Weekly Wrap

Problems with Finding the Right Company

Lately I've had the honor of meeting with and speaking to a couple of investment clubs. This past weekend, the Magnolias flew into Minnesota for a Girls Get-A-Way (although it looked like a Girls Shop 'Til You Drop) weekend. Diane from Club Chick and I went to a nearby hotel and met them. (I had to drag Diane with me because when the Head Hen of the Magnolias emailed me and said to meet them in room 304 at the Embassy Suites, I thought I was being set up for a rape. Being a Chick, I knew the smart thing to do was to bring an even prettier blonde along with me. I told Diane we were going to lunch somewhere.) Lo and behold, there sat ten women, from across the country, all dressed in denim shirts embroidered with their club name, Magnolias.

Then on Tuesday of this week, the Integrity Investors from Minnesota invited me to their meeting. When their Head Hen, Maria, asked if I would come to her house, again, I got a little nervous. Diane was unavailable for the decoy this time, so we met at a restaurant. Being the Integrity Investors, they completely understood. They even bought me dessert. I was so enlightened by these women, that I may just visit their church.

The great thing about meeting clubs is seeing where they are having problems and needing some help. The same question keeps coming up... "How do you narrow down the companies when it comes time to vote?"

Voting has become an issue in some clubs. Even to the point of frustration. Even driving some women to an anti-depressant. (Not me, yet.)

Here are some of the problems (and I'm sure your club has experienced them, too)...

Problem 1: Should we narrow the ten down before the actual buy so we can get a majority vote?

Solutions to the Voting Process

When you zone in a product that you use and it fits the "Buy What You Know" category, it doesn't necessarily mean that it will fit the other eleven. If the company falls out of favor in at least three of your voted on criterion, I'd suggest you throw it out. You decided on an investment philosophy for a reason, and that reason was, "We stick with this." You cannot waiver on the philosophy, if so, the club is going to fall apart. If you are researching a company and it meets six of the twelve criterion, but not the other six, report this back to your club. If you are still gung-ho on the company and want the group to buy it, don't waste your energy. The club doesn't need you to rally around a stock that doesn't fit the voted (and passed) on investment philosophy. Go buy it for yourself. The club now needs you to focus your energies on the stocks that do meet the criteria.

The beauty of a club is, you get to learn about all of these "other" companies. It doesn't mean they are all up for the buy. You are researching companies, weeding through, and tossing those that don't meet your philosophy. If you are a member of a club, you can't bring the club down by trying to sell your company to them. If you love it so much, buy it for your own portfolio.

If after all ten (using ten as an example) people in your group have researched companies, and only three companies meet the criteria, or a majority of the criteria, those companies are your finalists. The club needs to go to the next level and dig apart those three companies. Spend the next month focusing on the finalists.

How Do Chicks Come Up With the Finalists?

After our first month of each girl picking a company, (which we do as blindly as those three little mice), we run them through the Chicks' Dozen. When posting the company and our findings on the message board, we summarize our thoughts in the last paragraph. We will say something like, "This company really interests me, but it doesn't meet our Dozen to our satisfaction so I'm going to have to take it out of the running," or "This company kicks butt, I love it, it meets our Dozen, and you are going to have to try and get my first born before I give up pushing this one for our next buy."

That was step one, an introduction to ten companies, weeding out a majority of the ten, and narrowing it down to the ones that meet our Chicks' Dozen (substitute your club's philosophy here).

Then, before our next meeting, we all post our favorites on the message board. After reading and considering everyone's companies and their individual summaries, we usually end up with three to five "good" companies. We each vote on our order of favorites. Our post looks something like this, "If I were to vote today, my vote would go like this, 1. Anheuser Busch, 2. Cisco, 3. Medtronic... and here's why." Then we would post a paragraph about where we had problems with some companies and what we loved about others. This gives everyone something to hash over the next month. (And it especially gives those willing to give up their first born something to rebut.)

A Chick Rule: A club needs to weed out the companies that don't meet the voted on philosophy before you can zero in on the winner.

Problem 2: How can you compare a tech stock and their numbers to a retail stock and their numbers? Should we be comparing apples to apples?

At meeting number one (the first meeting after a "buy month"), you might want to narrow down the companies thrown into the ring at this point. Take a look at your portfolio, what industries are you missing? What industries interest the members of your club? The Magnolias discussed focusing on two industries, the beverage industry and the tech industry. They felt that now was the time to buy tech being all those in that industry were definitely "on sale", but still wanted to check out the Coca-Colas and Pepsi's of the world. They discussed splitting into two groups, five research tech companies, and five research beverages. Maybe they would even buy the winner in each category if they had enough money.

Problem 3: There are ten companies researched, none meet the criteria, now what?

You're screwed.

Hehe. Not really. You just have to go back to the drawing board. As a side note, it takes a year to really become comfortable doing the numbers. If you are only doing them four times a year, it's going to take time to be able to do them fast. Once you have this "numbers" exercise down, it's a breeze. I suggest to clubs that they make that a required exercise at their face to face meeting. Do the numbers on a couple of companies together so they can get the hang of it. I should have written that in the book. Do the numbers together and practice. If you need a starting point for companies with decent numbers, I've made some suggestions in the book, and there a ton here on the website in our Chicks Eye View. Don't get frustrated. It takes time for this whole new world to be a part of your world.

One last thing, your club might decide at this point it is time to change your philosophy. The Chicks' Dozen was just a starting point. Maybe your club wants to take half of your buys and do something riskier, and the other half use the Chicks' Dozen . I would suggest however that you ask yourself, what was the point of the club; was it for you to learn about good companies that you would be comfortable investing in for your own portfolio? Or was it a place where you would like to gamble your fifty dollars a month away? I would rather find good, long term companies and let other people lose sleep while experiencing the risk.

I hope this helps your voting dilemmas. Please post on the Ask The Chicks board if there are any suggestions you have, or questions you'd like answered on this topic. We'll be by as soon as we can to answer. That is if Chick Cheryl is stilling willing to take my first born.

Have a great weekend!

Chick Karin

Note to Magnolias: I bought those same darn Clark shoes that all of you were wearing! So fashionably comfortable.