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Investment Clubs(Put together with extracts taken from the web site of The National Association Of Investors)
What is an investment club? "It's a group of like-minded people, interested in investing in the stock market. They agree to a few basic investing goals and principles, and they each take on part of the job of research. The modest investment of each individual, the limited time each puts into research, and the devotion to four basic principles collectively add up to a formidable investing force." Starting and Running a Profitable Investment Club by Thomas E. O'Hara and Kenneth S. Janke, Sr.
Investment clubs, groups of 12 to 20 people who come together for fun, education, and profit, started about 1900. A Boston club operated more than 30 years. Many clubs are going strong after 10, 15 and 25 years. Some clubs have accumulated more than $1,000,000. Sixteen nations have Investment Club Associations educating people to invest every month in plant and equipment through buying stocks and thus participate in progress. Experienced investors find investment clubs a way to broaden their education, including analytical methods, and a source of information for their personal portfolios. Two more sources, Steps for Becoming a Successful Investor and Suggested Steps for Starting an Investment Club, are excellent ways to gain more information on investment clubs.
One person interested in the potentialities of an investment education is all it takes to start a club. A few words to several congenial friends -- an invitation to consider forming a club, and finally, a rounding out of skills that might be useful to an investment club, such as accounting, law, production, finance or a variety of other occupations and the club is started. Male or female, investors following NAIC's principles seem to do equally well. Age, too, seems to make little difference. Members range from the teens to the eighties. In NAIC's annual surveys, every combination of members is represented in the top earning groups. Many investment clubs are formed by experienced investors. These clubs report that the methods of study used by NAIC are making them better investors. An investment club is an ideal way for the new investor to learn and understand investing and a great way for the experienced investor, through his or her lifetime, to monthly sharpen investment skills, get new ideas from friends, keep up-to-date on economic trends and find new opportunities.
Complete instructions for organizing and operating your investment club and learning how to study stocks the investment club way are contained in NAIC's Official Guide, Starting and Running a Profitable Investment Club. Getting this guide, reading it, and following its suggestions will help you organize your club easily and properly and assist you greatly along the road to becoming a better investor. In many cities, an NAIC Regional Council is available where you can talk with experienced investment club members and receive personal help. The meetings of these groups are announced monthly in NAIC's magazine, Better Investing, along with a list of Regional Council contacts and phone numbers.
An investment club is an accumulating and building program, it is not a get-rich-quick scheme. Note on the chart below the liquidating value was less than the money the members deposited in the Club for the first two years. Costs are higher for a new Club and these are the learning years before the members have had the benefit of experience to test their judgment. Note that during the war years of 1944-45, the young men did not put any new money into their Club because many of them were in the service. Observe also that withdrawals were made at various times for such purposes as down payments on homes, education expenses for their children and even to start three small businesses. Many of the older members have accumulated $100,000 or more toward their retirement years. Take special note of the first 20 years of this Investments Club's results. They are typical of what you may expect of your own Club. This Club differs from other Clubs only in its longevity. The Club's annual rate of return is average in comparison with most NAIC Investment Clubs.
Suggested Steps For Starting An Investment Club Selection of members, important considerations and 13 steps to a successful first meeting. Use these simple guidelines: When you have decided you want to organize an Investment Club, your first job is to decide how the members of your Club are to be chosen. There are several ways you may get a group together. This list, Steps for Becoming a Successful Investor and What is an Investment Club?, are excellent sources for giving your friends information on what an Investment Club is all about.
It isn't necessary to enlist all the members yourself. Just talk to two or three friends. If they are interested, ask each of them to find others who are interested. Set a time two or three weeks into the future and invite them all to your house to discuss the idea of forming a Club. There are other ways of selecting members for your Club. If you belong to an organization such as a neighborhood social club, a church group, a service club, a veterans organization, or a bridge club, you may have a ready-made group of friends who'll be interested. You may find a number of your neighbors will be interested in joining a Club with you. Many Clubs are formed by people who work together. If you plan on drawing a group from the place where you work, it is often well to select just half of your members in this way, and then ask each individual to bring in a friend or family member from outside the organization. This adds a greater variety of experience to your membership.
There are three things to keep in mind in the selection of members for the Club. Most importantly, the members should enjoy one another's company. You are embarking on a long-term program which may last the rest of your life. A little variety in the occupations or interests of the members may be helpful in the Club. The members should agree on the kind of investment philosophy they wish to follow in order to prevent a fundamental disagreement at a later date. Very few Clubs have been successful in using a short-term, speculative approach to investing; those which have amassed large sums over the years have had a long-term investment outlook. All prospective Investment Club members should be prepared to investigate and analyze securities and make periodic reports. The Club offers a pleasant social opportunity, but anyone who regards the activity as simply "a night out" presents a problem for the Club and may hinder its progress. The individual who recognizes that he/she is making a commitment that hopefully will involve them in a lifetime program of investing and financial study is likely to be the best member.
