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

Today's Money Make-Over column is one in an occasional series of reviews of Southland investment club portfolios, focusing on specific challenges club members face in picking stocks and monitoring their portfolios. The issues faced by many clubs also apply to individual investors with their own portfolios.


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."

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