For This Investment Club, It’s Portfolio Soul-Searching Time

It didn’t take long for the Women’s Investment Team to settle into a comfortable routine following its 1996 creation: The club of 16 Los Angeles-area women met once a month, paid their dues, picked some attractive stocks--then watched the value of their selections soar.

By March of this year the group’s portfolio had swelled to nearly $240,000, a cumulative return of almost 120% since the club’s inception.

But like many other investors, the club has been rocked by the stock market’s tumble since spring--and particularly by losses in technology stocks. Several of the group’s longtime favorite tech shares, such as Dell Computer and Intel, have shed a significant portion of the paper gains the club once enjoyed. More recent tech selections, such as CMGI and Lucent Technologies, are worth a fraction of what the club paid for them.

With their portfolio’s value having shrunk to about $176,000, the club’s members are asking some hard questions: Did they stay too long in some stocks? Should they hold on for a potential rebound? Is it better to take profits now in some of their still-significant winners--or sell their losers?

Perhaps most important, should the club be shifting its focus longer term away from the tech sector that has been so rewarding in recent years, and more in the direction of “old-economy” stocks?

During a recent meeting with Times Business section editors and writers, Susan Temple, the group’s founder, asked an even more fundamental question: Should the club consider cashing out completely, if the stock market is facing much rougher seas ahead?

Although Temple wasn’t entirely serious about unloading all the group’s holdings, her question reflected the high anxiety several of the group’s members now feel about the market--anxiety certainly shared by many individual and professional investors alike.

“I’m worried about the economy,” admitted club member Margo O’Connell, who feared that the record economic expansion fueling the market’s rise could be ending.

Temple sees the risk differently. “I’m more worried about the psychology of the market rather than the economy,” she said, pointing to the battering once-highflying tech stocks such as America Online and Yahoo have taken this year and the shares’ many failed attempts to rebound.

The mixed feelings haven’t compelled the club--which uses the acronym WIT--to begin wholesale selling of their stocks. But members admit they have become less willing to buy with their $100-per-member monthly contributions.

This indecision is new territory for the women, most of whom live on Los Angeles’ Westside and are in their 50s. Indeed, the group’s success over the last four years stemmed in part from members’ willingness to plunge into the market with confidence.

Initially, the group had intended to follow the guidelines of the National Assn. of Investors Corp. (NAIC), an umbrella organization for clubs.

But some WIT members quickly recognized that many of the NAIC’s recommended investment practices would limit their choices. For example, the NAIC generally advises club members to stick with companies with long track records. But that would have ruled out purchases of many up-and-coming tech stocks.

“Tech reared its head to us,” Temple said, so the group decided to bend some of the rules members initially thought they’d follow.

It was a smart move: Even with this year’s tumble in tech stocks, the club is sitting on significant paper gains in such tech issues as Dell, mobile phone maker Ericsson, semiconductor equipment maker Applied Materials and data storage systems maker EMC, all purchased between 1996 and 1999.

In general, the group has adhered to a buy-and-hold philosophy. “Our concept is to hold for the long term,” said member Linda McCann. “But sometimes we realize we should get rid of some stocks.”

Clayton Homes, Callaway Golf and troubled toy maker Mattel are among the handful of stocks the group has discarded.

The club also has had success with some non-tech shares, such as General Electric and retailer Bed Bath & Beyond. But as is the case with so many investors, tech has been the club’s biggest money maker.

This year, however, the club’s confidence in technology has come to haunt it. The group has held on to telecom equipment giant Lucent and now has a 65% loss on the original purchase made a year ago.

Worse, the club doubled its bet on Internet incubator CMGI: After buying 25 shares at $107 early in the year, the group watched the price sink to $43. Members voted to buy another 25 shares. Today, the stock is at $16.

“When it went down, we decided to double our bet,” Temple explained. “That was a losing experience.”

Fear that their tech-stock gains will continue to melt has caused club members to think more about established companies in non-tech areas. “We’re trying to go back to basics,” Temple said. “We’re looking at some drug stocks. We’re even looking at GM.”

In its meeting with Times editors and reporters, the club was lauded by Times Senior Markets Editor Tom Petruno for its gutsy stock picking in recent years and for recognizing tech shares’ growth potential before many other investors jumped on the bandwagon.

Because of their success, Petruno also cautioned club members against cashing out much of their stock and waiting on the sidelines for a better market.

An investment club with nothing but money-market holdings wouldn’t be much fun, Petruno noted. More important, the club would probably find it impossible to time the market well, he said.

“History shows that by the time you think it’s time to buy again, much of the market’s rebound will have occurred,” Petruno said.

Given that the club is clearly in the market for the long term, Petruno and other Times staffers suggested that the members start with a basic review of what they own and why they own it. For study purposes, he advised dividing the portfolio into tech and non-tech stocks.

Members should evaluate the non-tech names such as Citigroup, Home Depot and Starbucks on the basis of what the businesses’ growth potential would be over the next three to five years, Petruno said. There isn’t much question that such premier franchises will be around in five years, he said. The only question is whether the stocks are valued today at levels that will allow for additional appreciation if the companies’ growth continues.

