the newspaper. But within a year, Crusader Enterprises, as they called their club, had 36 members, each investing $30 a month; a mentor in the person of a helpful stockbroker who kept steering them away from risky ventures; even a monthly newsletter. The club eventually accumulated a portfolio worth $70,000 and branched out into non-stock investments, including half interest in a rental property in Las Vegas.

The CSUN club was a great success in many ways, but its organizers were not happy. Too many members wanted to contribute their money but not their time or effort. So after five years the original club was disbanded, its assets distributed and Lipschitz and Schnaid started over with five other young men who were as committed as they were.

“We found in our first group that three people were doing the work of 36, and we wanted to avoid that with the second group,” Lipschitz explains.

Organized last year, the new Crusader Enterprises includes only members who have some professional expertise to offer the group and are willing to do their homework--each of them researches a new stock for consideration at their monthly meeting. Club member Gary Lieberman is an attorney and wrote the club’s shareholders agreement (the group formed a corporation). A computer consultant, Guy Nadivi worked with Lipschitz and Schnaid, who are both certified public accountants, to develop software tailored to the specific needs of the club.

“We’ve built an infrastructure so if we have substantial growth, we’re prepared for it,” says Lipschitz. All the members are on-line and can access and analyze stock data electronically. They also have their own seven-member users’ group so they can flash club-related messages to each other, which they often do daily.

The seven men invest $110 each per month and meet, as most local groups do, at members’ homes. In just 18 months they have accumulated close to $25,000 in stocks (their biggest stake is in the electronics firm Novell) and a no-load mutual fund, Fidelity Asset Manager Growth.

The men, who would like to add three more equally skilled and dedicated men or women to their club, take their investing very seriously. “This is my 401(k) plan,” says Schnaid, who expects his club holdings to grow over time into a significant part of his retirement fund. Although the club is a member of NAIC, the seven often ignore the umbrella group’s advice to invest for the long term in non-volatile stocks that are growing faster than the economy.

“We have a much more aggressive approach,” says Lipschitz. Crusader Enterprises likes speculative technology stocks, such as Micrographics. The group is also on the lookout for good real-estate buys to program into its highly efficient investment machine. Los Angeles real estate is currently selling low, notes Nadivi, “and land ownership is a historically successful way to build wealth.”

Lipschitz says he expects the new, improved club to continue indefinitely. “It’s probably something we’ll always do,” he says. The men like the networking aspect of the group, and they even have fun. “We have barbecues on weekends,” Lipschitz says. “We’ve developed friendships.”

Inevitably, members of investment clubs report that what they have learned through the group has encouraged them to build their own portfolios. According to the NAIC, the average club has stock holdings worth $83,000, while members’ individual portfolios average three times their club holdings. Rita Veen is one of many who invests both through her club and on her own. Veen, who lives in Sherman Oaks, is an enrolled agent, a tax specialist licensed by the U.S. Treasury Department. She is also the founder of the Enrolled Agents Investment Club, which meets on the second Sunday of every month at Encino Glen.

Veen is a savvy small investor who does not hesitate to preach the gospel of economic self-sufficiency to people, especially divorced and single women, she meets in the course of doing their tax returns. When she encounters a woman trying to live on a mingy divorce settlement and a low-paying job, she says, “I try to get her to carry her lunch and to buy a $25 savings bond every week.” Veen believes systematic investing and other good financial habits are all that stand between people, whatever their incomes, and the fiscal abyss. “We have to make people understand it’s what you do with what you get, not how much you make.”

One of Veen’s favorite vehicles for individual investing is the dividend reinvestment plan, or DRIP. Many companies have these no-fee or low-cost plans that allow members of the public to reinvest stock dividends and even buy additional stock directly from the company at a discount. Veen’s strategy is to invest excess cash in the stock of companies that offer products or services she likes and that also have DRIP programs. She has a personal portfolio of some 17 stocks, often chosen by tracking the consumer preferences of Clifton, her husband of 43 years.

Explains Veen: “My husband drinks Budweiser so I bought Anheuser-Busch. My husband likes to go to Bowlerland so I bought Brunswick.”

Most DRIPs require investors to hold at least one share of stock in their own name before they can enroll. NAIC facilitates this by allowing members to buy a single share in many companies for $5 over the cost of the share, much less than the cost through even a discount broker.

