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The glue that holds any club together is its partnership agreement, bylaws, and operating procedures. It’s not unheard of for newly formed clubs to spend the first six months hammering out the details of these documents. The bylaws outline the purpose of the club, its organization, and its policies. The operating procedures spell out how members will handle the club’s affairs: how often meetings are held; how decisions are put to a vote; how members share in profits and losses; how and when the club allows for partial or full withdrawal of funds; and how the club handles money.
What several new clubs fail to keep in mind is that the bylaws and operating procedures are not a one-shot deal. Members should update these documents regularly. Some clubs revise their bylaws annually because each year situations change and issues arise that must be dealt with from a policy standpoint.
The Washington Metropolitan Investment Club (WMIC) amended its bylaws to make it more amenable to the desires of the membership. “We have changed the way we deal with members who have fallen behind on their payments due to financial difficulties,” says the club’s president, Ray N. Grant. “We clarified some of the roles of the various officers and committees, as well as the [way our meetings will be conducted].” The group also changed its advisory committee into an advisory board. The three-person board is responsible for auditing the club’s records and reviewing procedures, and also advises the club’s president about membership issues.
It was Kenneth L. Wright who first recruited members of his Army Reserve unit to found WMIC in 1992. The club was organized as a general partnership in Woodbridge, Virginia. Members agreed to contribute at least $50 at each monthly meeting. However, no member was allowed to own more than 20% of the total value of the partnership.
The pooled funds were invested in common stocks and mutual funds. Partners were required to present their ideas for investments using the Stock Selection Guide and the Value Line Investment Survey, publications printed by the National Association of Investors Inc. (NAIC), and financial information obtained from the Internet or the public library.
Today, WMIC has 35 members and the value of its portfolio has grown from $5,000 in 1996 to more than $337,000 in 2000. As of the second quarter of 2001, it was $260,000. The club’s average annual rate of return was between 40% and 45% before the market crash, says treasurer Bernard Peyton. As of June 30, the average rate of return is 25%. The club has holdings in 28 companies, including AOL Time Warner (NYSE: AOL), Tellabs (Nasdaq: TLAB), AT&T (NYSE: T), Microsoft (Nasdaq: MSFT), Home Depot (NYSE: HD), and PepsiCo (NYSE: PEP).
In light of the economic slowdown, WMIC is focused on purchasing more stocks through dividend reinvestment plans (DRIPs). According to the NAIC, most clubs use DRIPs to bypass brokers’ commission fees. About 60% percent of WMIC’s holdings were acquired through DRIPs, says Peyton.
Of significant benefit to the club is its