On that basis, he suggested that the battered shares of retailer Gap might be worth keeping. “Things have gone wrong with the Gap, but it’s in no danger of bankruptcy,” Petruno said. “With old-economy stocks, you need to ask, ‘Do we have a solid business here? Do we have time to wait for the stocks to come back?’ ”

When it comes to tech stocks, however, Petruno said the club faces different issues.

In part because of the still-high valuations on many of the stocks, “Tech is a totally different ball game because the stocks move so fast,” Petruno said. “The nightmare is that they can just keep falling, like WorldCom.”

“It’s the ‘cockroach’ theory when it comes to earnings warnings,” he said. “If you see one, you know there are more out there.” That has applied to such club issues as Lucent and WorldCom.

Moreover, the reality of the technology business is that companies can become obsolete very quickly if they fall behind. That reality may require the group to learn to exit tech stocks faster when they disappoint, Times market writer Walter Hamilton said.

The club, he said, could benefit by learning to read the market’s own signals on these stocks. “When stocks go down with heavy volume, that tells you big mutual funds are selling,” he said.

Another key issue is whether some of the club’s tech stars of recent years can be stars in the future. Hamilton suggested, and the group agreed, that there is no sense in turning away from technology entirely, given its long-term growth prospects. But the club must focus on emerging tech names rather than bet on older holdings in such sectors as personal computers, he said.

Taking profits now in older names such as Dell and Applied Materials, said Petruno and Hamilton, can provide the capital needed to move into tech names the group may identify as more promising longer term.

“There’s an awful lot of new tech names out there,” agreed member Sunny Stone.

Finally, the Women’s Investment Team should not lose confidence, even with the recent downturn in the portfolio. The club should follow its instincts with regard to new ideas in tech or in the old economy, Petruno said.

“You’ve picked beautifully in the past,” he said. “But don’t spend too much time looking backward. You’ve got to focus on the opportunities that are ahead.”

* ‘CORE’ HOLDINGS

What stocks can you trust these days? C6

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The Women’s Investment Team Portfolio

The Women’s Investment Team was formed in 1996. It holds more than two dozen stocks currently worth $176,475. The club has bought and sold a handful of other stocks along the way, but primarily has bought and held. Here’s a look at the current portfolio. Note that stock purchase prices have been adjusted for any splits. The stocks are listed in order of purchase.

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Ticker Purchase Purchase Monday Pctg. Shares Stock symbol date price price gain/loss Dell Computer DELL 11/20/96 $3.08 $28.81 +835% Ericsson ERICY 2/19/97 4.16 12.44 +199 General Electric GE 4/9/97 18.61 54.00 +190 Starbucks SBUX 6/18/97 17.96 41.63 +132 WorldCom WCOM 6/18/97 21.20 24.88 +17 Intel INTC 8/25/97 25.23 45.00 +78 Costco COST 10/29/97 19.05 34.56 +81 Chiron CHIR 12/19/97 19.05 42.25 +122 Applied Materials AMAT 3/19/98 17.42 49.63 +185 Maxim Integrated MXIM 3/19/98 19.64 62.69 +219 Citigroup C 7/22/98 34.49 51.56 +49 Walt Disney DIS 8/19/98 34.05 34.88 +2 King Pharm. KG 11/19/98 15.63 42.75 +174 Amgen AMGN 3/17/99 37.70 54.13 +44 Wal-Mart WMT 3/17/99 48.46 43.75 -10 America Online AOL 4/21/99 68.91 47.75 -31 EMC EMC 4/21/99 27.58 84.44 206 Cisco Systems CSCO 4/21/99 26.45 48.06 +82 Home Depot HD 7/21/99 45.31 40.94 -10 Lucent LU 10/20/99 58.52 20.38 -65 Adobe Systems ADBE 11/17/99 40.43 69.93 +72 Bed Bath Beyond BBBY 1/19/00 17.28 24.13 +40 CMGI CMGI 1/19/00 107.75 16.06 -85 Gap GPS 1/19/00 50.53 23.25 -54 Alliance Capital AC 3/22/00 41.60 47.00 +13 CMGI CMGI 4/4/00 43.78 16.06 -63 RF Micro RFMD 6/21/00 51.44 16.25 -68 Oracle ORCL 7/9/00 38.08 31.63 -17 Solectron SLR 6/21/00 41.65 47.94 +15 Elan ELN 9/9/00 50.00 51.69 +4 Symantec SYMC 9/9/00 45.00 37.13 -17

Ticker Stock Stock owned value Dell Computer 595 $17,142 Ericsson 800 9,952 General Electric 450 24,300 Starbucks 200 8,326 WorldCom 150 3,732 Intel 160 7,200 Costco 100 3,456 Chiron 100 4,225 Applied Materials 100 4,963 Maxim Integrated 100 6,269 Citigroup 200 10,312 Walt Disney 100 3,488 King Pharm. 253 10,816 Amgen 200 10,826 Wal-Mart 100 4,375 America Online 100 4,775 EMC 100 8,444 Cisco Systems 200 9,612 Home Depot 75 3,071 Lucent 100 2,038 Adobe Systems 25 1,748 Bed Bath Beyond 50 1,207 CMGI 25 402 Gap 25 581 Alliance Capital 25 1,175 CMGI 25 402 RF Micro 100 1,625 Oracle 100 3,163 Solectron 100 4,794 Elan 44 2,274 Symantec 48 1,782

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Total: $176,475

Source: Women’s Investment Team