(MONEY Magazine) – When Dick Reimann, the 61-year-old president of the Klondike Investment Club of Buffalo, Wyo., got the call in September, he was changing the oil on a customer's car.

Club member Robb Bischoff was on the line. "Are you sitting down?" he asked. Reimann worried that he was calling to say the market had crashed and taken their money along with it. But Bischoff had a very different message: "Value Line says we're the No. 1 stock club in America," he said. "We had the winning portfolio."

"Wow," drawled Reimann, thinking. "This is wild." He and Bischoff talked about sharing the news with the other 16 members. Then Wyoming's foremost stock picker got back to the business at hand: finishing off his customer's $23 lube job.

That's the way it is in Buffalo (pop. 3,600). The guy who can give you five good reasons to buy Intel also pumps your gas. Or sells you liquor, or teaches your kids. The town's nine-year-old Klondike Club boasts a stock portfolio that has grown at a compounded rate of 19.3% a year--beating the S&P 500 index's 15.7% annualized return, a feat matched by only 31.4% of America's diversified equity mutual funds over the same period. Its members, ages 30 to 70, include a doctor, a prosecuting attorney, a bookkeeper, two teachers, a retired school superintendent, a veterinarian, an entrepreneur, a cattle rancher, an insurance agent and two service station operators (Dick Reimann's son Steve is a club member too). "Some people can't believe that some dumb gas jockeys could beat the guys on Wall Street at their own game," says the younger Reimann. "But we take our stock picking seriously."

To understand why a group of ordinary citizens in a tiny western town could become world-class market mavens, you have to understand the sort of community Buffalo is. Named for Buffalo, N.Y. by a pair of settlers newly arrived from the East, Buffalo was Butch and Sundance country, home to ranchers, rustlers and renegades. It has big skies, frigid winters, and a hardscrabble economy that breeds both self-reliance and a we're-all- in-this-together kind of fellowship. "Your hands get tired waving at everybody in town when you're driving," says Klondike president Reimann, whose grandfather was a justice of the peace in Buffalo during the late-19th-century Johnson County cattle war between ranchers and homesteaders. "That friendliness and respect is reflected in everybody's attitude when it comes to investing our money."

And it was their steady, methodical approach to managing their money, as much as their returns, that helped them nab the title of America's No. 1 investing club. This year, 580 clubs vied for the title by submitting their results to the National Association of Investors Corporation, a nonprofit education group that represents clubs and individual market enthusiasts. The NAIC chose 38 regional finalists, then turned over their names to Value Line, the Wall Street research firm. Analysts at Value Line examined the portfolios and named the Klondike Club No. 1, based on its overall results--and how it achieved them. "We reviewed the clubs' performances and eliminated the ones that had been in business for less than three years and relied on big appreciation in just a few stocks," says Stephen Sanborn, director of research for Value Line. "We looked for consistent long-term returns with a diversified group of holdings."

In winning the title, the Klondike crew upstaged that well-known group of amateur market beaters, the Beardstown Ladies. The Ladies snared top honors in a slightly different version of the NAIC contest from 1987 to 1990. But since 1993 they have declined to disclose their investing results, and thus could not participate in this year's invest-off (see the box opposite).

The Buffalo guys and gals have built their success on an impressive array of winning stocks. The biggest long-term gainer in their portfolio is $1.5 billion (estimated 1996 sales) Harley-Davidson. The motorcycle manufacturer has roared to a 563% gain in the 5 1/2 years the club has owned it. Abbott Laboratories, the $10 billion drug giant, has earned 441% for the club over the past nine years. And $4 billion computer network supplier Cisco Systems is up 397% in 2 1/2 years. Says Sanborn, "The best-performing clubs--like Klondike--favored blue-chip growth stocks and held them for a number of years."

