The Circle of Wealth Investment Club celebrated its second anniversary this past September, and the risk takers, most of whom are New York City postal employees, have had to manage their investment portfolio in an environment that included a recession and the Sept. 11 terrorist attacks. In fact, after Sept. 11, the club’s portfolio declined 10% by the end of September 2001, and then tanked another 20% as of Sept. 30, 2002, when total holdings were valued at $31,000.
“We have tried to find ways to diversify our portfolio. We’ve concentrated mostly on small-cap and mid-cap stocks,” says the club’s founder and president, Jacob Andrews, 55, who has worked for the U.S. Postal Service for 33 years. Presently, the club owns Lucent Technologies (NYSE: LU) and Wendy’s International
(NYSE: WEN). The group has also recently invested in Royal Gold (Nasdaq: RGLD), a company that engages in the acquisition and management of precious metals; WorldCom Group (WCOEQ), which trades over the counter; and telecommunications giant Corning Inc. (NYSE: GLW).The group’s holdings in real estate and gold have done reasonably well in the down market. Over the past year, the Royal Gold fund was up 188.20%. The club did, however, take a big loss by gambling on Lucent; it owns 1,000 shares of the stock, which is currently trading under $1.
But perhaps they took their biggest chance investing $15,000 (at $1 a share) in a pre-initial-public-offering (IPO), Wall Street Radio.Net, a Boulder, Colorado, firm that serves as a financial information and services portal. By getting in on
the ground floor, the group hopes to capitalize on the investment once the company goes public in spring 2003. “We are anticipating that it will trade on the market at around $2.50 or $3.50. At which point, we will sell our shares,” says Andrews.If all goes well, Circle of Wealth will more than double its money, but it also risks losing the entire investment — practically half of the group’s portfolio. Ken Janke, chairman of the National Association of Investors Corp., explains: “You are taking a great risk investing in an IPO or pre-IPO of a new company [because] you have little or no financial track record of what management has done. I would be hesitant putting money into an IPO unless it had at least five years
of financial history of revenues or profits.” Janke says the days of high-flying IPOs that immediately double and triple in price are over. “In the past year, IPOs have not performed well because of the state of the stock market,” he says.Defending their move, Andrews says all of the members, who range in age from mid-30s to mid-50s, have been longtime investors outside of the club. Since members have personal retirement accounts, they can be more aggressive with the club’s funds. Also, Circle of Wealth’s treasurer, Shaun Kelly, explains that the group purchased the IPO shares before 9-11 when the economy was better. Kelly found out about the pre-IPO from Mark Mandell’s Winning on Wall Street newsletter. “Initially, we were like most clubs; our investment philosophy was to buy
and hold. Now, we are trying to get in early on companies that are on the rise,” he says, but concedes, “Had I been offered the same opportunity to invest in the pre-IPO after 9-11, I would have been more hesitant.”The group, which started with each member contributing an initial investment of $600 and paying monthly dues of $100, is now focusing on building up cash reserves to buy new investments. It is also looking beyond the stock market, considering the purchase of a Coverall North America franchise, a commercial cleaning service that has been ranked by BLACK ENTERPRISE as one of the top franchises for African Americans. Says Andrews: “There is too much investment opportunity outside of the market not to take advantage of it.”
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Circle of Wealth’s Top Five Holdings |
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| Company | Exchange/ Symbol |
Portfolio Weighting |
| Wall Street Radio.Net | N/A | 56% |
| Royal Gold | Nasdaq: RGLD | 12 |
| Wendy’s International | NYSE: WEN | 10 |
| Lucent Technologies | NYSE: LU | 6 |
| Corning | NYSE: GLW | 5 |
| *AS OF DEC. 3, 2002 | ||