Local investors learn to ride the market


— Sherm Poppen wasn't impressed with the stock market's rally Wednesday afternoon.

"It was a dead cat bounce," he said dismissively of the 500-point jump in the Dow Jones Industrial Average.

The expression "dead cat bounce" is a term that signifies a rally that isn't going to last, he explained. He believes the struggling stock market hasn't found the bottom yet.

"This market has been oversold for so long that we were destined for this," he said.

Poppen is a retired Midwestern bank director who belongs to a local investment club with the symbolic name "Oops."

The members all bring $100 for the investment fund to the club meetings on the first Thursday of every month. Most of them are comfortably retired and can all afford the risk. Lately losing is what they've been doing, but everyone in the club can take the heat, Oops member Jim Peterson said.

"None of our members is gong to have to go back to work if they lose $100 a month," he said. "With an investment club you can relax and enjoy the process."

The real attraction of an investment club, Poppen said, is the access to great financial minds.

"The big joy I see in Oops is one of education," Poppen said. "The knowledge and experience we have in the club is just so good. A couple of people ran tech companies. One guy was an attorney for a company that did acquisitions."

Peterson said he has learned to resist the temptation to jump onto the Internet and track the progress of his stocks throughout the day.

"My pain or happiness is all saved until 2 p.m. (when the markets have closed in new York)," he cracked. "Like every investment club, ours has suffered over the last two years."

Peterson said Oops has broken the financial markets into segments and devotes four monthly meetings to the exploration of each one.

When it came to tech stocks, he said, "We got caught just like everyone else. And telecom companies killed everybody."

The medical and pharmaceutical industries provided mixed results, but the club did pretty well in the banking and consumer sectors.

Individual big-box retailers have continued to perform in the volatile markets of the past two years, Peterson observed.

"A company like Bed, Bath and Beyond, since 1998, has grown 300 percent, even through the bad years," he said.

Among the lessons that are absorbed through participation in an investment club is the importance of researching a company and what that really means, Peterson said. Many of the investors in America who have had such a rude awakening over the past two years probably never bothered to ponder the significance of price-to-earnings ratios that were severely out of balance, he added.

Peterson said the members of Oops look very closely at a company's debt load and how its management controls that debt while it strives to grow earnings.

Evaluating the management team of a publicly traded company has always been important in understanding its desirability as an investment, in Peterson's view.

"It's probably the hardest thing to evaluate," Peterson said.

Now, CEOs are being scrutinized in an entirely different way in the wake of corporate scandals that are currently undermining public confidence in the markets.

Elaine Gilbertson has the advantage of looking at the markets from the perspective of two different investment clubs. In addition to Oops, she participates in the Greater Yampa River Ladies Investment Club.

With a monthly investment of just $25, GYRLIC is a great way for beginners to dabble in the markets. But Gilbertson said it's important to understand that it's an educational club, and the people who get the most out of it are those who are willing to study and learn.

"The misconception is that you're going to make a bunch of money," Gilbertson said. "It's a way of getting together and learning from other people."

The membership of GYRLIC has dwindled from more than 20 members to only seven in recent years.

While the downward-trending market hasn't helped retain members, Gilbertson believes most of the people who have cashed out of the club found they didn't have the energy and time to devote to thoroughly researching stocks.

"It's about work. It's a great learning tool you can use throughout your life," she added.

One of the biggest lessons Gilbertson has learned about stocks through her participation in the two clubs is to separate her emotions from her stock picks.

"Don't fall in love with a stock," she cautioned. "You have to look strictly at the numbers."

Peterson said Oops is choosing stocks based on a five-year timeline. The club recently jumped into Exxon/Mobil.

"We set a target," Peterson said. "Any stock that doubles in five years is good to be in. Exxon has shown it can hold its value."

Poppen said he's begun to get back into the market on a personal level.

He prefers to evaluate stocks by measuring their yield (the dividend they pay) against their current price.

He knows that bonds, bank CDs and money market accounts are paying low rates right now. When he sees a stock like J.P. Morgan, which was clobbered in the latest stock plunge, but is paying 6 percent dividends, he's attracted.

"Why not park your money there?" he asked rhetorically. "If the stock price goes up, that's a bonus."

Peterson says he hasn't been scared away from the markets by the struggles of the past two years.

"I'm still confident in most of the big, well-established companies," he said. "There will always be CEOs who are dishonest or less than forthcoming. But I don't think every company out there is going to be (involved in) scandal. There are a lot of good companies out there."


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