Investment Club Scores Gains, Has Fun

by Mark Friedman  on Monday, Jun. 23, 2014 12:00 am  

The investment club started trading in 2011. Some of its central Arkansas members include, from left, Vernon Scott, Scott Schuldt, Daniel Robinson, Lee Welfel, Dr. Cole Brucker and Matt Black. | (Photo by Jason Burt)

As an original member of the investment club Junto Investments, Daniel Robinson of Little Rock lobbied for the group to buy shares of Netflix Inc. when it was trading at around $50 in July 2012.

“There was a couple of us that wanted to buy in and a couple of us that didn’t,” Robinson said. “It effectively was a split decision.”

When the issue came to a vote, the nays eked out a victory.

“And we never bought it, and since then it’s gone from $50 to $350,” said Robinson, who must have quit checking. As of last week, Netflix actually was trading at $430 a share.

Despite that missed opportunity, the club, co-founded by Lee Welfel of Maumelle, a vice president at Delta Trust Mortgage Inc., posted a 39 percent return on its investments in 2013. Starting with $4,000, Junto Investments has grown its value to about $75,000.

Welfel and a childhood friend, Tommy Gonwa of St. Louis, formed the group in 2011, at a time when investment clubs were vanishing across the country.

At the high point, investment clubs had more than 467,000 members nationwide, according to BetterInvesting of Madison Heights, Michigan. Now there are around 45,000 members, it said.

Adam Ritt, a spokesman for BetterInvesting, said last week that one of the reasons for the decline in members is that people just aren’t joining clubs as much as they did years ago. In addition, the Internet has made it easier to find and share information about companies to invest in, he said.

While there has been a slight uptick in the number of clubs that formed this year over last year, BetterInvesting will probably never see the numbers of the 1990s, Ritt said.

“It’s still a great way to educate investors,” he said.

A Nod to Ben Franklin

Welfel said he and his childhood friend thought forming an investment club “would be a fun way to share investment ideas.”

“Then we went out and recruited,” Welfel said.

The group got its name from Ben Franklin, who created the original Junto Club with the goal of “mutual improvement,” according to Robinson.

Junto Investments started with eight members, four in Little Rock and four in St. Louis. It has ballooned to 17 members with some in New York, Ohio and California.

“Collective ideas are better than any singular idea typically and you benefit from other people’s knowledge,” said Robinson, 35, who is a regional investment officer at Arvest Asset Management. “We’ve tried to broaden our member base with specific type members, so … everybody has their own niche.”

Other members, all male thus far and ranging in age from 26 to 35, include attorneys, a business analyst, a chemist, an account executive and an emergency room physician, Nicholas “Cole” Brucker, who works at Baptist Health.

To buy in now would cost a new member $4,600, and each member contributes $300 a quarter. The club is a general partnership and files tax returns, said Welfel, who is the organization’s president.

Only one member has left the group since it formed, and that’s because he worked for Merrill Lynch & Co., which didn’t allow the outside investment activity, Welfel said.

The 29-year-old Welfel, a vice president at Delta Trust Mortgage Inc., doesn’t miss a chance to ruffle the feathers of a fellow investor.

“If you have the worst stock pick of the year, then you get the trophy: a pig with lipstick,” Welfel said.

The 2013 award went to Matt Black, 35, of Maumelle, an agency owner of Allstate Insurance Co. In 2012, Black recommended the natural resource company Freeport McMoRan Copper & Gold Inc. of Phoenix; its stock lost 28 percent of its value over an eight-month period.

“It’s all in good fun,” Welfel said of the teasing.

Investment Strategy

One of the current debates within the group is what to do with its shares of Under Armour Inc., the sports clothing and accessories firm based in Baltimore. Its stock price is up about 75 percent since the club bought it.

“We have some of the guys who want to dump it and go over to Nike,” Welfel said. “So now it’s like a daily debate. People are taking pictures of kids that they see in Under Armour gear and sending it out to all the other members of the group.”

Discussions over what to buy or sell go on all day. Group messages easily reach 200 a day — and sometimes more.

“Every single one of our wives hates it,” Robinson said of the constant messaging.

But the debate over what to do with Under Armour highlights the problem of selling a stock. Robinson said investors in general — not just those in the club — have a hard time knowing when to sell.

“People get emotionally attached to stocks,” he said. “If it’s down, they want it to come back. And if it’s up, they think it’s going to continue going up.”

Brucker, the ER doctor, said members of the group hold conflicting views about when to sell “a loser.”

Sometimes before a stock is bought, a target price is set, and the group sells when the stock reaches the goals. Other times, however, the stock hit its target goal but the group didn’t sell. Then the price dropped to the level at which the club bought it, Robinson said.

Welfel said the decision to sell is decided by a vote or by “making fun of each other” until a holdout member agrees to sell.

Goals

The group now is working on assigning members sections of its portfolio, which has about 20 stocks in it.

“Right now, we’ve got a few people that watch everything,” Welfel said. “We’re going to segment it out. … That will help keep the meetings shorter and more on topic.”

The meetings, held on the first Wednesday of the month, can last up to four hours.

The group’s goal is to have 60 percent of its portfolio in long-term holdings and the remaining 40 percent in speculative investments, Welfel said.

It currently has nearly $22,000 in speculative investments, $43,000 in long-term holdings and about $12,400 in cash that is used for day trades.

Welfel said the group has done well with some of its stock options play, where some have seen more than 1,000 percent returns. Other options, though, have fizzed and the club lost its investment in the option. With stock options, the investor could buy or sell the shares at a predetermined price during a window of time or on a certain date.

“The market was up as a whole [in 2013], but we did a lot of options plays last year that worked out very well,” Welfel said.

Still, he said he’s not surprised that the club’s investments have grown so much in three years.

“We have a great group,” Welfel said. “I trust our group and some of the minds in the group more than I trust a lot of financial advisers.”

Welfel doesn’t consider the club as his main investment vehicle, but more as of a hobby that one day will pay off.

“We actually have a lot of fun with it,” Welfel said.

 

 

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