Founded in 1991, Veen’s investment club is an efficiently run operation that coordinates its meetings with the continuing education courses every enrolled agent must take. Members invest each month in multiples of $25, although, Veen points out, “You only get one vote no matter how much of the club you own.”

Should a member want to drop out of the club, the group writes him or her a check for the value of his or her shares. Alternatively, another member may want to buy out the exiting member’s stake. If the member’s exodus forces the group to sell stock, the departing member must pay the brokerage fee. The tax implications of investing through a club are a snap for Veen’s group. The club files a partnership return, and each individual receives a K-1 form to file with his or her own tax return, reporting any income, capital gains or losses.

Currently, the club has almost half its $40,000 in holdings in cash (at the end of 1993, Veen reports, the group unloaded a couple of dogs and one stock that had had a nice run-up but didn’t look as if it would continue to appreciate). Now she would like to see the group buy shares of the local drug company Amgen, based in Thousand Oaks. She thinks it is a well-run company, and she also likes the fact that it hires and promotes minorities. “The way they handle their employees tells you a lot about a company,” she says. “I think if we get in now while the price is low, it’s a good buy.”

She knows, however, that each member of her club will vote his or her own mind. “These are all self-employed entrepreneurs and they are used to making decisions, so it’s a little different from other clubs.”

Although it’s hardly the most important decision they make, choosing a name is often a club’s first real challenge. Some groups opt for names worthy of a stand-up comic. Judy Powell, who founded an all-female club that meets in Agoura and Westlake Village, reports that her group calls itself “Moneywi$e, with a dollar sign for the s. Isn’t that clever?” Nationally, there is at least one Bag Lady Prevention Society, and local groups sport such puckish titles as the Take Stock Group and Virgin Investors.

When new investment clubs start up, they often turn for advice to Don Shorkey, who is president of NAIC’s Los Angeles Council, which oversees 350 groups from Santa Barbara to Orange County. Shorkey, who lives in Hacienda Heights, is a forklift operator for Nestle Corp. in Mira Loma and a man who taught himself how to invest with help from the national organization. “Each club has a uniqueness about it,” says Shorkey, whose current group of nine men and women is called the Wanna-Be Investment Club.

Members of Shorkey’s club invest a minimum of $20 a month (one contributed $200 at the last meeting). Made a realist by experience, Shorkey urges clubs to screen prospective members for compatible people. His own group asks people who want to join to attend three meetings, then to make a presentation on a stock. Present members must vote unanimously to accept a newcomer. “You want to have compatibility in your group or you’re not going to make any headway,” he counsels. “You’ll just sit there and argue.”

Shorkey thinks part of the reason tensions sometimes roil groups is because the subject is a sensitive one--money. “You start getting involved with money and, boy, you can have a lot of hard feelings.”

As to what to do with a disruptive club member, Shorkey doesn’t hesitate a nanosecond. “If you’re not comfortable with someone in the club,” he advises, “throw them out.”

Starting Up a Club

* If you want to join a club, you will probably have to start one yourself. That’s not difficult, according to the National Assn. of Investors Corp. Talk to two or three of your friends and suggest that they contact several of their friends who may be interested. You might also find prospective members at your church or temple, at work, even among your neighbors.

The NAIC advises looking for three things in prospective club members: people whose company you enjoy, people who can agree on an investing philosophy and people who are willing to study and report on stocks the group may want to invest in.

* Hold a first meeting to discuss creation of the club, at your home if you wish. Make it clear to prospective members that this is a preliminary meeting, not a commitment to join. If you plan to go the NAIC route, make sure that you and two or three others have read the Investors Manual and are prepared to answer questions.

* After the group has discussed investment philosophy and other fundamental issues, ask for a show of hands by those who want to proceed with creating a club. Decide how the club will be organized (most form as partnerships). Other matters that can be taken up at the first meeting: election of officers, setting a regular meeting time and place, deciding how much individuals will invest each month, choosing a name and deciding whether to join NAIC, (810) 583-6242.

The Los Angeles Council of NAIC will hold an all-day investors fair Oct. 1 at the Proud Bird restaurant, 11022 Aviation Blvd., near Los Angeles International Airport. The cost for non-members is $30. For further information, call (310) 326-8150.