Believe it or not we get into this discussion very frequently. We have
given serious consideration to the following:
1) Sector funds that would get us exposure in an area we are not familiar
with (biotech/natural resources)
2) Exchange traded funds to garner the above, but without the time lag
involved with filling out a mutual fund application.
3) A more diversified portfolio is especially valuable for younger clubs
that have limited funds.
It is insane for any club to own less than fifteen or so stocks as you are
exposed to firm specific risk. Statistics indicate that at least 29
positions are needed to eliminate systematic risk.

Our club has never taken a position in either mutual funds or EFTs. We
solved our diversification issue by saving cash until we could take an
initial position in 11 equities. Since then we have increased our portfolio
to our current level of 22 positions. I keep raising the issue of keeping a
percentage (50% is my goal) in SPY. Our members strongly feel that we are
about 'stock picking' and that funds or EFTs simply dilute our ability to
'beat the market'. We have been very 'lucky' in that our three largest
positions have also been our most successful investments, but we are
obviously taking excessive risk in these positions.

I would guess that most clubs go along with the research and stock picking
philosophy even if it does not lead to market beating performance. In fact
most clubs will not beat the S&P over an extended period of time, but I am
not sure if the performance is the main goal. But getting into funds does
not make this problem go away - especially if you get into avtively managed
funds.




-----Original Message-----
From: Sally Lake [mailto:lake_sara@bivio.com]
Sent: Wednesday, January 29, 2003 5:42 AM
To: club_cafe@bivio.com
Subject: club_cafe: mutual funds


A member of my stock club is suggesting the club switch to
studying and investing in mutual funds, instead of
individual stocks. Please discuss the pros and cons of this
idea.