Before your first meeting, make sure you and two or three others have read NAIC's Official Guide, Starting and Running a Profitable Investment Club, thoroughly. Be prepared to answer all the questions which may be asked or know where the answers may be found. Make it clear to all that the first meeting is for discussion and that attendance is not a commitment to join. This meeting is primarily for the purpose of explaining the philosophy, operation and goals of the proposed Club. If sufficient people are interested, you can then proceed with the following steps:
Read the Introduction of the Official Guide to the group. Have a second person read or discuss Chapter 1 covering "A Proven Investment Policy."
At the end of this discussion, ask for a show of hands of those that feel they would like to continue with the organization of an Investment Club. If a number indicate they want to form a Club, suggest that you proceed to discuss details of the operation of the Club, and set a date within the next month when all who want to join the Club will be invited to return. First investment deposits can be collected at that time. 3. Adopt Agreement Discuss the adoption of the Club's Operation Agreement. Most Clubs form as a partnership. You will find a discussion of the points to be considered in deciding upon the partnership or corporate form in the NAIC Official Guide. To save time you may suggest that the Club adopt the Partnership Agreement shown in the Guide in Chapter 17 with the provision that if anyone wants to propose changes, they will be considered after the first six months of the Club's operation.
4. Operating Details Discuss the adoption of the Club Operating Procedures as outlined in the NAIC Official Guide (Chapter 17). To save time, as in 3 above, suggest the group adopt the provisions as shown in the Guide with the idea that changes will be considered later.
Elect members to the leadership positions called for in the Club's Operating Procedures.
6. Individual Responsibility Discuss the responsibility of each individual member to the Club. During the first year, as the members are learning to use the stock study techniques described in NAIC's Official Guide, they may find it necessary to devote three or four hours a month to the Club. After these techniques are learned, members should seldom have to spend more than an hour a month in preparing for the Club meeting. It is important, however, that they be willing to do their homework. The success of each monthly meeting depends upon the presentation of information by members, and every prospective member should indicate their willingness to gather the information they may be requested to bring from time to time.
A time and place should be selected by the Club for monthly meetings. Hold the meeting on the same night each month. Making it easier for members to plan should boost attendance and dedication to your Club.
Discuss and have a motion passed setting the amount of the monthly contribution. Most Clubs start with members depositing $20 or $25 monthly. While it is not necessary, it has been found to be a good practice for everyone to make the same deposit in the Club for about the first year. After that some members may wish to vary their deposits and some members may wish to withdraw a part of their funds. The record-keeping procedure for deposits and withdrawals is outlined in the NAIC Official Guide. This procedure is highly recommended since it permits the receipt of varying deposits, the acceptance of new members without the need for making other than the current month's deposit, and the partial withdrawal of funds by members of longer standing, yet maintains at all times perfect equity of the members' interests in relation to their present and past deposits.
Discuss selection of the Club's investment broker. Some members of the Club may already be acquainted with a broker and may recommend him or her to the Club. When you call a broker's office, ask if they have a person who specializes in handling Investment Clubs. Before you open your account with your broker, the Club's officers should read the section in the NAIC Official Guide, dealing with the details of the Club's broker account (Chapter 18). It is important, also, that the Club's broker have an investment philosophy in agreement with that adopted by the Club and have an understanding of your program. Your Club may decide to choose either a full-service broker, or many Clubs select a discount broker to save on commission charges.
Be creative, and choose a Club name that fits your group!
Club Membership in NAIC may be the most important single step your Club can take. The material provided by NAIC has been found valuable by thousands of Investment Clubs for many years. Brokers who have had a great deal of experience with Investment Clubs point out that their best Clubs over the years have been ones which make full use of NAIC's services. For more information on NAIC membership, benefits and prices, see the information on Investment Club Membership. Your Club treasurer should be instructed to obtain NAIC's Investment Club Accounting Kit and follow its procedures exactly from the very first meeting in order that the Club records will be complete and accurate. If your club has access to a computer, club accounting software programs are available for Windows and Macintosh. 12. Review NAIC's Official Guide Appoint one person to conduct a review of the NAIC Official Guide a chapter at a time at each meeting for the next several months. It is suggested that the chapters on Investment Philosophy and Security Analysis be discussed first, but all of the sections should be covered. There is a vast amount of information in the Guide, and the more your members know about it, the more likely you are to have a well-organized and profitable Investment Club. NAIC has an "Investment Club Monthly Study Program" to help you organize the teaching of its stock study tools to your members. This program is free to NAIC members. When you enroll, it will automatically be mailed to your Club's NAIC contact person.
Ask the Club President to appoint a member to prepare a report of a corporation on the NAIC Stock Check List. At the same time appoint a member to prepare a report on the same corporation on the NAIC Stock Selection Guide. This will be for teaching purposes so that all of your members can have the experience of filling in this form. If there is an NAIC Regional Council in your area, your members will be able to attend its meetings and get instructions from an experienced Club member in the use of the Stock Selection Guide. The NAIC Official Guide has suggestions for explaining this material to your members. Now that you know the 13 steps for starting an Investment Club -- consider starting a Club today! For more help, ideas and information, check out the NAIC Web site at "http://www.better-investing.org/". Of course you could do it a little bit simpler, with less fanfare, and with fewer people if you so chose, but this article give you the idea of a full fledged club. Pare down whatever it is that you have to, to to make the idea fit your needs. The main thing is to get started investing now, if you haven't done so up to this point.
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