The club takes a no-nonsense approach to finding those winners. A typical monthly meeting revolves around a member's presentation on a stock he or she has investigated. The Klondikers cull ideas from newspapers, personal-finance magazines, TV programs like PBS' Nightly Business Report and specialized investment publications. They are constantly on the lookout for companies that have earnings growth rates of 15% or more and that still manage to exceed Wall Street's profit expectations. And they prefer household-name companies that dominate their markets with superior products and proven management--firms like $32 billion PepsiCo, $7.45 billion Gillette and America's quintessential growth company, $11 billion McDonald's. Along with Abbott, PepsiCo and Gillette are the three largest holdings in their 16-stock portfolio.

To analyze a prospect's financial strength, members use figures from the Value Line Investment Survey and NAIC/Standard & Poor's Compustat Datafiles. Following the "Stock Selection Guide," which is a worksheet included in an NAIC computer program called the Investor's Toolkit, they compute the past and projected growth of the firm's sales and earnings, its price/earnings ratio history and pretax profit margins, as well its downside risk and upside potential. "We look for stocks with a price/earnings ratio that's equal to or lower than the stock's average P/E for the past five years, low price volatility and, in many cases, a Value Line timeliness rating of 2 or better," says past president Lloyd Wise, 39, who teaches physical education at Clear Creek Middle School.

After the presentation, the members debate the merits of the potential investment, discussing things like the assumptions the company used in making its sales and earnings projections and the likelihood that management will fulfill its plans. Then they try to reach a consensus. "Because we know each other so well," says club veteran Susan Palmerlee, 54, a homemaker and community volunteer, "we trust what the presenter tells us." Adds rancher and former aerospace company manager Doug Osborn, 63: "If somebody has researched the stock and is really committed to it, chances are we'll vote to buy it when we have the cash."

The stocks that pass muster go onto a waiting list--members call it the "hope chest"--until the club accumulates enough money to buy 100 shares. The cash comes from members' contributions (each puts in a minimum of $50 a month) and stock sales.

The Klondike Club trades with Forest Dunning of Piper Jaffray, a full-service broker. But as far as the club is concerned, Dunning is there to execute trades, not provide advice. For two years, he's been touting the virtues of $10 billion Occidental Petroleum. So far, though, Klondike hasn't bought a single Oxy share. Reason: "The club just felt it didn't meet its needs," Reimann says diplomatically. "We like it better this way," adds Ruth Osborn. "We think we can do better on our own."

Once the club purchases a stock, the member who suggested it continues to monitor it, keeping an eye out for major management changes or other news that might affect the company's prospects.

Everyone in the club is expected to come up with investment ideas. And in many instances, club members' first-hand experiences on Main Street have buttressed their Wall Street-style number crunching. For example, Jim Stafford, who owns Buffalo's City Liquors, had dealt with a company he liked called Sysco Corp. (no relation to Cisco), a $13.4 billion wholesale food distributor. He studied the numbers and presented the stock to the group with his personal endorsement. After Klondike bought 100 shares, Sysco went up 24% in a year.

While the Buffalo club operates today like a smooth-running machine, it got off to a rocky start. Heir to a community investment group of the same name whose members had the good sense--and dumb luck--to liquidate their holdings just before the 1987 crash, the reborn Klondikers made their first investment in October 1987, laying out $3,895 to buy 100 shares of $105 billion retailer Wal-Mart. Then came the Crash, which sent Wal-Mart tumbling 27% to $28 a share, leading some members to doubt the wisdom of the whole undertaking. Fortunately, the club hung in there, and its Wal-Mart stock split twice before the club sold it for a 302% gain 8 1/2 years later. But several original members who lacked the patience required for such buy-and-hold investing dropped out during the late '80s and early '90s.

The club's second purchase was also a big winner: Abbott Laboratories, a well-managed drugmaker that produced a steady stream of new products and rising earnings. The club bought 100 shares for $4,445 on the last day of November 1987. The stock split in 1990 and 1992, giving them a total of 400 shares that today are worth $19,750. "The company became one of our untouchables," says the club's current treasurer, Wayne Wollmuth, 44, a speech pathologist with the Johnson County school district.

