EVER SINCE the members of Cents and Sensibility started their investment club 2 1/2 years ago, they've lived by two simple tenets: invest in good companies and believe in the stock market because it beats all other investments over time.
The members have clung tightly to their philosophy, even when the stock market was jolted by the Clinton sex scandal and by financial calamities in Asia and Russia. Not even the revelation that the Beardstown Ladies -- the world's best known investment club -- had vastly inflated their returns, shook the members of the investment club in Columbia.
"We weathered September with not even a blip," said Martha Waugh, a retired administrator at the Food and Drug Administration, and a club member. "We really have faith that we pick good companies."
As for the Beardstown Ladies, who admitted in March that their )) stellar returns were inflated: "That was unfortunate," Waugh said. "I can't remember shedding any tears."
But not all investment clubs have been as unwavering. Although membership is at an all-time high, with more than 37,000 clubs, 5,093 clubs have closed in the first eight months of the year, up 30 percent from the same time a year earlier, said Thomas E. O'Hara, chairman of the National Association of Investors Corp., which helps organize clubs.
In addition, the numbers of new clubs formed was 6,796, down 8 percent from a year earlier.
"There is no question [the volatile market] has had an affect," said O'Hara, who is worried about the trend.
He said it will take a more stable market to calm amateur investors, and he believes it is about to happen.
"My guess is we may have a period of two or three years here, where the market grows at a much more moderate rate," O'Hara said. "I think that would be a great period for people to get interested" in forming clubs.
But O'Hara believes that there are other factors that have hurt his business, namely: the Beardstown Ladies' scandal, and the fact that many new clubs can't agree on how money should be invested.
The Beardstown Ladies became overnight investment stars when they reported a sizzling 24 percent average return over 10 years, beating the Standard & Poor's 500 stock index.
"They were in the papers everywhere, and on TV," O'Hara said. "It was fantastic publicity for us." They even wrote a widely read book, "The Beardstown Ladies Common-Sense Investment Guide," and followed it up with several other books.
But in March, the group of grandmotherly investors from Illinois admitted that the returns were accidentally inflated by as much as 14 percent. The admission put a damper on new clubs being formed, O'Hara said.
"We were disappointed," he said.
The other reason for the decline is that many new clubs can't agree on an investment philosophy, like Cents and Sensibility has managed to do.
"Over a year to a year-and-a-half, they find that they've got the club about equally divided between those who want to trade and those who want to do long-term investing," O'Hara said. "They can't do two things."
Cents and Sensibility hasn't run into the problem because its members have agreed to invest using the "buy-and-hold" strategy, and they try not to react rashly to the market's swings, and religiously put in their $25 apiece each month.
The group of 15 women -- most of them played bridge together for the past 12 years -- have 10 stocks in the portfolio worth about $10,000.
They've invested in companies that include, Alza Corp., Outback Steakhouse Inc., AutoZone Inc., and Northwest Airlines Corp.
"We are looking for stability, growth, good management and good prospects for the future," Waugh said. "We pick good BTC companies in industries that are going to be around for awhile."
Their strategy is paying off. Since the group was formed, it has returned a respectable 19 percent.
Waugh says she's pleased with the performance, and she doesn't expect Cents and Sensibility to follow the trend of many other investment clubs.
"We really have had so much fun with it," Waugh said. "Our faith is in the historical statistics that the stock market is going to go up."
Pub Date: 12/13/98