The individual investor, begrudgingly accepting the harsh realities of volatility and economic sluggishness, is back in the stock market. Not since 1987, the year of the crash, has the so-called "little guy" been so involved. Low returns on competing fixed-rate investments are a big reason why.
Recent twists and turns of the market have understandably prompted a thirst for knowledge. It's dramatized by an upswing in the membership of non-profit organizations whose goal is to help people invest. Membership in the National Association of Investors Corp., a group of investment clubs, is up 15 percent over last year. It now boasts 7,442 clubs and 140,000 members. In the past two months, volume of inquiries has doubled.
There's a rise in membership at the American Association of Individual Investors. Besides a 15,000 gain to 120,000 members, there's record attendance at its investment seminars conducted around the country.
With today's market subject to unexpected big hits, the question is whether the current scenario is comparable to the fall of 1987.
"The current situation is different in that people are moving into a rather flat market, not a booming one, and it's occurring in an economy that's likely near its low point," said John Markese, research director for the Chicago-based AAII.
There nonetheless will be rocky times on the way to improved performance, warned Thomas O'Hara, chairman of the Michigan-based NAIC. Don't get carried away by the latest trends.
"Technology and biotechnology stocks have been fine performers this year, but I wouldn't put money into any companies unless they have a track record of actually making money," said O'Hara.
The NAIC takes a conservative long-term approach, its goal to double investment money in five years by selecting individual stocks. The average club's investment pot is up 14.9 percent in 1991, on target with that goal. Six of 10 clubs have beaten the return of the Standard & Poor's 500 this year. The biggest long-term holdings of NAIC members include Wal-Mart Stores, first recommended 15 years ago for 50 cents a share; McDonald's Corp., still admired by club members even though its growth has slowed; and American Family in insurance and broadcasting.
"Anyone entering the market should be a long-term investor, dividing his portfolio three ways among international stock funds, individual large-company stocks and growth stocks which haven't been volatile in price in the past year," advised Markese.
Bullish on the market's long-term potential, he'd advise young people to put 90 percent of their investment portfolio into equities. Even senior citizens shouldn't let the percentage dip below 60 percent, he believes.
"We recommend putting 25 percent of a portfolio in stocks of smaller companies with sales under $400 million, 25 percent in giant companies with $10 billion or more in sales, with the remaining 50 percent in those stocks in between," said O'Hara.
Individual membership in the NAIC is $32 a year. Club membership is $30, plus $10 per member. Membership includes a monthly magazine and a low-cost investment plan, in which 80 corporations permit members to buy one share and add to it without commission charge. A fidelity bond, in case a member steals club money, is $30 for the club. Write 1515 E. Eleven Mile Road, Royal Oak, Mich., 48067.