Of course, there have been losers along the way. The club's biggest blunder was $1.4 billion specialty retailer Michaels Stores. The company ran into distribution problems after the Klondikers bought $3,171 of the stock in February 1993. They sold it three years later, losing $1,796, or 57%.

LESSONS FROM THE KLONDIKE CLUB

Still, nine years of (frequent) ups and (occasional) downs have demonstrated that some just-plain-folks in a cowboy Shangri-la can beat the averages by following some simple rules. Here, according to the conservative gunslingers of Buffalo, are six of them.

--Invest regularly. Since the club requires members to ante up at least $50 a month (as noted above), the organization is able to put new money into the market several times a year. It doesn't necessarily have to sell anything to buy a stock it likes.

--Don't try to time the market. The club keeps all its money in stocks, all the time. It does not increase or reduce its stockholdings based on the outlook for the market or the economy. By staying fully invested, the Klondike Club never has to worry about missing a big rally.

--Rely on research--not good "stories." Sure, members' own knowledge has led to some spectacular winners. But before adding any stock to the portfolio, the club does extensive research on the company's fundamental financial condition and growth prospects. The Klondikers learned the hard way not to chase stocks merely because of an appealing story: Three years ago the club heard the beguiling tale that a big Mexican retailer called Cifra was going to be "the Mexican Wal-Mart." Finding it hard to get reliable data on the foreign firm, the club decided to forgo the usual stock report and buy the stock anyway. But Wal-Mart it surely wasn't. In 1994 the Mexican economy tanked, and so did Cifra's share price. Recalls Reimann, "We learned two lessons from that loser: Don't buy a company without a member's report, and never buy a stock you can't track."

--Buy solid stocks and hang on to them. "Once we make a commitment we stay the course," says treasurer Wollmuth. "We stick with our picks even when the market isn't doing well." Merck, the $19.5 billion pharmaceutical giant, is a perfect example. The club bought Merck in June of 1992 at $51 a share, confident that its monumental R&D effort and reputation for reliable delivery of new drugs to market made it an industry leader. But within 14 months, Merck got knocked down 46%, in the panic set off by President Clinton's proposed health-care overhaul. For all the market turmoil, however, nothing had really happened to make Merck a less attractive company. "Fortunately, we hung in there," says Wollmuth. "Our $51 shares are now worth $71."

--Review your portfolio regularly. "Buy and hold" doesn't mean "Buy and never sell." But the hardest thing in growth-stock investing is knowing when to cash out. The Klondike Club has faced the dilemma often. Take Wal-Mart, for example. The giant retailer had been good to them over the years (unlike its supposed Mexican counterpart, Cifra); by September 1995, the club had an eight-year gain of 285% on its shares. But soon thereafter, the price started slipping. After much soul searching about Wal-Mart's flagging earnings, the club unloaded it in March. Says Dick Reimann: "We decided we had a better use for our money."

--Balance the risk within your portfolio. The Klondikers have tried to invest in a variety of industry groups; that way, a slump in a particular sector, such as health care, wouldn't ravage the entire portfolio. They own stocks from 13 different industries, including drugs, computer peripherals, semiconductors and telecommunications services. Recently, they have also made an effort to add smaller companies to the portfolio to reduce their reliance on giant corporations like $116 billion Ford and $21.7 billion Johnson & Johnson. Their recent investment in less gargantuan companies such as $635 million American Power Conversion and $760 million Century Telephone Enterprises have added to their spectacular gains, though not as much as some members would have liked.

Now, as word of their prowess spreads, Buffalo's champion investors are experiencing the same frissons of fame once felt by the celebrated Ladies from Illinois. Klondike Club officers are getting invitations from other investment clubs to lecture on their stock selection methods. And Dick Reimann had a corporate bigwig from New York ask for Klondike's stock picks when he pulled in to get his tank filled at the club president's gas station. There are no plans yet to write a book, but if it comes to that, the members can steal a page from the Beardstown literati and tout their recipe for Buffalo burgers along with their winning portfolio.